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.
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 PPI mis-selling and the Global Financial Crisis. 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.
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:
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.
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.
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.
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.
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.
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.
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 here.
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.
Epworth recognises the increased complexities and scrutiny surrounding ethical investment and seeks to ensure Epworth is both pragmatic and transparent in its approach, whilst maintaining the integrity of its ethics. Alongside setting clearer policies, setting levels of tolerance for exposure to ethical issues in directly held companies achieves both transparency and integrity.
The following levels of tolerance apply to directly held companies’ percentage of revenue derived from issues that are unaligned with Epworth’s ethical positions.
For information on pooled funds, see our Pooled Funds Policy
| Issue | % of company revenue |
|---|---|
| Electricity production using fossil fuels | 30% |
| Alcohol distribution and sale | 10% |
| Non-weapon military components | 5% |
| Tobacco distribution and sale | 5% |
| Conventional weapons and other armaments | 3% |
| Gambling | 3% |
| Oil and gas exploration, production, refining | 3% |
| Thermal coal exploration and production | 3% |
| Adult entertainment | 1% |
| Alcohol production | 1% |
| High interest (Doorstep) lending | 1% |
| Tobacco production | 1% |
| Controversial weapons | 0% |
| Elective abortion facilities / manufacturers of sole purpose abortifacients | 0% |
The extractives sector is significantly exposed across the spectrum of ESG issues including labour conditions, societal care, and indigenous rights. The sector is also a strategic asset by many governments, particularly in emerging market jurisdictions, leading to bribery, corruption, and subordination of environmental concerns. However, as the supplier of key inputs to meet the demand for the development of sustainability-focused products and renewable energy infrastructure, the extractives sector should form part of a robust engagement strategy that focuses the protection of people and planet.
Relevant expectations will be considered on an impact potential basis as indicated by our priority matrix.
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. We therefore expect companies to meet the standards set out in our climate change policy.
We expect companies to mitigate the impact their activity and products have on the environment. Companies should seek to protect the environmental value of the regions in which they operate by seeking sustainable improvements to their activities. Issues such as tailings management; product lifecycles; biodiversity; and land, water and air usage should be measured, monitored and improved upon.
Consultation with local communities is required where mining may have a major impact upon the social and physical environment and upon local people. Respect for the views of local communities should be the basis on which the consultations are made. We expect companies to respect the international council on mining and metals indigenous peoples position statement.
We expect companies to treat their workers with dignity and respect, to meet local laws and international agreements, to recognise the right to unionising, to pay a fair wage, and to value diversity and inclusion. Companies must maintain a clear and effective policy to eliminate accidents, and to safeguard the health and safety of its workers. Companies need to be aware of the risk of the illicit use of forced labour or child labour, as well as avoiding racial or sexual discrimination.
We expect companies to respect the universal declaration on human rights, the UN guiding principles on human rights, the ten UN global compact principles, and the voluntary principles on security and human rights. We further expect companies to take a systemic approach to integrating human rights due diligence throughout their supply chain.
We support the view that 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 therefore expect companies to meet the standards set out in our corporate governance policy.
We expect companies to take steps to limit the negative health impacts associated with working in and around its mining operations. Companies should measure and seek to reduce the negative impact of its operations on both physical and mental health of workers. We also expect companies to enhance positive contributions to the health and wellbeing of its employees, contractors, and the local community. Where a mining operation is located in or near a poor community, we expect mining companies to take steps in limiting exposure to disease, domestic violence and substance abuse. We further expect mining companies to be considerate operators of road vehicles and to promote road safety in their employee training.
Where not in contravention of the UN principles on human rights, we expect companies to respect a country’s political process and to not restrict the individual rights and freedoms of its employees and contractors. We further expect companies to be transparent where it supports political parties, candidates, or campaigns and to disclose where it engages with government on public policy and legislation. It is also our position that companies have an ethical obligation to obey the spirit, as well as the letter of the law on tax. We expect companies to have a publicly available and transparent tax policy, that outlines the company’s position on tax compliance, tax planning, and tax reporting.
We expect companies to pursue better representation of race, gender, ethnic origin, neurodiversity, and sexual orientation across all areas of operations – including Board and C-suite level. Companies should develop policies and procedures that actively promote inclusion and diversity in the recruitment and hiring process. Companies should also adopt corporate culture practices that promote an understanding and inclusion of minorities.
