Ethical Investment Review December 2018

Climate change

We have been engaging in considerable work to evaluate the extent to which the operations of fossil fuel producers are consistent with the Paris accord. This involves five pieces of analysis: companies’ current asset mix, capital expenditure plans, climate strategy & governance, transition plan and direct emissions. JACEI reviewed the first fruits of this work in December when it considered papers on Asset Mix Methodology and assessments of companies’ asset mix. Further work will be presented to JACEI in the spring.

The IPCC produced a report on limiting climate change to 1.5 °C and this will feed into our work, as will our involvement with IIGCC, TPI, Carbon Tracker and the CA100+ initiative during the quarter. Our Montréal Pledge disclosure for 2018 has been published online.

We signed a collaborative investor statement to support a Just Transition on Climate Change.

We wrote to the large Canadian banks to which we lend through our Deposit Fund: Bank of Montréal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto Dominion. The engagement was as a result of analysis which showed that these banks lent substantial amounts to the tar sands industry. We have asked each company to join the TCFD initiative, and to explain how their tar sands finances is consistent with their climate change policies.

Extractive industries

We attended a sustainability day hosted by BHP Billiton led by senior personnel. The company is progressing compensation and resettlement following the Samarco disaster, and updates on climate change emissions targets and health & safety were discussed.

We wrote to Nutrien which sources phosphate from disputed Western Sahara, and has thus been excluded from investment. The company was able to provide assurances that following a review, the company would be self-sufficient in North American phosphate from early 2019, thereby ceasing to source from Western Sahara.


We contacted AB Foods, Tesco and Ted Baker regarding the presence of micro-fibres in clothing ranges. Tesco replied encouragingly, stating they are working with suppliers to understand the science and have part-funded a pan-industry initiative ‘Industry Action on Micro-fibres’ to drive a coordinated response. As part of our ongoing engagement with a range of companies on plastics, we are now focussing on the risks arising from micro-fibres and their long-term impact on the marine environment.

Living Wage

We engaged with Vodafone Group to encourage them to become an accredited Living Wage employer. We were disappointed that they declined, despite stating they are committed to paying all employees the Living Wage. Accreditation requires full time employees and third party contractors to be paid the voluntary enhanced rate, and Vodafone expressed an inability to ‘track’ third party reward structures. We are now working with Share Action and the Living Wage Foundation to re-engage Vodafone in discussion.

Worker rights

Ted Baker, a clothing retailer, faced allegations of inappropriate behaviour in the workplace. The company has appointed a committee of non-executive directors to review the allegations as well as an external law firm to lead an inquiry. We wrote to the Chairman to express our concern, ask when the inquiry was expected to be concluded, and to call for a commitment to implement any recommendations promptly.

Farm animal welfare

We are signatory supporters to the Business Benchmark on Farm Animal Welfare (BBFAW) which ranks food manufacturing and processing companies for welfare risk. Cranswick has been ranked as a Tier I leader, and we wrote to the company welcoming its strong stance on animal welfare and asking the company to support a new Global Coalition for Animal Welfare spearheaded by Nestlé and Unilever. A response is awaited.

Business ethics

We divested our shares in Danske Bank following the allegations that it allowed €200bn of potentially laundered money flow through its Estonian branch, and removed the bank from the list of banks to which we will lend through our Deposit Fund. The scandal resulted in both the Chair and Chief Executive being dismissed. We reviewed the currently available information about the scandal, its systemic nature and the alleged culpability of senior executives and decided to divest from the Bank as a shareholder and to cease its suitability as an approved lender.

Corporate governance & executive remuneration

The December quarter was very quiet. During the quarter we voted at four UK meetings opposing five resolutions; three against the re-election of directors and two against executive pay: MJ Gleeson and AB Foods. We wrote to Eco Animal Health regarding the company’s irregular governance arrangements and were pleased to learn at a subsequent meeting with the Executive Chair, that the Board had agreed moves to improve governance practice.

In Europe, we voted at seven meetings, and took action in 14% of cases. Re-election of directors and opposing the Financial Report & Accounts on climate change grounds were the main issues of contention.

In 2018 as a whole, we voted in total at 93 meetings in the UK comprising 1,537 resolutions, opposing or abstaining 17% of proposals. Remuneration accounted for 30% of all action taken in the UK and the re-election of directors 56%. Of 96 remuneration proposals (reports and policies) in 2018, we opposed or abstained 86%. In Europe we voted at 234 meetings comprising 3,785 resolutions. We opposed or abstained 21% of all proposals, with the re-election of directors accounting for 37% of action, and executive pay 42%. Just under 60% of all remuneration proposals in Europe were opposed.

Our full voting reports are available on request, whilst a summary is published online.

Ethical Investment Review September 2018

Climate change

We once again asked Trucost to provide a carbon footprint assessment of our UK portfolio, which we first commissioned in 2009. According to their analysis, the UK Equity Fund’s carbon footprint amounted to 288 tonnes of CO2 per million pounds of market capitalisation. The carbon intensity of the Fund has fallen by 3.4% pa since 2009. The gap between the Fund and the Index (FTSE All Share) has narrowed since 2009, which indicates the level of improvement in the market overall towards greater decarbonisation.

We are members of IIGCC (Institutional Investors Group on Climate Change) and actively participate in public policy initiatives in a collaborative way. During the quarter we supported an IIGCC led campaign lobbying MEPs to adopt an ambitious approach to reducing car and van engine emissions including a target of at least 40% CO2 emissions reduction by 2030.

We attended and took part in a series of meetings on climate change including the TPI (Transition Pathway Initiative) and a conference call with Royal Dutch Shell. We co-signed a letter that appeared in the Financial Times encouraging the corporate sector to accelerate the transition towards a low-carbon economy.

