Conflict Policy Statement

1. Climate Change

CFB Conflict Policy

 

The expansion of capital investment into new markets in recent decades poses many challenges. There is widespread acknowledgement that in many instances state legislation and institutional capacity for protecting human rights in these markets have been insufficient. How the international and business community addresses these governance gaps is therefore a key issue.

Gross human rights abuses are not limited to conflict zones. However, in the context of conflict, civil and political rights are particularly threatened. Belligerent parties to conflict (whether state parties or militias) frequently develop business interests or seek to control private enterprise in order to fund their political or military campaigns. Modern conflict all too frequently engulfs local communities through conscription, as hostages, direct targets, or as a result of the activities of criminal militias. When violence comes to an end, the parties to conflict may well retain significant influence in their communities. Companies need to be aware of conflict dynamics even after peace has been declared. It must be noted the term conflict in this policy is inclusive of scenarios such as open armed combat, military occupation, privatised conflicts with links to criminal enterprises and oppressive regimes.

What the CFB Expects

The CFB expects companies, particularly those whose commercial activities can overlap with conflict zones directly or otherwise, will act in accordance with our following expectations regarding:

 

International Law

  • The company subscribes to recognised international human rights instruments and is cognisant of the UN Guiding Principles regime of Protect, Respect and Remedy, and can demonstrate how these are reflected in its policies and practice.

 

Internal Policies

  • Specific attention is paid to conflict sensitive areas or oppressive regimes where there are a consistent record of egregious human rights abuse. Special measures are considered in such circumstances. These would include ensuring conformity with any home state government’s advice for commercial activity in the specific conflict area; an independently facilitated human rights impact assessment or conflict impact assessment is commissioned and undertaken at an early stage of project development;
  • There exists a willingness to learn from past experience and to share that learning with shareholders. The learning should inform corporate policy and practice such that companies should be able to enter into dialogue around future contracts, business relationships or practices that they would consider ethical or unethical in a specific context and in the light of past experience;
  • Joint Venture partners or subsidiaries would be expected to conform to a comparable standard of human rights policy and practice. Business relationships should be reviewed when this is not the case;
  • The human rights policies of a company detail the expectations of partners within the supply chain or other strategic business partners (including state owned enterprises);
  • Policies are in place for providing access to remedies. Prompt action is taken to hear and consider complaints of human rights abuses, involving external mediation where desirable.

 

Operations in conflict zones or areas suffering oppressive regimes

  • In particularly challenging human rights environments, if it is deemed to be too difficult to avoid complicity in human rights abuses the company shows willingness to suspend its operations. Exceptionally, an alternative course might be justified if a company can demonstrate that through its presence it is influential in bringing about change, or is material to supporting a local community;
  • In the context of conflict, if it is assessed that the business is having an overall adverse impact on conflict, and that this cannot be remedied, the company should be willing to suspend operations;
  • In a military occupation or alongside a regime of apartheid, companies may need to consider whether they can continue to operate if that requires supporting the occupying power through corporate taxation.

 

Disclosure and Transparency

  • Guidelines for human rights due diligence procedures are publicly available;
  • Information is available on what might constitute a ‘material’ human rights risk requiring disclosure to shareholders in financial reports;
  • There is transparency of a company’s lobbying of national or international forums on legislative matters in relation to human rights. Companies are willing to support reasonable legislation designed to help close the governance gaps that prevent many from achieving the full realisation of their human rights.

In particular, we expect companies to proactively and vigilantly monitor the jurisdictions in which they operate, especially the host country’s involvement and policies towards areas of conflict with respect to:

 

Breeches in International Law

  • Countries guilty of breaching of international law be that through illegal occupation, annexation, and the practices associated with conflict – such as those detailed below – as defined and recognized by the UK and other governments around the world. The fourth Geneva Conventions, Hague Regulations, International Humanitarian Law as well as UN Security Council Resolutions are all globally recognised standards and sources in determining nefarious actors and their agents.