We expect specific attention to be paid to conflict sensitive areas where there is a consistent record of egregious human rights abuse. Special measures should be 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 We actively seek 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. This includes the provision of (or expectation of access to) services (such as water, gas or electricity, transportation, or agricultural land) when that provision materially disadvantages one community in favour of another.
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. Companies will be graded A-E, with A being a leader, and D being a laggard. Companies with egregious scores will graded E and will be excluded. Details on our research and monitoring can be found on our website.
Considering institutional goals, stakeholder value preference, significance of potential outcomes, portfolio impact, an action plan will be made and executed. This may include engagement, public activism, re-evaluation, referral, or disinvestment.
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 companies to discuss the key opportunities and hurdles they face in the transition to a low carbon economy, encouraging verified emissions reductions targets, and challenging companies through AGMs or voting strategies in areas where they fail to meet expectations.
This document and its outcomes will be reviewed annually to ensure the expectations and engagement activities meet both stakeholder priority and sector reality.
Epworth Investment Management, along with its owner, the Central Finance Board of the Methodist Church (CFB) has defined its mission as: seeking practical solutions which combine Christian ethics and investment returns.
Our aim is to:
Epworth invests with Christian ethics. We aim to construct and manage investment portfolios which reflect this approach. We integrate ethical considerations into our investment process, evaluating ethical, environmental, social, and governance (ESG) risks and concerns in the businesses in which our portfolios invest.
We are advised on our ethical approach by the Methodist Church’s Joint Advisory Committee on the Ethics of Investment (JACEI).
When analysing a potential investment in a company, we are concerned with what a company does and how significant and serious is any exposure to issues of ethical concern. We also examine how a company is run.
Epworth ethical policies enable the identification of companies which are not consistent with our Christian ethical investment approach, as advised by JACEI. Epworth operates proprietary ethical exclusion lists derived from these policies and advice on securities in global markets.
Our ethical investment policies and quarterly Ethical Investment Reviews can be found at https://www.epworthinvestment.co.uk/news-and-library/ethical-hub.
Screening is applied both to equity and fixed income securities.
Screening for exclusions is derived from our unique ethical investment approach, as described above. We use a number of screening tools to assist us, but the criteria are determined by Epworth and reflect its policies and approach.
We apply ethical exclusions to avoid investment in companies with material or significant exposure to the following areas of business activity:
Companies in the extractives sector are excluded from investment until being ‘positively’ screened as acceptable for investment, usually following a period of engagement.
Under our climate change policies companies are excluded where they have a significant exposure to carbon intensive fuels such as coal and oil sands, or where they are ‘wholly or mainly’ committed to fossil fuel exploration.
Other ad hoc exclusions are applied from time to time, for instance where there may be human rights concerns. This will normally follow a period of close engagement and dialogue.
The principal means by which we exercise ethical stewardship is through engagement with investee companies. This is sometimes known as ‘active ownership’. Engagement is applied both to stock exchange and fixed interest securities. The way we approach Stewardship is set out as part of our annual Statement under the UK Stewardship Code, to which we are a Tier I signatory.
We encourage high standards of ethical business practice and will seek to engage where we:
Engagement is carried out by all members of the investment team, including senior management, via written correspondence (letters and email), telephone conference calls, or face to face meetings.
We may choose to engage with investee companies collaboratively. We are involved in a number of collaborative investor initiatives in which effort is pooled.
The principal, but not sole, means of exercising such engagement is through the CFB’s membership of the ecumenical Church Investors Group (CIG), https://churchinvestorsgroup.org.uk/ where the CFB leads or supports various engagement strands. One of the core strategic goals of the CIG has been defined as:
Other collaborative engagements are conducted through our memberships of the IIGCC (Institutional Investors Group on Climate Change), PRI (Principles of Responsible Investment), BBFAW (Business Benchmark on Farm Animal Welfare), and FAIRR (Farm Animal Investment Risk & Return). We use other investor tools and benchmarks such as the Access to Medicines Index and Access to Nutrition Index, in order to conduct engagement.