We are continuing our considerable work preparing a detailed reassessment of fossil fuel companies in the light of the Paris Agreement. Scoping such a systematic approach is taking time, but our detailed work will ultimately provide a robust means of looking at fossil fuel companies from the perspective of the transition to a low carbon economy.


We have devoted some time over the summer to researching the issue of plastics and our investments’ exposure in greater depth. We will be engaging with companies over the winter months, and are considering to joining As You Sow, an investor coalition focussed on plastics.

Principles of Responsible Investment (PRI)

Principles of Responsible Investment conducts an annual assessment of how asset managers consider issues relating to responsible investment. We have once again achieved top ratings cross the major modules including receiving A+ in the overarching Strategy & Governance section and in how we incorporate our ethical approach into our equity portfolios.

Human and labour rights

We contacted Compass Group following reports that one of its subsidiary companies contracted to the All England Lawn Tennis Championships had allegedly been paying employees insufficiently, including not being paid an agreed night shift rate. The company has robustly denied the allegations and provided a response asserting that all rates were agreed and were at levels above the National Living Wage. Some of these roles subsequently attracted further wage uplifts.

We contacted the UK arm of French hotels group Accor owing to the absence of a Modern Slavery Statement on its UK website. All companies with revenues greater than £36m and operating in the UK are required to publish a Statement. Correspondence with the company produced a comprehensive Statement, however we have continued in dialogue as this was not signed by a director and has not been uploaded to the Accor UK website.

Living Wage

Working once again with Share Action, we have led a further round of engagement with seven companies pressuring them to seek accreditation to the Living Wage. The response from Berkeley Group was encouraging as the company is a Living Wage employer across its own directly employed staff. BT Group has taken steps to ensure reward is targeted at or above Living Wage levels, but does not wish to be ‘constrained’ by accreditation. Reckitt Benckiser Group also provided an encouraging response, suggesting it pays all UK employees the Living Wage with this extending to contractors.

We also challenged IHG Group, which as part of being made a preferred partner to the London Olympics in 2012, had agreed to accredit to the Living Wage. The company has reneged on this commitment, but justified this to us as due to the ‘rapidly changing environment’ including introduction of the National Living Wage. This was disappointing and we continue in dialogue with the company around its commitments.

Farm animal welfare

We supported a collaborative FAIRR (Farm Animal Investment Risk & Return) initiative focused on reducing antibiotic use in the food chain. An investor letter was sent to Whitbread seeking more information from the company on how it manages antibiotic use in respect of its supply chain.

Corporate governance & executive remuneration

The September quarter traditionally marks the end of the voting season in the UK and Europe. During the quarter we voted at 17 UK meetings opposing or abstaining 17% of resolutions. Action was taken in the main against executive remuneration and the re-election of Board directors. Remuneration was opposed at BT Group, Burberry, Experian, Vodafone and National Grid Group among others.

Diversity has been fully integrated into our UK voting policy. Since 2017 the percentage of women on FTSE Boards has increased from 27.7% to just over 30%, however at executive level progress remains slow. We oppose the re-election of Nomination Committee Chairs where progress to improve Board diversity remains poor. During the quarter, directors were opposed at BT Group (four directors), SSE (four directors), Experian, Cranswick and DS Smith.

In Europe, we voted at eight meetings, and took action in 35% of cases, where re-election of directors and executive pay were the main issues of contention.

Our proxy voting partner, ISS, votes our shares in accordance with an agreed CIG policy, which is reviewed and approved by the members annually. Our full voting reports are available on request, whilst a summary is published online.

Ethical Investment Review June 2018

Climate change

We are working on applying our recently agreed climate change methodology to our fossil fuel company shareholdings. Our first task is to critically examine the data and analysis available for each of the five criteria we are using to assess companies. Our intention is to complete preliminary assessments of four companies (BP, Equinor, Royal Dutch Shell, Total) by the turn of the year. These will be subjected to a lengthy review process and we will also engage with the companies. At the same time, we expect further climate change scenarios to be published, which we will need to factor into our work.

Climate change remains at the forefront of our work and we are active in several initiatives, including attending an IIGCC meeting where we heard from Patricia Espinosa, the Executive Secretary to the UNFCCC (UN Framework Convention on Climate Change) ; We have signed an IIGCC Investor Statement to the G7 and a supporting letter published in the Financial Times. We continue to play an active part in the Transition Pathway Initiative (TPI).

We voted to support the shareholder resolution at Royal Dutch Shell brought by ‘Follow This’, a Dutch NGO. The resolution called on Shell to set and publish targets for reducing GHG emissions aligned with the Paris Agreement, with such targets including Scope I, II & III emissions. The resolution attracted around 5.5% support, with Shell arguing its published Scope III emissions ambitions represented sufficient progress.


Concern about the impact of plastic waste on the environment and in the oceans is concentrating investor attention. We have joined a collaborative initiative called the ‘Plastic Solutions Investor Alliance’ which intends to engage actively on plastic pollution and on the design and sustainability of plastic packaging. The Alliance is planning focused engagement in the UK with food retailers and consumer staples groups on reducing exposure to plastic waste and making waste streams more environmentally sustainable. It is encouraging that over 40 companies, including Tesco, Unilever and Nestlé have signed up to the UK Plastic Pact initiated by WRAP (Waste & Resources Action Programme) which has four ambitious targets including 100% plastic packaging to be reusable, recyclable or compostable by 2025.