 

Violence

  • When trapped in an escalating cycle of serious crises and violence, forces must at all times refrain from using weapons that are considered to cause unnecessary and unjustifiable suffering to combatants or to affect civilians indiscriminately. According to the Global Peace Index 1, an estimated 238,000 people have died in global conflict in 2022, the deadliest year since the 1994 Rwandan Genocide. The Methodist Church deplores every one of these deaths.

 

Exploitation of Natural Resources through Conflict

  • Actors depriving those of livelihoods, pasture, and water as well as the exploitation of natural resources such as land, offshore minerals, quarries, and water is considered pillage and prohibited by the Fourth Geneva Convention and the Hague Regulations. Private companies have a duty to ensure that they are not contributing to a government’s contravention of international law.

 

Arrests and Administrative Detention

  • Arrest and detention without trial is a violation of the Fourth Geneva Convention and constitutes as a war crime. The questioning of detained children without legal or parental presence, is a contravention of the rights as the child.

 

Collective Punishment

  • Blockades by land, sea, and air with their restrictive impact on imports and exports constitutes as the collective punishment of the blockaded, which is illegal under the Fourth Geneva convention as well as the Hague Conventions and constitutes as a war crime. Other forms of collective punishment include the demolition of homes rendering occupants homeless and the use of rape.

 

The Rights of Refugees

  • The rights of refugees under international law are to be upheld, this includes the right to return to their lands and property, and the right to settle in a third country, and the right to be compensated for their losses. Refugee camps and accommodation must be kept in acceptable, liveable, conditions.

Whilst this Policy Statement concentrates on investment, human rights and conflict, it is recognised that companies may be exposed to other human rights risks as a result of their global operations or supply chains. These include:

  • Discrimination (gender, caste, race etc.)
  • Land or property rights
  • Self-determination and the right to freedom of movement, freedom from bonded or slave conditions etc.
  • Labour issues including the right to organise, collective bargaining, sufficient rest and leisure etc.
  • A healthy and safe working environment
  • The rights of the child

 

What the CFB Measures

The CFB believes that for both ethical and fiduciary reasons, securities originating from conflict zones or nation states participating where Human Rights Laws are being broken, should not form any part of our clients’ investment portfolios. The CFB will actively and vigilantly monitor regions of conflict and areas of human rights abuses.

Conflict and its inherent complexities mean that there exists no single metric or data source that would fully encapsulate the on-the-ground situation. To best gather information regarding the circumstances of any conflict and any company involvement in the most objective manner possible, we will endeavour to utilize and employ the following:

  • Official UK government sources;
  • The UN and its affiliated groups;
  • Scholarly articles from leading institutions and universities;
  • Works of journalism from reputable sources;
  • Publications/ press releases from companies themselves.

Given the complex and idiosyncratic nature of such events, the CFB will assess each conflict zone on a case-by-case basis.

 

The CFB Policy on Conflict, Our Aims and Strategy

The CFB seeks actively not to invest in any company that is directly or materially involved in activities that are in breach of international law or is complicit in violations of human rights as defined by the United Nations Universal Declaration of Human Rights. The CFB seeks to invest in companies that are, or are likely to become, signatories to the UN Global Compact, thereby demonstrating a commitment to align their operations with ten universally accepted principles in the areas of human rights, labour, the environment, and anti-corruption.

There may be situations where a company has materially negligible activities within occupied areas. In such cases, engagement would be normally preferred over disinvestment. Efforts will be made to engage with such companies on the concerns outlined in this policy.

The CFB’s strategy for influencing change in areas of conflict relies primarily on dialogue and constructive engagement with companies. Engaged investee companies should ensure they can demonstrate how they will address the systemic challenges that come with a conflict and its legacy, and how they have paid particular regard to any human rights implications, demonstrating that they:

  • Have addressed human rights concerns when working within the context of conflict;
  • Are conversant with the adjudication of the Security Council, the UN Human Rights Council and the International Court of Justice on practices or issues that have relevance to their operations or contracts;
  • Are prepared to engage suppliers in dialogue regarding human rights principles;
  • Have taken all possible measures to ensure that they cannot be held indirectly complicit in human rights abuses when selling through intermediaries to an end user.