We routinely engage with investee companies itself on a range of material ethical and ESG issues, which have recently included:
Responses are evaluated to determine whether further intervention is required, or whether the engagement may be deemed satisfactory and therefore closed. Where a company fails to respond after a reasonable period of time, a follow up approach is made, either to the same recipient or (wherever possible) to an alternative named individual.
Company preparedness in response to climate change and board diversity have been integrated into our corporate governance voting policy, which may result in oppose votes being registered against the re-election of individual directors, or against the adoption of the Annual Report & Accounts.
Engagement is normally targeted at senior management, specifically:
Meetings are typically held with sustainability or corporate responsibility professionals or with the senior leadership team.
From time to time we are invited to consult on corporate remuneration proposals, and it is our policy to respond constructively to these consultations.
We may respond to, or participate in, public policy consultations on either corporate governance, corporate reporting or wider stewardship reviews, where these are of material interest. We may also engage with other public bodies such as regulators, government or supra-national bodies such as the OECD or EU on specific matters pertinent to ethical investment stewardship.
Our engagement activity is published quarterly in our Responsible Investment Review for clients and online at http://www.epworthinvestment.co.uk. More information on engagement activity is published in the annual JACEI Report to Conference of the Methodist Church, which is also available online.
Our unique approach to responsible investment gives clients assurance that their investments are managed in line with their ethical standards, and that Epworth can be held accountable to the principles we outline in our pillars.
We also recognise there are times when our clients could benefit from specialist expertise that goes beyond our inhouse offering. This may be, for example, geographical specialisations; sector specialisations; absolute return strategies; venture capital and other early-stage enterprises; and private equity.
Pooled funds represent the most effective way to access this external expertise. Pooled investment funds, or collective investment schemes, are assets of multiple beneficial owners aggregated into single investment vehicles.
Such funds provide access to specific asset classes, thematic investments or strategies that could not otherwise be accessed cost effectively or in the appropriate size without a heightened risk of liquidity becoming unbalanced.
Examples of pooled funds include open-ended structures, closed ended structures and partnerships that can be regulated or unregulated. Epworth’s own funds are open ended unit trusts, that are structured as Charity Authorised Investment Funds. The “platforming” of Epworth’s portfolio clients has increased the range of potential asset classes using pooled funds. These include Alternative assets, Infrastructure, Property, Private Equity, and Venture Capital. Exchange Traded Funds are another vehicle commonly used in Epworth’s Funds.
When Epworth invests through pooled investment funds there may be indirect exposure to business activities and companies that would otherwise be excluded on ethical grounds. This is comparable with an investment in a large, diversified company, which may not merit exclusion on ethical grounds but which, nonetheless, may have some exposure to activities which would result in an exclusion if they were the sole activity of the company.
If Epworth utilises pooled funds, the following preferences will be considered:
The prevalence of smoking in the UK has declined rapidly over time as a result of comprehensive health education, prevention initiatives and marketing regulation. In 1948, eight in 10 adult males smoked, but with the start of Government health education programmes in the 1970s, this began to reduce steeply, but more recently has tailed off and begun to plateau. 1
The disparity in smoking by age and gender has also narrowed over time. According to Government estimates, 15.5% of adults in England over the age of 18 and 15.1% for the entire UK (male and female) were presumed to smoke regularly in 2016 compared to 46% of men in the early 1970s (41% for women). This equates to around 7.4m active smokers.
Smoking declines with age. Whereas 17.8% of UK adult males (20% adult females) smoke between the ages of 18-24, for the over 65s the equivalent is 8.1%. Smoking appears to peak between the ages of 24-35 (19.7%), and then declines rapidly for both sexes.
Smoking is the leading cause of preventable mortality, with 81,000 deaths per year from tobacco related illness, and the biggest cause of preventable cancer, particularly lung cancer, where smoking is responsible for c70% of diagnoses. It is also linked materially to bowel, bladder, mouth, upper throat and oesophagus cancer. There is no statistical difference in risk between cigarette smoking and other forms such as pipe, cigar or shisha.
The socio-economic cost of smoking is stark. Research by Oxford University put the cost to the NHS at exceeding £5.2bn per year, with approximately 485,000 (England) hospital admissions in 2016 primarily linked to tobacco related conditions.
Public Health England has concluded that vaping is 95% safer than smoking. An independent commissioned report (2015) found there to be no evidence that vaping was a route into smoking for children or non-smokers, and that it is a potentially successful route to curing addiction from smoking. E-cigarettes provide users with the nicotine rush gained from smoking, without cancer causing tar and other chemicals.
