Socially Responsible Investment Review

September 2012

Banking

Global banking remains under close scrutiny from regulators and society at large for systemic failings such as fixing the LIBOR rate, and the mis-selling of both payment protection insurance and interest rate swaps. During the quarter we produced a paper, Ethical Issues Arising from Banking (see website), that examined the various ethical failures and outlined possible improvements. Barclays has come under particular scrutiny for its role in the LIBOR scandal. Together with other church investors we met with its senior independent director, Deputy Chairman Sir Michael Raikes, to express our concerns about the bank's corporate governance and business culture. Similar concerns were also expressed to the independent Salz Review on Barclays' business practices. We also wrote to Standard Chartered after it had incurred a substantial fine from a US regulator relating to transactions in breach of sanctions. Although the fine seemed disproportionate, we nevertheless sought assurances that the Bank's processes had been reviewed to ensure future compliance. We also continued to engage with Lloyds Banking Group over its decision not to become a Living Wage employer.

Alcohol

Over the past decade there have been significant changes in the way alcohol is bought and consumed. Consequently, JACEI has been working on a revision to its advice and in September a new Position Paper and Policy on investment in alcohol related companies was approved, replacing the Policy dating from 2002. Avoidance will remain the normal position in relation to companies mainly involved in the sale or production of alcohol. However, the new Policy recognises the need for proactive engagement with those companies that have a significant, but not major, exposure to alcohol. In these cases we will focus on responsible drinking and ensuring advertising and marketing does not encourage excessive drinking, with particular emphasis on the young.

AstraZeneca

We received a response from AstraZeneca regarding media allegations relating to the conduct of clinical trials in India. The company confirmed that trials conducted without consent are very low, and when discovered are remedied swiftly. No sanctions had been applied by the Indian authorities.

Carbon Disclosure Project (CDP)

We were pleased that following engagement, Go-Ahead Group confirmed it would be participating in CDP 2012. A favourable response from ITV gave comfort that, despite non-participation in CDP, considerable work has been undertaken to measure and reduce its emissions. A meeting with Cookson Group, another CDP not-participator, was less encouraging. However, we conveyed our belief that it needs to improve GHG emissions reporting significantly, given new requirements from 2013.

Glencore-Xstrata

Our Policy Statement on Mining and other Extractive industries states our aim of identifying the "best in class" in the sector, and of encouraging companies to improve continually their performance in health, safety and the environment. While we believe that Xstrata meets these high standards, we are less convinced that this is true for Glencore. We are therefore concerned that the proposed merger of the two companies could result in weaker corporate responsibility for the combined entity. We have actively engaged with both companies, writing to their chairs to express our concerns. We also voted against the merger and its contingent executive retention packages. The merger process appears to be entering its final phase, with new proposals to be put to investors later in the year. The responses to our enquiries will be the key to how we decide to exercise our vote.

Extractive Industries

We were shocked at the violence at Lonmin's Marikana mine where 45 people died and are keeping the growing industrial unrest in South Africa under close review. We aim to engage more closely with the company once the situation has stabilised, probably through the South African counterpart of the Church Investors Group. We attended the annual sustainability presentation hosted by Anglo American, as it continues to be under pressure to improve safety. A staff member will also be travelling to Nigeria in October as part of a responsible investor delegation to see and understand at first hand Shell's operations in the Niger Delta.

Israel-Palestine

We met with senior Veolia personnel as part of our on-going engagement regarding their operations in Israel-Palestine. The company remains committed to selling its interests in the Jerusalem Light Rail Consortium, but this has become delayed for legal reasons. Engagement has been constructive and continues to deliver benefits as we press the company on its approach to monitoring human rights. We have also contacted Irish cement company CRH, which via a subsidiary is a major supplier of cement in Israel, regarding sales that could be used in violation of international law in the building of illegal settlements.

Corporate governance

We continue to take an active position on excessive remuneration, and during the quarter opposed many UK remuneration reports that failed our stringent tests on performance and excess. These included BT Group, Burberry, Vodafone and National Grid Group. Where remuneration policy is particularly poor, as at Berkeley Group, we oppose the re-election of all directors that are members of Remuneration Committees. There is less opportunity to vote on remuneration for our European portfolio. However, during the quarter we voted against proposals at 6 companies that failed to meet best practice.