The CFB has long been mindful of the need for investment in impaired economies post-conflict, and the opportunities that exist to support social and economic development that might contribute to a more stable society. Engagement will involve encouraging companies actively to develop opportunities which will contribute to the rejuvenation of economies post-conflict, for example:

  • Sourcing local products for export and sale;
  • Developing ethical tourism;
  • Supporting or providing vocational training to enable aspects of the damaged economy to grow;
  • Improving health and safety and other aspects of working conditions of in places of work.

Engagement is pursued until it becomes clear that a company is not open to dialogue or failing to respond positively to the concerns raised. Such engagement will include consultation with any parties affected by the company’s activities. Engagement on issues related to areas of conflict will normally be time-limited, and after a significant period of engagement overall strategy would be reviewed.

In extraordinary cases, more egregious breaks in policy may lead to disinvestment, with publicly stated reasons. Eg:

  • The sale or provision of equipment or services to the military, security services, or police in support of operations associated with the conflict, or the supply of such equipment or services via a third party when the company should reasonably have known they would be used in such circumstances, and/or in breach of UN treaties or resolutions;
  • The maintenance of joint ventures or strategic business relationships with companies based in the country of conflict that have links to a belligerent party;
  • The construction of infrastructure or provision of services to settlements established in occupied territories;
  • The construction of governmental facilities or infrastructure within the conflict areas that prove to further entrench the region into the conflict.
  • The development, maintenance, and management of transport links between participants’ military production lines and the conflict zone.

1 Global Peace Index Report 2023 – https://www.visionofhumanity.org/wp-content/uploads/2023/06/GPI- 2023-Web.pdf

Banking Policy Statement

1. Climate Change

CFB Banking Policy

 
We believe that banking is a fundamental part of our social and economic life. It is hard to imagine a modern society without banks to provide the essential services and products we need to manage our finances. Whilst banks have evolved to fulfil a crucial social function, we must not forget that they are also commercial organisations that exist to meet the needs of their customers and make profits to bolster their capital reserves and reward their investors. We have seen that banks are not perfect and can make mistakes. Bank failures are rare but when they do happen, the consequences can be far- reaching. Because of their systemic importance to economic stability, the banking industry is highly regulated to prevent excessive risks and protect savers. Banks’ performance is closely tied to the performance of the economies of the countries in which they operate. Similarly, to maintain the trust and confidence of investors and customers, their corporate values need to align with those of the society they seek to serve. This means that they have to be clear on what they stand for, in the way they treat customers and staff, as in the types of business activity they are willing to support. Where concerns are raised in relation to banks’ environmental, social or governance credentials, they will generally be open to engagement to protect their franchise. This Policy sets out our expectations of banks in relation to the theological and ethical pillars of Investment adopted by the Central Finance Board and Epworth. Banks’ performance against these expectations will be tracked to support decision-making.

 

Background

 

The banking sector is vitally important in providing access to cash and financial services for individuals, households, businesses from sole traders to multi-national corporations, not-for-profit organisations and charities, other financial institutions, local authorities and national governments. Their primary role is as financial intermediaries, taking in funds from those with surplus cash (depositors) and lending it to those who need funds (borrowers). As such, they provide depositors with a way of earning interest on their money, which in turn is paid for from the interest charged to borrowers.