However, as the House of Commons Science and Technology Committee 2 itself acknowledges, uncertainties remain, and Cancer Research UK (CRUK) maintains that questions linger over the long-term safety of vaping as it has not been in circulation long enough for quantitative and qualitative longer term tests to have been carried out. Epworth has therefore determined to take a precautionary approach to vaping and e-cigarettes in respect of investment.
Tobacco is now among the most tightly regulated of products that are legitimately offered for sale. Advertising or marketing of tobacco was prohibited in the UK in 2002, and further restrictive legislation in 2016, mandated standardised, plain packaging for all cigarettes and loose leaf tobacco; these form among the most constraining sales and marketing restrictions for any legally sold product anywhere.
As with so many modern ethical dilemmas, there are few direct Biblical references.
Whilst the Bible is silent on tobacco smoking, it is reasonable to draw attention to passages concerned with the body as a temple and ‘healthy or pure living’. The key text remains I Corinthians 6: 19-20; “Or do you not know that your body is a temple of the Holy Spirit within you, which you have from God, and that you are not your own? Glorify God in your body”. These Biblical traditions support the view that practices that pollute or contaminate the body are not God given and should be avoided.
John Wesley’s views on smoking are obscure. However, given his active interest with the outdoors, exercise, healthy bodies and views expressed in his well-known ‘Letter to an Alcoholic’, a presumption against the practice of smoking on ‘pollution’ grounds might be assumed. In his Sermon 50, the ‘Use of Money’, he says ‘but this it is certain we ought not to do; we ought not to gain money at the expense of life, nor (which is in effect the same thing), at the expense of our health’. This would indicate that had the health effects of tobacco been known, he may have taken a not dissimilar view to smoking as he did to alcohol.
Epworth and the Central France Board of the Methodist Church has excluded tobacco and tobacco related products from investment since at least the early 1970s, when ethical investment policy was first formalised.
Tobacco is the most common and widely observed ethical exclusion among faith investors and other secular ethical investors. The Church Investors Group (CIG) survey of members suggests 96% of its members avoid investment in major stock-exchange listed tobacco companies.
Epworth will not invest in any company that wholly or mainly manufactures tobacco or tobacco related products.
For the purposes of this Policy, this includes finished tobacco products such as cigars, cigarettes, pipes and loose tobacco, filters, tips and bands. Epworth will also seek to avoid investment in any agricultural or commodity related company where tobacco is the main crop.
Retailers will not normally be excluded from investment unless the contribution tobacco sales make to overall company revenues are significant, or where wholesale tobacco is a material component of sales.
Although NHS England views e-cigarettes and vaping as carrying a fraction of the risk of conventional tobacco products, and recognises that they can be effective in controlling and alleviating addiction, Epworth will take a precautionary approach by avoiding investment in such products until long-term quantitative and qualitative evidence emerges.
Where necessary or appropriate, Epworth will engage with retailers on tobacco sales, although it is recognised that UK law applies very strong restrictions on marketing, advertising and branded sales, as well as restricting their sale to minors.
The payment of tax is a contribution to the common good that enables a state to provide a range of public services for the benefit of all. It is the position of the Church that individuals and corporate bodies have an ethical obligation to obey the spirit, as well as the letter of the law on tax.
Tax justice has become a significant political and ethical issue in recent years. Scandals highlighting tax avoidance on the part of some large multinational companies in particular have raised the profile of tax justice, not least during years of restricted growth in public spending. This has contributed to growing pressure on Government and international agencies, such as the G7, G20 and OECD to improve legislation and enforcement, and on companies to organise their tax arrangements in a responsible manner that is within both the spirit and the letter of the law.
Tax and an obligation to pay are mentioned in the Old and New Testaments. Biblical tradition points to the important role tax plays in creating a more just society and in establishing correct relationships. When, in the New Testament, Jesus is asked whether it is lawful to pay taxes to an (oppressive) emperor his reply, “give back to Caesar what is Caesar’s and to God what is God’s” (Mark 12: 13-17), highlights that the Roman Empire has a legitimate demand on people’s incomes, but that God’s demands are even more important.