On behalf of the Church Investors Group (CIG) we have now completed our initial engagement work on water stewardship. Using the CDP water survey, we engaged with nineteen UK and European companies to encourage greater governance, disclosure and oversight of systemic water risk. Sixteen companies responded with positive outcomes, four expect to contribute to the CDP survey in future, and a further four are actively reviewing participation. Five companies provided detailed responses on their own water management programmes. We will now review the results with CIG.

Human and labour rights

We received responses from Unilever and Associated British Foods to our concerns around labour conditions on tea plantations. These remain an acutely complex socio-cultural challenge, and one in which we have engaged in the past. Unilever’s priorities are housing and sanitation in Assam and it assured us that it is ‘driving the industry to make time-bound improvements’. AB Foods (via its subsidiary Twinings) is also leading a step-change by ‘introducing a new framework to evaluate human rights risk’. We are encouraged that parts of the industry is showing commitment to improving the lives of estate workers, and we will continue to engage pro-actively for change, albeit this remains one of the more intractable challenges for investors.

Mining and Faith Reflections Initiative

We remain actively committed to the ecumenical process known as the Mining and Faith Reflections Initiative. The churches have led fruitful conversations with mining executives over time, and are now reflecting on potential next steps that support mutually beneficial dialogue between the churches and the mining sector, and which will include shared theological principles for engagement.

Farm animal welfare

During the quarter we formally joined a new partnership with FAIRR (Farm Animal Investment Risk & Return). FAIRR has led investor efforts that draw attention to the overuse of antibiotics in the farm animal supply chain, and which we have supported. FAIRR is also leading new research and engagement into the effects of protein and animal husbandry on climate change. We expect to work with FAIRR as they develop collaborative efforts around other relevant farm animal issues.

Executive remuneration

The June quarter traditionally marks the peak of the voting season in the UK and Europe. 2018 has been relatively quiet with few major pay revolts. However, the Investment Association has noted a sharp increase in shareholder protest more generally and in particular against the re-election of directors incurring 20% or more opposition. In the second quarter we opposed the re-election of 228 UK directors or 19% of the total.

We remain focused on opposing excessive executive pay but we have also strengthened our approach towards workplace fairness, boardroom diversity and climate change. Where boards have insufficient gender diversity we routinely vote against Nomination Committee chairs. Instances this quarter included Rio Tinto, BP, Smith & Nephew, WPP, Anglo American, Standard Chartered, Centrica and London Stock Exchange Group.

During the quarter we voted at 62 UK meetings, opposing or abstaining 16% of resolutions. We opposed over 60% of votes on remuneration policies and reports. In Europe, we voted at 187 meetings, and took action in 21% of cases, where re-election of directors and executive pay were the main issues of contention.

Ethical Investment Review March 2018

Climate change

We have been focused this quarter on our climate change project. We are focussed on determining the extent to which fossil fuel company business investment plans comply with the Paris Agreement to keep the average rise in temperature to “well below 2C”. We already exclude a number of companies on climate change grounds under our three existing climate change policies. We have now developed a methodology for analysing companies.

For temperature rises to be limited, levels of coal, oil and gas consumption will have to be considerably lower than today, even though some fossil fuel use will continue up to and beyond 2050.

Our methodology, recently agreed, will include examining:

  • The current asset mix of extractives
  • Capital expenditure on exploration and production
  • Climate strategy and governance
  • Positive steps taken towards transition, and
  • Decreasing direct emissions

It will take some time to evaluate our existing holdings using this approach to our direct holdings and we will conduct an extensive round of engagement as we do so. We will assess new climate change scenarios and company data as they are published. Royal Dutch Shell has recently published data on its Scope 3 emissions (emissions from use of its products) and ‘ambitions’ for reducing them.

As founding members of the Transition Pathway Initiative we have welcomed the TPI’s developing thinking and planned updates on sector analysis for oil, gas, and electric utilities.

The financial sector has an important role to play in terms of business commitment to financing the transition to a low carbon economy. We have therefore begun to consider the role banks play in their lending decisions and to what extent these are consistent with the transition to a well below 2C world.

Fixed interest policy

We apply our Christian approach to ethical investment to all asset classes. However, bonds and equities differ with respect to the types of instruments in which we might invest and their issuance. We now have a policy for this area to guide us through the nuances of applying our overall approach to this asset class. The Policy sets out how we address ethical challenges when investing in Gilts (government debt), supranational, sub sovereign, agency, and corporate bonds. The new Policy is available on our website.

Human and labour rights

Supply chain risks dominate in terms of the potential for complicity in human rights violations. We contacted Berkeley Group following reports of child labour in the Indian granite market. The company confirmed it sources no granite from the regions at risk in India, and has comprehensive supply chain mapping in place to manage potential risks arising from child, forced or bonded labour. We have also written to Associated British Foods and Unilever to ask how they assess labour and human rights conditions on Assam tea estates. Labour conditions in particular appear to have deteriorated since our last round of engagement with wages among the lowest in India and allegedly falling below the State minimum. This remains a complex socio-cultural challenge.

Tax justice

The payment of tax is an important corporate responsibility. It is important therefore that companies are transparent about how they pay tax and how they arrange their affairs to minimise tax payments. We have been working alongside the wider Methodist Church on this issue and have now published a policy on tax justice. We have focused on Biblical principles, current issues around fair tax, recent activity and the approach to engagement with companies. We have published our thinking on tax in a Position Paper, and the new Policy, on our website.


Plastic waste can substantially damage the environment and urgent action is required across different sectors. We are looking at how companies tackle the issues around plastic waste. Our focus is on single-use plastic (bottles, cups, straws etc.) where these are seldom recycled, and micro-plastics (used in cosmetics and cleaning products). Further analysis will focus on key companies, looking at their policies and processes for reducing plastic use and how they work with packaging companies in terms of innovation and design.