Through their lending, banks support growth and investment. The amount of money supply circulating in an economy is controlled by central banks, either by adjusting the level of reserves banks are required to hold against deposits, or through open market operations, i.e. buying securities (liquid assets) from banks to increase money supply, or selling securities to banks to reduce it. Central banks also use interest rates to stimulate or depress economic activity which are passed on to markets via the banks – lower rates encourage borrowing and investment, whereas higher rates stifle borrowing and reward savers. Another important way in which the banking sector supports economic activity is by maintaining the complex payments system between banks that facilitates trade and commerce in retail outlets, wholesale markets, between importers and exporters, and increasingly online. In this way, they play a pivotal role in delivering government monetary policy and ensuring that economies function smoothly.

The essence of banking is risk management. Banks’ approaches are reflected in statements of risk appetite and lending policies, the main purpose of which is to maintain portfolio quality, avoid risk concentrations and over-sized exposures in order to protect depositors and ensure ongoing viability. Banks are also responsible for protecting themselves and the banking system from being abused or misused for criminal or other disreputable purposes, e.g. money laundering or fraud. Banks are essential to market processes. Some larger banks underwrite new debt and share offerings, help to facilitate company sales, reorganisations, or mergers and acquisitions, plan and manage the financing for large projects, provide risk management solutions and hedging strategies, and act as market makers in securities markets, providing trading services for investors and ensuring there is sufficient volume of trading (i.e. liquidity) in the market to enable trades to take place seamlessly.

Like any other commercial enterprises, banks can make mistakes and fail. Recent examples are PPI1 mis-selling and the Global Financial Crisis 2. Bank scandals and failures can have serious repercussions, potentially destabilising the banking system and triggering a loss of confidence that can send shockwaves through financial markets and economies. However, the consequences of banks getting things wrong can also impact the lives of ordinary people, inflicting financial distress and suffering on individuals, businesses and local communities. For this reason, bank safety and soundness are a major public policy concern. To minimise market disruption and limit bank failures, the banking industry is highly regulated, with individual banks required to be authorised (licenced) and subject to regular supervision and evaluation. Some larger banks are deemed ‘systemically important’ and are required to comply with higher capital requirements and more stringent regulations because of the potential impact their failure would have on the global financial system.

Maintaining partnerships with a panel of banks is critical to the work of the Central Finance Board of the Methodist Church (CFB) and Epworth Investment Management Ltd (Epworth) for both business operations and investment management purposes.

Relationships with banks are complicated because they are multi-faceted. Relationships are built over time and are based on history, a track record of delivery, understanding, and trust. The CFB and Epworth are exposed to banks in a number of ways. Portfolio exposure to banks may be through direct equity investment. Fixed interest funds include investments in bank bonds. Cash funds will invest in Floating Rate Notes and Certificates of Deposit issued by banks, or place money in bank deposits for a fixed term. In addition, there is heavy reliance on bank systems and processes to transact business, maintain records, and report on holdings.

The nature of banks’ business means that they lend to a variety of entities across a range of sectors and geographies. This provides a spread of risk but may mean that elements of a bank’s business are in areas that do not fully align with the theological and ethical pillars that underpin this policy. In particular, banks have a critical role to play in supporting the transition of the global economy to net zero emissions by 2050 by implementing commitments to reduce financing for fossil fuel companies.

The CFB and Epworth have adopted seven theological and ethical pillars that have been designed to inform engagement and investment decisions. These are: Earth and Ecosystem; Labour; Equality; Conflict; Health & Wellbeing; Society; Fairness, Responsibility and Transparency; and Conflict. These are linked to the United Nations’ Sustainable Development Goals.

 

What the CFB Expects

 

We expect the banks we deal with to be run prudently and in full compliance with regulatory requirements and standards of conduct in all jurisdictions in which they operate.

Other relevant expectations will be derived from our priority matrix:

 

Earth and Ecosystem

 

We expect all companies to limit and reduce their greenhouse gas emissions and intensity resulting from their own processes, their supply chains, and the use of their products and services. In addition, we expect banks to be committed to reducing their support for fossil fuels and aligning their lending and investment portfolios with the Paris Climate Agreement and net zero emissions by 2050 by setting targets for 2030 or sooner which are consistent with a net zero pathway.