Tax facilitates complex beneficial economic relationships within society. Not all of these relationships can be reconciled through a simple contract. Tax provides for the payment of security, education, welfare and healthcare, as well as sustaining the legal framework to ensure fair transactions and property rights. In Romans, Paul writes “pay to all what is due to them – taxes to whom taxes are due, revenue to whom revenue is due… honour to whom honour is due… Love does no wrong to a neighbour; therefore, love is the fulfilling of the law” (Romans 13:7).
The Bible also makes clear that the payment of tax, when rightfully due, is legitimate; “therefore, it is necessary to submit to the authorities, not only because of possible punishment, but also as a matter of conscience” (Romans 13:6).
The Methodist Conference has received reports of particular relevance to the question of tax justice, including “The Ethics of Wealth Creation” 1 (1990), and “Of Equal Value: Poverty and Inequality in the UK” 2 (2011).
In the “Ethics of Wealth Creation” (1990) the importance of structuring capitalism so as to achieve international as well as national justice was highlighted. “Christians must struggle with the fact that we have a clear idea of a global common good, but no structure that embodies our common citizenship. Capitalism must be shaped to address this problem and so must the Church.”. Thus, tax justice forms an essential part of the Church’s strong commitment to international justice.
In “Of Equal Value: Poverty and Inequality in the UK” (2011), the Methodist Church acknowledged the importance of tax in creating a just society by stating that “money paid in fair taxation is a gift freely given; a contribution to the common good. When a proportion of this money is fairly paid in benefits to the least well off, it contributes to creating the just and compassionate society that the Church would wish to see. Those who would abuse these systems by not abiding by either their letter or their spirit push the goal of a just society further from our grasp.”
Conference received a Memorial in 2012 (M32)3 on Tax Justice from the Birmingham District Synod, welcoming the 2011 report (above) and asked Conference (inter-alia) to:
Conference accepted the Memorial and called for tax justice to be included in relevant work-plans as resources allowed.
The 2015 Conference received a further Memorial (M30)5 from the Birmingham District. This Memorial welcomed the “progress that has been made on communicating the issue of tax justice throughout the Methodist Church by the Methodist Tax Justice Network (MTJN) especially in association with the Joint Public Issues Team (JPIT). The Memorial then asked Conference (inter alia) to call upon:
Conference accepted the Memorial and its reply also “directs the Methodist Council to ensure that the Connexional team work with JACEI and the CFB to identify when further work on these [tax justice] issues can be completed and further directs Council to review progress by January 2017.”
The Methodist Church’s position on tax can be summarised as follows:
The CFB and JACEI have been engaged with the subject of tax justice for sometime. This activity has included:
The emergence of technology and e-commerce has undoubtedly added complexity and allowed the flow of capital for tax planning purposes to be pursued with increased aggression. In 2012, a series of scandals emerged involving major multinational companies avoiding tax from the UK Government. Amazon, Starbucks and Google came in for particular criticism from the House of Commons Public Accounts Committee6.
Concerns have been raised about the implication such practices have, both for the tax revenues of the exchequer, and the reputation of businesses that benefit from their license to operate under the Rule of Law, but where they contribute very little to that society.
The Institute of Business Ethics (IBE) argues that the behaviour of a business in tax planning ‘falls into the realm of ethics because businesses have a choice about their approach to interpreting the law and hence paying taxes. Whilst remaining legal in all it does, where a business draws its ethical line regarding how to interpret the tax laws and arrange its affairs is subject to a good deal of discretion.’7 This can extend to where it pays its taxes.
Informed and meaningful engagement on tax with different companies requires a high level of technical expertise owing to the complexity of tax law and the multi-jurisdictional nature in which it is paid.
It would generally be neither feasible nor desirable for investor engagement to make technical determinations around the intentions (or otherwise) of individual financial structures by companies. Fruitful engagement should be centred on encouraging tax transparency and on how companies manage and disclose their tax arrangements.
Transparency and disclosure is viewed as the most beneficial avenue for engagement as many of the financial structures that often determine tax liabilities are occluded. Secrecy and complexity obfuscate understanding. While such structures may have legitimate use (including entirely appropriate tax planning and some use of low tax jurisdictions), secrecy raises concerns about the appetite and desire to avoid tax.
A transparent tax policy leads to greater confidence that financial engineering has a legitimate purpose and is acceptable from a societal standpoint.