Our annual in-depth meeting with Nestlé UK took place during the quarter. We received updates on BMS (breast milk substitutes) issues, human rights in the cocoa and coffee supply chains, Nestlé’s response to the debate on single use disposable plastic, Modern Slavery, and health & safety across its global operations.

Extractive industries

We continue to be active participants in the Mining and Faith Reflections Initiative and attended two half-day meetings facilitated by Anglo American. These debated the role of mining in development and also heard a NGO perspective on the role mining can play in local communities. We continue to work ecumenically with church denominations on developing common ground in our approach to mining.

Executive remuneration

Prior to the beginning of the peak voting season in the UK we published our 2018 UK Stewardship Code Statement. We have been rated ‘Tier I’ by the FRC (Financial Reporting Council) in recognition of our commitment to transparency. The Statement is available on the website.

Our new voting policy, developed with the Church Investors Group, was launched during the quarter. We remain focused on executive pay but have ratcheted up our approach towards workplace fairness, boardroom gender diversity, and climate change. Where boards are less than 25% female, we will vote against the chairs of the Nomination Committee.

We wrote to the Chairman of housebuilder Persimmon which has been heavily criticised for an executive incentive scheme that has delivered excessively. The Chairman had resigned over the scandal, recognising the Scheme had been poorly designed. We sought assurances that the scale of awards would be reduced and that a moratorium on future pay-outs be imposed pending a review.

Ethical Investment Review December 2017

Farm animal welfare

We have launched a new policy on farm animal welfare. The policy outlines how we will engage with food producers and processors, hospitality, and food retail companies that use animal related products. We have been a long-standing supporter of the Business Benchmark on Farm Animal Welfare (BBFAW) and our policy supports strong corporate disclosure around the way farm animal welfare issues are managed. We have published the policy alongside a position paper on our website. During the quarter we became an investor signatory to a global investor statement on antibiotic use facilitated by FAIRR (Farm Animal Investment Risk and Return).

Climate change

Our project to re-evaluate fossil fuel companies continues apace. We already exclude a number of such companies on climate change grounds under our three existing climate change policies. Where we have holdings in the sector we engage extensively. Our new project, accelerated after a Methodist Conference motion in the summer, will examine how well companies are aligned with the Paris Agreement. The agreement aims at keeping the average temperature rise to “well below 2C”.

The task is not straightforward and while we are collaborating with other investors where we can, we have not encountered any other investment institution undertaking the same analysis. For temperature rises to be limited, levels of coal, oil and gas consumption will have to be considerably lower than today. However, most scenarios outline a period of transition and some fossil fuels will still be used.

We have reviewed a range of climate change scenarios and more closely examined a shortlist of scenarios which have particular relevance. The next step will be to develop a methodology for assessing companies. Our first take on this will be discussed by JACEI in the first quarter of 2018.

We continue to keep abreast of industry thinking, especially through our membership of the IIGCC and the Transition Pathway Initiative.

We attended a presentation by Shell in November, which emphasised the management’s interest in building a portfolio of technologies including biofuels and hydrogen. Shell confirmed it will progressively provide more information on its transition to a low carbon future and it has begun to produce ‘Scope 3’ information on the use of its products.

Labour rights

During the quarter we became signatory members of the Workplace Disclosure Initiative. Investors have often been slow to recognise responsible investment issues associated with the workplace such as the growing pressure from low wages, the gig economy and automation. We have long engaged with business on the adoption of the Living Wage and this new initiative, led by Share Action, aims to secure improved disclosure on workforce reporting, modelled on initiatives such as the CDP. The Workforce Disclosure Initiative will target the FTSE50 and seek to enhance investor insight into a range of employment issues.

Human rights and conflict

The deteriorating situation in Rakhine State, Burma, has resulted in very significant human rights violations carried out against the Rohingya minority. We engaged with Telenor as the contracted company responsible for rolling out the mobile telecom network across Burma to understand the impact of the conflict on its operations and how it has responded. The company has provided comprehensive information on its human rights due diligence and confirmed it has no agreements “commercial or otherwise” with the Burmese military.


In November we engaged with 19 selected UK and European companies on water issues on behalf of the Church Investors Group (CIG). We have begun to assess responses to this engagement as we seek to improve companies’ risk management and measuring.


We participated in a roundtable on tax convened by the Joint Public Issues Team of the Methodist Church, United Reformed Church, and Baptist Union in October that brought together delegates from interested stakeholders including the Methodist Tax Justice Network. We are working on formalising a policy on tax. Tax is a particularly complex and technical issue for investors to engage with and the Policy will set out a methodology for effective engagement on transparency and disclosure.

Extractives industries

We continue to be active participants in the Mining Faith Reflections Initiative and attended a roundtable meeting held in November at Lambeth Palace. We value the role we play in helping to bring together the three facilitating denominations; Roman Catholic, Church of England and Methodist, and help them witness to the need for mining companies to pursue the common good.

Corporate governance & engagement

We launched a Screening and Engagement Policy during the quarter. This sets out, in high level terms, our overall approach to assessing and engaging with companies. It explains why we regard engagement as important, the circumstances in which engagement is pursued, and how we engage both collaboratively and alone. The Policy is designed to help clients better understand our responsible investment process.

Together with our CIG partners, we agreed a refreshed voting template ready for the 2018 proxy voting season. This seeks to reflect emerging best practice and from 2018 will tighten voting criteria further on executive pay, gender diversity in boards, and climate change.