 

Labour

 

We expect banks to treat all employees and contractors with dignity and respect, to safeguard their physical and mental health and wellbeing, to meet local laws and international agreements, to recognise the right to unionising, to pay a fair wage, and to value diversity and inclusion. We also expect banks to seek to promote the same standards with those in their supply chains and those to whom they provide financial support, including consideration of the impact of operations on the safety and wellbeing of local people, and zero tolerance for accidents, the illicit use of forced or child labour, and racial or sexual discrimination.

 

Equality

 

We expect banks to pursue better representation of race, gender, ethnic origin, neurodiversity, and sexual orientation across all areas of operations – including Board and C-suite level. Banks should develop policies and procedures that actively promote inclusion and diversity in their recruitment processes. Banks should also adopt corporate culture practices that promote an understanding and inclusion of minorities.

 

Society

 

Recognising the societal shift towards digital channels and the reduced demand for physical presence that is affecting the whole of the high street and driving branch closures amongst traditional banks, we expect banks to carefully consider the social impact of proposed branch closures as part of a balanced delivery strategy. Where banks are contemplating changes to their representation and service coverage in an area, we expect them to consult respectfully with local communities and explore creative ways to maintain access to their services and products.

We expect banks help provide vulnerable people with access to bank accounts and services.

 

Fairness, Responsibility and Transparency

 

Good governance is about the relationship between investors and the companies in which they invest so as to reassure themselves of the strength and appropriateness of the governance regime in place. We expect banks to meet the standards set out in our corporate governance policy .

We expect banks to be socially responsible and to manage their activities with integrity and transparency, holding themselves accountable to stakeholders on matters of sustainability, environmental performance and other ethical concerns.

We expect banks to show consistently that fair treatment of customers is at the heart of their business model.

We expect banks to disclose where they engage with governments on policy and legislation, and to be transparent where they support political parties, candidates or campaigns.

We expect banks to have a publicly available and transparent tax policy that outlines its position on tax compliance, tax planning and tax reporting.

 

Conflict

 

We expect banks to work actively towards peace. This means promoting human rights, upholding international sanctions against aggressive and oppressive regimes and not supporting illegal occupations by providing finance to business activities in illegally occupied territories.

We also expect banks to have robust systems and controls in place to prevent corruption and the laundering of the proceeds from organised crime linked with illegal arms sales, drug cartels, human trafficking, prostitution rings, fraud, extortion, the financing of terrorism and other forms of activity associated with conflict, violence and exploitation.

We would not expect banks to be involved in financing the production of nuclear or other controversial weapons that are banned under international treaty law.

 

What the CFB Measures

 

Our expectations will form the basis of a research and monitoring template. This template will identify a company’s exposure and risk to the issues outlined in this policy and will output a scorecard for the company. It will utilise external research providers such as Sustainalytics, TPI, CDP, as well as in-house analysis and company-own reporting. Our in-house analysis would consider issues such as regulatory censure, fines, press reports, and controversies.

Companies will be graded A-E, with A being a leader and D being a laggard. Companies with unacceptable scores or which breach specific exclusionary criteria will be graded E and excluded. Details of our research and monitoring can be found on our website.

 

The CFB Policy on Banking, Our Aims and Strategy

 

We will aim to maintain relationships with an appropriate panel of banks that individually and collectively meet the operational and investment management needs of CFB and Epworth and broadly align with our ethical standards as defined in the pillars. Based on the pillars, we will develop and implement a sector action plan, taking into account institutional goals, stakeholder value preference, significance of potential outcomes, and portfolio impact. This will focus on engagement and may also include public activism, re-evaluation, or referral.

The acceptability of any exceptions to the principles set out in the pillars will depend on their severity and materiality in the context of a bank’s overall business. In extreme cases, disinvestment will be considered but only after persistent and/or significant moral failure that violates our ethical pillars and the bank is unwilling to engage.

