The Climate Emergency and the Oil and Gas Sector

1. Climate Change

The climate emergency and the oil and gas sector

The Central Finance Board of the Methodist Church has sold holdings in its funds in all oil and gas companies on climate emergency grounds. We have also excluded a further 11 companies from any future investment.

The divestments and exclusions are the result of new CFB analysis of fifteen fossil fuel companies and the advice we have received from the Joint Advisory Committee on the Ethics of Investment (JACEI).

JACEI was established almost 30 years ago to advise the CFB on ethical aspects of investments and proposed investments. It reports annually to the Methodist Conference.

The work was prompted by a memorial and reply received by the Methodist Conference in 2017. JACEI was asked to look at the extent to which the business investment plans of oil and gas companies were aligned with the Paris Agreement to keep temperature rises below 2°C and to review the divestment criteria. The JACEI report on this work to Methodist Conference 2020 and 2021 (as well as its annual report) is available on the CFB website.

The CFB has factored global warming into its investment approach for over a decade, because we are deeply concerned about the risks to the planet. We have long excluded a range of oil and gas and mining companies from our portfolios because they extract coal or tar sands, or are focused on finding new supplies of oil and gas. We also run an extensive engagement programme to encourage companies to do more to respond to the climate emergency, including co-filing shareholder resolutions.

A report from JACEI on the methodology for responding to the Conference memorial and reply was received by Conference in 2018. JACEI advised that companies should be assessed under five categories: asset mix, capital expenditure, strategy and governance, contributions to a positive transition, and track records and targets related to reducing carbon emissions.

The CFB assessed companies against up to 25 different metrics and gave them a ‘traffic light’ rating. When JACEI reviewed the assessment, it recommended that companies rated red or amber should be excluded from investment on ethical grounds.

Most recently, the CFB have sold its remaining company holdings in the oil and gas sector, including Royal Dutch Shell. This follows advice received from JACEI in April 2021, that no companies in the sector are currently aligned with the climate change targets set out by the 2015 Paris Accord.

Revd Dr Stephen Wigley, Chair of JACEI, commented:

“The Committee has determined that the slow pace of corporate change means that the oil and gas sector is failing to meet the targets set by the Paris Accord. Shell, along with its peers, is currently failing to play a substantial enough role in addressing the climate emergency.”

David Palmer, Chief Executive, commented:

“The CFB and Epworth have long been committed to engaging with companies around issues that negatively impact the poor and God’s creation. The pace of change across the oil and gas sector has been inadequate and we welcome the recommendation of JACEI to disinvest.”

Socially Responsible Investment Review September 2024

Stewardship Code

During the quarter we received confirmation that our FRC Stewardship Code submission was approved, and we remain signatories for another year. The theme this year was ’50 years of better’, recognising the significance of the heritage that the CFB and Epworth have in ethical investing. Our latest report can be found here

Nestlé

Following on from our voting pre-declaration on Nestle regarding healthy foods, we had an opportunity to meet with the company and ask questions of the approach. The resolution was defeated overall, despite ours and other investors’ support for it. From the meeting, we were pleased that Nestle has committed to a target that is meaningful and are committed to growing the nutritious side of the portfolio.

During the Nestle meeting, we also had the opportunity to discuss the implementation of the EU deforestation law which comes into effect from Q4 2024. The European Commission describes it as: ‘Under the Regulation, any operator or trader who places these commodities on the EU market, or exports from it, must be able to prove that the products do not originate from recently deforested land or have contributed to forest degradation.’ We can see the case where there may be unintended consequences to this regulation with the EU having ‘deforestation free’ commodities, and outside the EU products still having deforestation within the supply chain. Nestle noted its own zero-deforestation commitment for many commodities by 2022, and for cocoa and coffee by 2025, and its approach to supporting affected farmers.

Share Action – Ethnicity Pay Gap

In August, we were able to meet with Cranswick as part of a ShareAction initiative to discuss ethnicity pay gap reporting. This is the first time that Epworth has been involved in the call, although the coalition had met with the company before. The coalition had decided to focus on engaging food producers as the sector often has lower paid workers from season schemes. It was useful to understand some of the complications of gathering ethnicity data from the company, recognising that not everyone has access to the same technologies that make reporting easier. It was also good to challenge the company on its ethnicity within its senior management team and learn about future plans.

Socially Responsible Investment Review June 2024

Nature Action 100

Epworth is a signatory of Nature Action 100; a global investor- led engagement initiative focused on supporting greater corporate ambition and action to reverse nature and biodiversity loss. Epworth, along with other institutional investors, is engaging directly with Johnson and Johnson, Anglo American, and The Home Depot.

Nature Action has six investor expectations of companies:

Ambition: Publicly commit to minimize contributions to key drivers of nature loss and to conserve and restore ecosystems at the operational level and throughout the value chain by 2030.
Assessment: Assess and publicly disclose nature-related dependencies, impacts, risks, and opportunities at the operational level and throughout the value chain.
Targets: Set time-bound, context-specific, science-based targets informed by risk assessments on nature-related dependencies, impacts, risks, and opportunities. Disclose annual progress against targets.
Implementation: Develop a company-wide plan on how to achieve targets. The design and implementation of the plan should prioritise rights-based approaches and be developed in collaboration with Indigenous Peoples and local communities when they are affected. Disclose annual progress against the plan.
Governance: Establish Board oversight and disclose management’s role in assessing and managing nature-related dependencies, impacts, risks, and opportunities.
Engagement: Engage with external parties including actors throughout the value chain, trade associations, policy makers, and other stakeholders to create an enabling environment for implementing the plan and achieving targets.

Utilising these investor expectations, the engagement group, including Epworth, began discussions with Johnson & Johnson. We started the conversation around assessment and supplier standards that the company implements, and noted where these dovetail with the biodiversity expectations of investors. Johnson & Johnson were keen to stress their long history of biodiversity efforts, particularly around water management and we look forward to continuing our engagement with the company.

Climate Action 100

During the quarter, Epworth undertook an assessment of our engagement with Climate Action 100+. Epworth has engaged with multinational mining company Anglo American since the initiative started back in 2017. Our original goals for the engagement were to:

Have the company decarbonise its asset mix in response to the climate crisis.
Better understand the company’s approach to phasing out thermal coal and encourage the company to make a responsible exit from the sector.
Push the company to set ambitious, long-term targets to cut scope 1, 2 & 3 emissions in line with the temperature goals of the Paris Agreement.

We believe the company has made excellent strides in the last 7 years across these objectives, although we recognise there is always more to do when it comes to climate. However, we have taken the decision to step down as co-leads for Anglo American.