The final quarter is traditionally quiet for proxy voting in the UK and Europe; we voted at nine UK meetings and 18 meetings in Europe. In the UK we opposed or abstained 19% of resolutions including eight remuneration reports and policies. In Europe we opposed 6% of resolutions.

Ethical Investment Review September 2017

Principles of Responsible Investment (PRI)

We have again achieved top scores in the annual PRI survey of environmental, social and governance (ESG). PRI gave us the highest score of A+ for strategy and governance as well as for incorporating ESG issues into our listed equities investment process. The scores reflect the benefits to clients of our integrated approach and commitment to ethical investment.

Climate change

There were several Memorials on climate change to Methodist Conference again this year. The proposed replies to these memorials were amended by a Notice of Motion, following a close vote. This calls on CFB and the committee advising it on ethical investment matters to:

  1. Examine the pace of change in the extractive industry sector;
  2. In the light of increasing urgency for more global action, continue actively to consider disinvestment;
  3. Report to the 2018 Conference with the expectation that [for] any company that [has] not aligned its business with the Paris Agreement target, [there would] be a recommendation that the Church disinvest.

We have therefore accelerated our process of review and analysis in order to report in 2018, with a programme of intense work. This is a complex investment issue and we will report to clients on progress on a regular basis.

We have also joined a collaborative initiative facilitated by IIGCC that will engage with over 100 leading companies over the next 3-5 years. This will encourage companies to reduce emissions in line with the Paris Agreement and increase climate-related financial disclosures in line with TCFD (Task Force on Climate Related Financial Disclosures) recommendations.

Extractive industries

Cobalt mining has attracted significant attention given the increase in demand from electric vehicles and mobile technology. Cobalt is sourced, in the main, from the Democratic Republic of the Congo (DRC). Ongoing conflict in the DRC has resulted in grave human rights concerns in the extractives sector. We wrote to Vodafone to understand its approach to potential ‘conflict minerals’ issues. We have also asked Wespath as manager of our US holdings for its views on Apple.

We engaged with Rio Tinto regarding biodiversity protection in Madagascar, and the company provided us with a strong reassurance. Following engagement, Anglo American provided comprehensive answers to our enquiries after local community representatives expressed concerns over the safety of tailings management at the Minas Rio project in Brazil.

Human rights

Incidences of Modern Slavery affect nearly every country, and under the UK’s Modern Slavery Act companies are required to conduct sufficient due diligence to understand potential risks. We asked Tesco about supermarket car washes, where trafficking has been identified as a risk. The company provided a comprehensive response, confirming that a series of audits and checks revealed no incidences of potential trafficking. Tesco also set out its process to ensure thorough checks are carried out at all franchised car washes.


On behalf of the Church Investors Group (CIG), we are once again leading an engagement process on water risk in high impact sectors. A universe of 20 UK and European companies has been selected for targeted engagement, principally in the chemicals, construction, retail, and housebuilding sectors. The results will be available in the New Year.

Labour rights

There is a growing body of evidence that supports greater awareness of how companies treat their staff. We have long engaged with business on the adoption of the Living Wage. A new initiative led by Share Action aims to secure improved disclosure on workforce reporting, modelled on initiatives such as the CDP. The Workforce Disclosure Initiative would target the FTSE50 and seek to enhance investor insight into a range of employment issues. We are liaising with Share Action about the initiative.

French oil multinational Total had been excluded from investment from the 1990s regarding allegations that its operations in Myanmar/Burma had become associated with government forced labour practices. Following progress in Myanmar/Burma we reviewed the exclusion and met with the company to discuss its overall human and labour rights practices. JACEI reviewed progress and recommended there was no longer an ethical bar to investment, since the company’s approach to human rights is seen as among the best in the industry and meets the criteria set out in our Human Rights and Conflict Policy. The company has no exposure to the current situation in Rakhine state.

Fair Trade

J Sainsbury responded to our questions regarding its decision to pilot its own ‘fairly traded’ tea mark. The company stated that “ethical and sustainable sourcing” remained at the heart of its approach, and that the pilot programme around tea sourcing was designed to meet “increasingly complex challenges” whilst continuing to guarantee existing financial benefits to farmers. We have since sold our holding on financial grounds not linked to this engagement.

We also engaged with Tesco and were heartened to learn that it remains committed to continuing to use both Fairtrade and Rainforest Alliance accreditation.

Corporate governance & executive remuneration

The third quarter marks the end of the 2017 UK proxy voting season and we voted at 26 UK meetings, opposing or abstaining 12% of resolutions including 22 remuneration reports and policies (61%). In Europe we voted at 11 meetings, and opposed 23% of all resolutions. During the quarter we published a revised Corporate Governance Policy that replaces several older corporate governance and voting policies. This is available on our website. We exercise our votes at company meetings in accordance with a template drawn up with fellow CIG members. We are reviewing the template ahead of the 2018 voting season.

Fossil Fuels and Ethical Investment

Fossil Fuel Investment Ethics

Whilst climate change must be dealt with at government level, businesses and investors also have an important role to play

Climate change poses serious challenges to us all. The recent COP 21 summit in Paris recognised this challenge and made government level moves to transition to a low carbon economy. Whilst climate change must be dealt with at government level, businesses and investors also have an important role to play.

This is something Epworth Investment Management and the Central Finance Board of the Methodist Church (CFB), which manages investments on behalf of the Methodist Church in Great Britain, has long recognised. In 2015 Epworth extended its policy on climate change to address the complex challenges presented by different types of fuel. As a result two holdings were sold and four more excluded from potential investment on ethical grounds. This was because they all had business models based on the exploration for, and development of, new fossil fuel assets. A holding was also sold due to the company’s exposure to thermal coal and its ongoing commitment to the business.