Hallmarks of company best practice in this area include:
In seeking to engage with companies this Policy recommends an approach focused on transparency and openness. For instance we note the elements of best practice thinking developed by the PRI (Principles of Responsible Investment) and also by ActionAid in its primer, “Tax Responsibility – an Investor Guide”8 around the primary areas of:
A responsible tax policy would be a clearly communicated tax policy, publicly available, which aligns the company with accepted best practice, sets out the company’s approach to its tax arrangements and rules out aggressive tax planning practices.
Tax management would ensure that the responsible tax policy is implemented throughout the Group and that it is communicated effectively, accompanied by appropriate training and details relevant compliance functions. Mechanisms for identifying non-compliance should be clearly highlighted.
Reporting on tax policy and its management would include detailed information of where and how a company pays tax by jurisdiction, sufficient to ensure that practice mirrors policy. Investors should be able, clearly, to assess and gauge risks associated with the company’s practices and where they depart from policy.
Relevant questions to be asked as part of any engagement would include:
Tax Policy
Tax Management
Tax Reporting
We apply our Christian approach to investing across all asset classes. This includes fixed income securities. Although ethical issues of concern apply to all asset classes, there are some differences in application to fixed income securities compared to equities.
The holding of debt raises some ethical questions. Some maintain that interest-bearing debt itself is unethical since it is a form of usury, as originally defined. The lender receives an income that has not been earned but is merely the compensation for not using the money elsewhere.
There is an extensive literature on the ethics of interest rates and their role in a market economy. However, the Church has taken a stance against excessively high interest rates (e.g. charged by payday lenders) whilst accepting that debt has a role to play.
While share ownership implies shared responsibility and shareholders share in the profits a company makes from its activities, bond owners have no say in how a company is run, unless it is in administration when they may have a voice in any restructuring. Bond holders receive on maturity the repayment of the loan plus the cost to the company of borrowing.
Nevertheless, bonds issued by a company – or government – around which there were significant ethical concerns would not sit well in an ethical portfolio. It follows that the approach to the exclusion of potential investments on ethical grounds should be consistent across equity and corporate bond markets.
The potential level of engagement may differ from that experienced by a shareholder but the attempt should be made when an ethical issue arises. Our past engagement with bond issuers has been productive. Government bonds require a different approach, especially where the issuer is democratically elected, and worthwhile engagement may not always be possible.
Our fixed income securities are managed in a number of funds and portfolios. At present, all holdings are sterling denominated.
Gilts
Some of our fixed income portfolios may hold UK government bonds, both conventional and index (inflation) linked, known as gilts. Holdings in gilts link portfolios with the UK government in the sense that gilts are tradeable loans to the government. Such public sector debt enables government to function and provide the range of services that its citizens require.
It is not normal for responsible investment institutions to engage with governments on ethical issues and few can do so meaningfully. However, we benefit from engagement by the Methodist Church Joint Public Issues Team on a range of issues of concern.
Supranational and corporate bonds
Some of our fixed income portfolios may hold supranational or corporate bonds. The bonds are sterling denominated but can be issued by organisations or companies from other jurisdictions.
Corporate bonds (including Floating Rate Notes) are typically issued by:
All our ethical investment policies and ethical exclusions apply to corporate bonds as well as to equities. We will also engage with issuers not held in equity portfolios. For example, in the past we have engaged with Network Rail on concerns about health and safety and executive pay.
In the case of corporate bonds, there is relatively little impact of ethical exclusions upon investment returns in practice since alternative bonds can usually be found with the same or very similar characteristics to excluded names and exclusions in total will form a relatively small portion of the relevant benchmark.
While the application of ethics to financial and non financial companies which issue bonds should be straightforward, holding supranational and sub sovereign bonds links portfolios with non-UK governments. This raises some particular issues.
When considering bonds issued by sovereign, sub sovereign, or agency entities, we will consider the reputation of the relevant country, including assessments of: human rights; corruption; involvement in conflict; development. We will also be mindful of our policies and previous stances where reference is made of specific countries. However it is extremely unlikely we would be exposed to government issuers which have raised ethical concerns in the past, except via supranational issuers such as the World Bank.