Though we will aim to engage across all expectations outlined in this policy, particular focus will be given to the climate emergency. We will seek to meet with banks to discuss the key opportunities and hurdles they face in the transition to a low carbon economy, encouraging verified emissions reduction targets, and challenging them through AGMs or voting strategies in areas where they fail to meet expectations.

This document and its outcomes will be reviewed annually to ensure they reflect sector realities and that expectations and engagement activities meet stakeholder priorities.

1 Payment Protection Insurance. PPI was designed to cover repayments if borrowers were unable to pay themselves due to redundancy or inability to work. Up to 64 million PPI policies were sold in the UK, mainly between 1990-2010, many of which were found to have been mis-sold. The scandal resulted in banks paying billions of pounds compensation to policyholders.

2 Global Financial Crisis (2007-8) was a severe worldwide financial and economic collapse that cost many ordinary people their jobs, life savings, homes, or a combination of the three.

Responding to the Climate Emergency

1. Climate Change

Responding to the Climate Emergency

Evidence continues to mount that the Earth is warming and yet greenhouse gas emissions continue to rise. The scale of the effort required to reduce carbon emissions is vast, yet while some steps have been taken they are nowhere near sufficient to meet the challenge.

The Intergovernmental Panel on Climate Change (IPCC) estimates that mean surface temperature is now 1°C above pre-industrial levels. At the current rate, global warming is likely to reach 1.5°C between 2030 and 2052. Unless drastic action is taken, it is likely to exceed 3°C. Even at increases of 1.5°C or 2°C, the changes to weather patterns and sea levels will be substantial and in some cases irreversible.

The CFB has long been concerned about global warming. Our first policy was produced in 2009 alongside the publication of Hope in God’s Future, a Methodist report which became a statement of the Methodist Conference. It commits us to working for lower carbon emissions across our portfolios. We also have a policy on climate change and power generation, which commits us to assessing carbon intensity and avoiding exposure to coal-fired power stations. Our third policy looks at the ethical implications of different fuel types: we commit to avoiding significant exposure to coal and tar sands production, and avoid investing in companies wholly focused on finding new carbon assets.

We continue to monitor the environmental performance of fossil fuel companies against the Paris Agreement to limit global warming to “well below 2°C”. Companies have been assessed under five categories with up to 25 different metrics. This work has led to the exclusion from investment on ethical grounds of all oil and gas companies.

There is little doubt that fossil fuel use needs to fall significantly. Energy suppliers, distributors, and companies and consumers need to shift demand to sustainable energy sources and deploy significant energy efficiency measures. The flip side of reduced fossil fuel demand is lower production of fossil fuels. Both supply and demand sides need to align with a lower carbon world.

Here we bring together our policies and information about our work helping to tackle global warming while aiming to deliver long term, ethical, and sustainable returns.

 

Paris Agreement

 

The CFB endorses the Paris Agreement as a significant step toward reducing green-house gas emissions, limiting global warming to well below 2 degrees Celsius, and adapting to the present and future negative effects of the climate emergency. The CFB considers investee companies’ alignment to the Paris Agreement and engages with investee companies to evaluate and encourage adherence to the agreement.

 

Task Force on Climate-Related Disclosures

 

The CFB recognises the climate emergency presents opportunity for investors. However, current financial disclosures lack the transparency and appropriate metrics to help investors determine a company’s outlook as the environment, consumer behaviour, regulations and technology evolve. The Task Force on Climate-Related Financial Disclosures (TCFD) seeks to bring stability and transparency to the way companies disclose their climate-related exposure to enable investors to make more informed decisions. The CFB welcomes the recommendations of the TCFD and encourages investee companies to adopt the TCFD’s core elements of recommended climate-related financial disclosures.

 

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.       Read more →

Position Papers

1. Climate Change

2. Climate Change- Implications for Different Fuels

3. Climate Change- Electricity Generation

Policy Statements

1. Climate Change

2. Climate Change- Implications for Different Fuels

3. Climate Change- Electricity Generation