The Methodist Church has responded to the challenge of climate change in a variety of ways. At the 2015 Methodist Conference there were three Memorials and a Notice of Motion on the subject as well as a debate on the report Fossil Fuels and Ethical Investment. This year the Joint Advisory Group on the Ethics of Investment (JACEI), convened a forum to examine the theology, economics and likely scenarios of climate change as well as the case for disinvestment. The Forum was held in London on 23 March. Recognised climate change specialists and concerned NGOs helped us evaluate what was said, with the aim being to assist JACEI in discerning the appropriate advice to offer Epworth and the CFB related to fossil fuels and climate change.

Epworth’s Climate Change Policy sets out how we encourage companies to reduce greenhouse gas emissions and improve their disclosure. This was the impetus behind our membership of Aiming for A, a coalition of institutional investors with £230bn assets, including other members of the Church Investors Group, the Local Authority Pension Fund Forum, and the Pensions Trust. Aiming for A was launched in 2012 to engage on climate and carbon risk with the 10 largest UK extractives and utilities companies. The aim is to drive carbon risk management and disclosure by encouraging companies to improve their rating to the top band as measured by CDP (formerly Carbon Disclosure Project). The Survey’s scoring methodology gives considerable weight to operational emissions management.

Fossil Fuels Ethical Investment

In 2015 the Coalition successfully co-filed shareholder resolutions for the BP and Shell AGMs

In 2015 the Coalition successfully co-filed shareholder resolutions for the BP and Shell AGMs, encouraging the companies to better manage their own carbon emissions. Both resolutions were backed by the companies and the votes were both over 98% in favour. The impact of the resolutions can already be seen with the companies beginning to integrate climate change into their business strategies.

Aiming for A is now calling for major mining companies to step up their disclosure and signal that they have taken on board the challenges posed to their businesses by the global drive to mitigate climate change. In December 2015 the Coalition submitted ‘supportive but stretching’ shareholder resolutions to Anglo American, Glencore, and Rio Tinto with the aim of encouraging them to accelerate their efforts to adapt to a low carbon economy. Those co-filing these resolutions now represent over $4 trillion of assets. The resolutions direct the miners to address five main areas including reducing operational carbon emissions as well as supporting research and development into low-carbon energy. Shareholders will vote on the resolutions at the companies’ AGMs in the spring.

Ethical Investment Review June 2017

Ethical issues in the food & beverage industry

We work extensively to encourage companies to take seriously the threat of climate change.

Climate change

We work extensively to encourage companies to take seriously the threat of climate change. We do this through engagement, including in partnership with other investors. and through shareholder resolutions. We apply our research capabilities to ensure our portfolios reflect our ethical stance, which can lead to disinvestment in some cases.

We co-signed a letter from the Institutional Investors Group on Climate Change to the G7 and G20 leaders urging them to meet their commitments under the Paris Agreement and to drive investment in low carbon technologies as part of a transition framework. We also wrote to Centrica about its 25% stake in the Bowland Shale Basin in Lancashire, noting the effect on climate change and emissions and the potential environmental and community impact associated with fracking. We asked Centrica to provide more information on how it plans to keep within the two degree limit whilst it invests in shale gas exploration.

Through our partners in Wespath, part of the United Methodist Church in the US, our main overseas portfolio was involved in filing a successful resolution at the Occidental Petroleum AGM, with 67% support from shareholders who voted. The resolution called on the company to provide a detailed report assessing the impact of climate change. We also supported a similar resolution at the ExxonMobil AGM, co-filed by the Church of England, which received 62% support. We abstained on a shareholder resolution at the Royal Dutch Shell AGM which called on the company to set targets for its Scope III emissions (the emissions of its customers). We believed the target was impractical but were disappointed with the company’s response. The resolution attracted little support.

We are founding members of the Transition Pathway Initiative (TPI) which aims to determine how companies are progressing towards full transition. In June the TPI launched a sector review on utility companies. We use the TPI as a research tool.
The Methodist Conference this year expressed concern at the low rate of progress from Oil and Gas companies responding to climate change. Conference called for a lower disinvestment threshold based on when companies will be acting consistently with a 2C or below target. Our ethical investment advisory committee will be returning to this issue in detail and we will also be extending our analysis and engagement.

Breast Milk Substitutes Reckitt Benckiser engagement

Through the Church Investors Group, we engaged with Reckitt Benckiser over its planned acquisition of US infant nutrition business Mead Johnson

Breast milk substitutes

Through the Church Investors Group, we engaged with Reckitt Benckiser over its planned acquisition of US infant nutrition business Mead Johnson. Mead Johnson achieved a disappointing bottom position in the latest Access to Nutrition Index breast milk substitutes (BMS) rankings, suggesting its approach to the marketing of BMS products is considerably below best practice. We will continue to monitor the situation.

Extractive industries

We engaged with Rio Tinto after allegations were made that the company had relaxed its biodiversity commitments in Madagascar. The company stated in reply that a new independent multi-disciplinary committee would be overseeing the implementation phase of the site’s biodiversity and natural resources programme. We wrote to Anglo American after local community representatives expressed concerns over the safety of tailings management at the Minas Rio project in Brazil. We await a response. We participated in a BP meeting for responsible investors in which its 2016 environmental, social and governance performance was presented. BP appears to be developing interests in renewable energy and biofuels, albeit from a low base.