Green bonds
Green bonds are bonds which are used to raise funds to undertake activities which meet certain environmental criteria. Mainstream companies issue green bonds. We will generally favour purchasing green bonds where we can and where the terms are attractive.
We apply our Christian approach to investing across all asset classes
There are differences between owning a share and owning a bond. Exclusions from investment on ethical grounds apply across all asset classes but the level of engagement possible as a bond holder may be different, since a bond holder owns debt rather than a share of a company. However, we will endeavour to engage where issues of ethical concern arise.
Supranational, sub sovereign, and agency bonds present potentially unique challenges since they could be backed by non-UK governments. However, we will also be aware of ethical concerns that might arise.
The CFB published a position paper on Farm Animal Welfare in 2017, which considers ethical issues as they affect farm animal welfare. Other areas in which animals can be used or exploited such as testing, entertainment, clothing, or as pets, may be covered by other areas of CFB work. This policy statement therefore concerns farm animal welfare issues as they affect cattle (dairy, beef and veal), pigs, sheep, poultry (including broiler and laying hens, ducks, turkeys and geese) and farmed and wild fish.
The position paper considers the biblical and theological background to farm animal welfare, ethical issues related to farm animal welfare and seeks to determine the appropriate response from the CFB.
Genesis 1 declares the creatures made on each day good without reference to other creatures. While legitimate human use of animals seems widely assumed in the Bible, the Bible does not state that God made animals merely for human use. Genesis 1 gives humans dominion over other creatures and distinguishes them as bearing the image of God (Gen. 1:26–28), but this is understood to be a relationship of care on behalf of God, to whom the animals belong (Ps. 50:10–11).
Fish feature widely in the gospel stories: Jesus calls the disciples away from their work as fishermen to fish for people instead (Mk 1:17 || Mt 4:19), miraculously feeds vast crowds with bread and fish (Mk 6:35–44 || Mt 14:15–21), and miraculously increases the catch of the disciples and cooks fish for them in one of his resurrection appearances (Jn 21:4–9).
Many Christian stories of the saints associate Christian holiness with compassion towards animals, such as St Jerome removing a thorn from a lion who came to seek his help, St Macarius healing the blind pup of a hyena, St Godric hiding a stag from the Bishop of Durham’s hunt, or St Werburgh of Chester resurrecting a goose her steward had killed. St Francis was renowned for seeing animals as sisters and brothers. In one story he asked a boy taking trapped doves to the market to give them to him, after which he freed them, spoke sweetly to them as his sisters, and made a dovecote for them.
John Wesley was concerned about animals throughout his adult life. He wrote an undergraduate essay on the question of whether animals had souls, copied into his journal a long letter he received about the Christian duty of caring for animals, and published two different books affirming God’s care for animal creatures. In his famous sermon on Romans 8, ‘The General Deliverance’, preached in 1781, he states that Paul could not be clearer in affirming that animals will be part of God’s redeemed creation, and that this knowledge should make Christians concerned about the many cruelties inflicted on them.
The Methodist Statement on ‘The Treatment of Animals’ was adopted by Conference in 1980. It rejects unnecessary experimentation, intensive factory farming practices that do not consider the welfare of animals, and cruel blood sports.
Farm Animal Welfare is concerned with the livelihood of animals being reared, transported and slaughtered for human consumption. Animals are sentient beings, with the ability to feel both positive and negative emotions. Due to an increase in the demand for meat for an ever growing population, the farming structure has changed from rural small holdings to large concentrated feeding operations (CAFO). A CAFO is a system of rearing livestock by which animals are kept confined under strictly controlled conditions, generally for monetary gain. With the increase in factory farming and therefore yield, farm animal welfare has suffered, with confinement, mutilation, and conscious slaughter all commonplace.
Within the global farming industry the majority of animals, including fish, are kept in systems which are highly intensive. Within these systems animals are routinely kept in confined spaces where movement is severely restricted. Many animals in intensive farming systems are routinely mutilated, often without any pain relief, in ways which cause immediate and long term pain and distress. Animals are transported often during their lifetimes, and most are transported to slaughter. This can take place by rail, road, sea or air, and can often be over very long distances and durations in poor conditions.
Humane slaughter requires that animals are rendered unconscious before they are slaughtered through pre-slaughter stunning. This ensures that the animals are not exposed to stress, pain or discomfort in the slaughter process. Well designed animal facilities and equipment that is in good working condition can reduce the likelihood of poor animal welfare. The correct positioning of equipment for pre stunning is imperative to ensure pain elimination for animals prior to slaughter.