Fair trade

The fair trade movement has been one of the great success stories in terms of raising standards and improving economic livelihoods. We were therefore disturbed to learn that J Sainsbury, among the most significant UK contributors to sourcing fair trade produce, may be considering withdrawing from the Fairtrade mark and replacing it with an alternative ‘fairly traded’ standard. The Methodist Conference expressed its deep anxiety at the move by passing a Notice of Motion calling on the Church to engage with supermarkets to continue to support the Fairtrade Foundation Fairtrade mark. We will be engaging with the companies as shareholders.

Church Investors Group

We participated in the annual CIG conference in June. Its sessions focused on executive remuneration, climate change and how members can work with fund managers to deliver responsible investment objectives. The conference included speakers from Barclays, the Taskforce on Climate Related Financial Disclosures and the London Business School.

Executive Remuneration and Ethical Investment

We will soon publish a revised and updated statement of our corporate governance voting policy

Corporate governance & executive remuneration

We exercise our votes at company general meetings in accordance with a template drawn up with fellow Church Investor Group (CIG) members. This year is for many UK companies a Remuneration Policy year, in which binding proposals are put to shareholders on pay policy for the period 2017-2019. We voted against many policy proposals as being either excessive or providing a poor link to performance.

The majority of UK AGMs take place during the June quarter, and we voted at 73 UK meetings, opposing or abstaining 13% of resolutions including 66 remuneration reports and policies (62%). In Europe we voted at 178 meetings, and opposed 22% of all resolutions.

We will soon publish a revised and updated statement of our corporate governance voting policy.

Ethical Investment Review March 2017

Climate change

As part of our commitment to managing portfolios consistent with a 2 °C world, we continually engage with companies about climate change. Companies are still responding to shareholder resolutions we have co-filed over the past couple of years. We use a number of tools to support our in-house research in evaluating responses.

As such we are founder supporters of the Transition Pathway Initiative, which aims to determine how companies are progressing towards full transition. A preliminary assessment of the oil and gas industry found climate risk was acknowledged as a business issue by almost all surveyed companies, but few were at a level where strategic assessment had begun. Utility companies were found to be more advanced than energy companies, but the most common factor hindering progress was found to be a lack of quantitative targets for reducing operational GHG emissions.

Ethical issues in the food & beverage industry

We have published a new Policy Statement on issues in the food industry relating to health, nutrition and wellbeing

Ethical issues in the food & beverage industry

We have published a new Policy Statement on issues in the food industry relating to health, nutrition and wellbeing. This recognises that diet related obesity and under-nutrition are key issues for the food and beverage sector. The Policy looks at the areas for engagement, principally product reformulation to remove salt, sugar and fat, or to add fortified nutrients. The Policy updates existing polices on Food and Nestlé.


We are committed to regular engagement with Nestlé. We attended a conference in London convened by Nestlé, bringing together many of the global agencies on infant nutrition to debate the First 1000 Days of Life. This considered nutrition from conception to two years, and the role infant formula manufacturers can play in the debate around improved ‘in-country’ regulation. This was a ground-breaking initiative and we were the only investment organisation represented.

Mining and Faith Reflections Initiative

The MFRI brings together church leaders and mining executives to discuss how mining can best promote the common good. We are involved because our relationships with both church and mining mean we have been able to help facilitate discussions. We took part in a visit to Colombia which was useful while also highlighting the challenges involved in organising engagement with communities. A Day of Reflection is planned for later this year. There is strong commitment by the Roman Catholic, Anglican and Methodist representatives to work closely together on the MFRI with a statement of ethical convergence between the three Churches being one specific outcome.

Carnival Corporation

Carnival Corporation was recently fined $40m for illegal dumping of oily waste at sea


Carnival Corporation is the world’s largest leisure travel company, specialising in ocean based tourism. The company was recently fined $40m for illegal dumping of oily waste at sea. The settlement with US authorities requires Carnival to retrofit 78 cruise ships to prevent reoccurrence. We wrote to Carnival regarding its environmental management to seek reassurance that it will in future adhere to the highest standards of waste management. We also challenged it on the approach to tackling climate change given shipping falls outside of the international climate agreement. A response is awaited.

Human rights

The French oil company Total has been excluded from investment since the 1990s stemming from its activities in Burma/Myanmar. Given changes in the country, we reviewed whether the exclusion remains warranted. In particular we needed to understand how Total protects human rights in the vicinity of its pipeline, and how it managed community relations in areas of conflict. An encouraging response was received from the CEO setting out some of the grievance mechanisms the company has established and inviting us to discuss these further at a meeting. We are due to meet the company in the near future.

The launch of the Corporate Human Rights Benchmark in March was the first attempt to rank companies across three sectors; agricultural products, apparel and extractives, according to their management of human rights risk. Very few companies scored well, suggesting it is difficult to respond to multiple human rights risks. BHP Billiton, M&S and Rio Tinto scored above average. We will use the Benchmark to help inform engagement.

M&S responded to our query about allegations of child labour in its supply chain in Turkey. The company assured us that child labour was not tolerated and investigations had been carried out within 24 hours of the allegations being made.

Farm animal welfare

The results of the 2017 Business Benchmark on Farm Animal Welfare saw several companies fall in terms of process or performance. We wrote to Compass Group, J Sainsbury and Whitbread seeking to understand why. Responses have been encouraging with both Whitbread and Compass setting out their plans for improving the way they communicate their approach to farm animal welfare.

Corporate Lobbying

Vodafone, WPP, RBS and HSBC have responded to our questions about their approach to lobbying transparency

Corporate lobbying

Vodafone, WPP, RBS and HSBC have responded to our questions about their approach to lobbying transparency. Vodafone in particular showed a strong commitment to full transparency, which was recognised in the Transparency International rankings.