Farmed fish are reared in an intensive environment. Many farmed fish are often subjected to starvation before slaughter and in many cases are left to suffocate or are gutted and left to die causing much pain and distress. Wild fishing practices can also have negative welfare implications. Many fishing practices involve using nets to catch fish which also trap non-target organisms such as turtles and other air-breathing mammals which quickly drown. Fish and by-catch organisms caught in trawler nets can be dragged along the seabed for many miles causing pain, distress and death.
The use of growth promoting hormones or low dose antibiotics to stimulate growth has become common practice in the intensive farming industry. These are used to increase the amount of muscle or milk produced by animals but has serious implications for their welfare. The non-therapeutic use of antibiotics happens throughout the intensive farming industry. Poor conditions increase the likelihood of factors compromising the animals’ immune system, such as stress, selective breeding, and disease. The industry therefore relies on the non-therapeutic use of antibiotics to compensate for the low welfare environment. The prolonged overuse of antibiotics is said to be among the main cause of growing antibiotic resistance in humans.
The CFB invests in food producers, processors, hospitality and food retail companies that use animal related goods and therefore animal welfare is an issue that the CFB will seek to respond to, through engagement with companies. The CFB recognises the complex issues surrounding the production of fish, meat and dairy products for consumption and the increased demand placed on farmers. The CFB also recognises animals as sentient beings. In terms of investment, the CFB views Farm Animal Welfare as predominately a matter for engagement.
Higher welfare farming, in which the welfare of the animal is considered first, is preferred. This aims to allow animals to live in surroundings similar to their natural habitats, while ensuring they are protected from thirst, hunger, fear and extreme weather. However, this style of farming cannot emulate the production capacity of factory farming and is generally more expensive due to the lower yield.
The CFB will favour companies with exposure to farm animals where there is a formal policy on animal welfare and a clear position on more specific farm animal welfare-related issues such as the use of antibiotics, animal mutilations, slaughter, close confinement, and live transportation.
At a governance level, the CFB will look at:
The CFB will also look at other issues such as health and safety and climate change issues as well as farm animal welfare whilst assessing companies. However, in the case where a company persistently resists engagement due to unacceptably poor standards of animal welfare, the CFB may choose ultimately to divest.
November 2017
The state detains people through a number of institutions: for example prisons, young offender institutions and immigration detention centres. For the purpose of this statement ‘prison’ includes all such institutions.
The trend towards outsourcing in the fields of prisons and prisoner transport has led to publicly listed companies being involved in these activities both as operators and as owners.
The Methodist Church accepts the necessity of the existence of prisons while emphasising the importance of the humane treatment of prisoners.
There are approximately 180 Free Church Chaplains to prisons, and Prisons Sunday is a regular feature in the Methodist Church calendar. Many individual Methodist churches undertake work with ex- prisoners. In 2007, the Methodist Church, in response to a government consultation, argued in favour of prisoners having the right to vote.
The Methodist Church supported the campaign to abolish the death penalty in the 1950s and 1960s in Britain, and continues to oppose the death penalty.
The Epworth position paper on issues involving children recognises the acute vulnerability of children especially when they are in custody, and the need for them to be protected from harm. Responses from Action for Children to government consultations stress the importance of rehabilitating and transforming prisoners.
The Methodist Church campaigns strongly against the detention of children and families in immigration detention centres.
Investment in companies operating prisons is ethically acceptable in principle.
Investment in companies owning prisons (e.g. through PFI contracts) is ethically acceptable in principle.
Investment in companies operating or owning prisons in which the death penalty is carried out is not acceptable.
Investment in companies operating or owning prisons in jurisdictions in which the death penalty is carried out, but not in those prisons run or owned by the company is likely to be acceptable.
Children are detained in prison for offences that they have committed; due to offences committed by others (e.g. babies too young to be separated from their mothers); and due to their families facing deportation under immigration or asylum laws. Before Epworth invests in any company operating or owning prisons in which children are detained, their operating regimes will be examined with particular care.
Before investing in any company operating or owning prisons, Epworth will seek to ensure that all such facilities operate in accordance with best practice.