Corporate governance & executive remuneration

We are part of the Church Investors Group (CIG) collaborative voting policy and we exercise our votes in accordance with a template drawn up by CIG. As a prelude to the 2017 proxy voting season, CIG wrote to all FTSE350 constituent companies setting out the new voting policy. This will take a strong and proactive stance on executive pay, gender diversity, climate change and wider corporate governance best practice. The Policy in particular targets excessive pay and whether incentives genuinely motivate superior performance.

The first quarter of the year is traditionally quiet. We voted at 10 UK meetings, and opposed or abstained 17% of resolutions. We opposed remuneration resolutions at Berkeley Group, Compass Group and WH Smith. In Europe we voted at 35 meetings, and opposed/abstained 16% of all resolutions.

Ethical Investment Review December 2016

Climate Change and Ethical Investment

The December 2015 Paris climate agreement came into force during the quarter

Climate change

The December 2015 Paris climate agreement came into force during the quarter. Signatories are committed to keep global warming within 2ºC of pre-industrialised levels and companies will need to develop transition strategies to meet these demanding targets. We attended a ‘fossil fuel transition scenarios’ seminar hosted by IIGCC that considered the resilience of oil majors and whether they are doing enough in response. Work by CDP indicated that the European oil majors rank much higher than their US peers in the transition to a low carbon economy.

A constructive meeting with John Wood gave reassurance that it was well positioned for the transition to a low carbon economy with a de minimus involvement in tar sands and exposure to oil services falling as it develops a clean energy focus including wind and battery storage capabilities.

The CFB is one of 13 founder asset owners of the Transition Pathways Initiative (TPI), which will assess how individual companies position themselves for the transition to a low carbon economy. An assessment of management quality and carbon performance of the oil and electric utility sectors has been issued as the first part of a phased roll out. The TPI tool will allow companies’ projected emissions to be profiled and compared to the 2ºC target and current public policy commitments.

Mining and Faith Reflections Initiative

We participated in a series of meetings in Rome where it was agreed that: the Anglican, Catholic and Methodist Churches should continue to work closely together on the Initiative; a statement of ethical convergence between the three Churches be set out; a site visit to Colombia in February; and senior church leaders and mining executives should meet in the spring prior to a Day of Reflection in the autumn.

Extractive Industries and Ethical Investment

Rio already has the best safety record in the sector, although a fatality free year remains elusive

Extractive industries

We were involved in the Rio Tinto investor sustainability day, where we heard about the impressive exercise to map accidents and injuries over 25 years to help understand the nature of fatality risk across its operations. Rio already has the best safety record in the sector, although a fatality free year remains elusive. A new strategy to assess biodiversity loss, which is now regarded as a critical risk, was also launched. On a more negative note we have been monitoring with concern allegations of bribery in Guinea.

We continue to monitor Samarco, BHP Billiton’s Brazilian joint venture with Vale. Additional concerns have arisen about the failed dam and ongoing environmental problems. Already BHP has set aside $1.2bn for compensation and ongoing remediation work. However, we were heartened by the decision of BHP to design a new global structure to strengthen joint venture safety and risk management where it is not the operator.

Access to Medicine Index

Once again GSK was ranked top in the Access to Medicine Index, and was particularly commended for its R&D targeted at urgently needed treatments in developing countries. It was pleasing to see that our engagement with AstraZeneca following its previous poor showing has been rewarded as it is now ranked 7 out of 20, up from 15 in the last survey.


We met with senior Nestlé UK managers as part of our ongoing engagement with the company. Sustainability initiatives in coffee, cocoa and commodity sourcing were discussed, as well as UK Modern Slavery Act reporting. Nestlé remains committed to the FTSE4Good process on Breast Milk Substitutes. Danone has become the second company to meet the stringent requirements for inclusion in the FTSE4Good Index.

Modern slavery

Modern slavery and human trafficking were the main themes of the Church Investors Group conference. Under the UK’s Modern Slavery Act companies with turnover in excess of £36m, any part of which is located in the UK, are now required to report actions to ensure that slavery and human trafficking have not occurred in their operations and supply chains. Alongside CIG colleagues we met with Next and British Land to understand their approaches in assessing the potential risk from trafficking and modern slavery.

Farm Animal Welfare and Ethical Investment

We became a signatory to a global investor initiative on anti-microbial resistance

Farm animal welfare

The widespread use of antibiotics in the food supply chain is believed to be in large part responsible for increased resistance in humans. We became a signatory to a global investor initiative on anti-microbial resistance in partnership with ICCR, As You Sow, and Farm Animal Investment Risk & Return. The initiative urges global food and hospitality companies to phase out the routine use of antibiotics in their operations. We are a Business Benchmark on Farm Animal Welfare Investor Statement signatory as we anticipate that farm animal welfare will become of increasing significance for responsible investors.

Corporate governance & executive remuneration

During the quiet fourth quarter we voted at 10 UK meetings, and opposed or abstained 24% of all resolutions. We opposed remuneration resolutions at Sky, Wolseley, BHP Billiton and AB Foods among others. In Europe we voted at 8 meetings, and opposed/abstained 11% of all resolutions.

We were invited to consult on remuneration policy by SThree, the specialist recruitment company. Our recommendations to reduce the threshold vesting level under the LTIP and increase the shareholding requirement threshold were implemented.

We welcomed the Government’s consultation on corporate governance which: addresses executive pay; strengthens employee, customer and supplier voices; and the toughens the governance regime for leading non-listed UK businesses.

UK Stewardship Code

We have been rated as a Tier I Signatory under the new Financial Reporting Council Stewardship Code rating system. This confirmed that our Statement is a good quality and transparent description of our approach, providing explanations of alternatives where necessary. Our Statement is available on our website.