Ethical Hub: Ethical Reviews - Ethical Investment Review September 2019

Climate change

Our project to examine the extent to which fossil fuel companies are aligned with the Paris Agreement has made further progress. Following a review of the indicators we are using, we have analysed more companies. We have also extended our work from oil and gas to mining companies. We remain on track to make judgments on oil and gas, and coal, companies in the first half of next year. We are assessing these companies in the round and over time because a snapshot of current information does not reveal which companies appear committed to change in practice. It is clear considerable further change is required in this sector.

We analysed Fortis, a Canadian utility company according to our electricity generation policy. We decided to exclude it because it had a high exposure to power generation from coal.

We supported a shareholder resolution at the BHP Billiton AGMs, calling for membership of lobbying groups to more clearly reflect the need to support transition to a low carbon economy. This followed the news that the company remained a member of the Minerals Council of Australia which has spent significant sums on pro-coal lobbying and advertising.

Our work on low carbon transition across portfolios continues, including in collaboration with other investors. We have joined the IIGCC Paris Aligned Investment Initiative, focusing on listed equity and corporate bond assets.

Beyond fossil fuels

Over the summer months we have been engaging with some of our investors around the issue of investments in fossil fuels. It is clear that some of our investors would like to proceed more quickly and disinvest from oil and gas producers now. Following those discussions we held a successful client conference, Beyond fossil fuels, to discuss how a new fund avoiding oil and gas producers would look.

This discussed the investment focus of a new fund, the investment implications of disinvesting from oil & gas and whether investors were comfortable remaining invested in heavily polluting industries such as airlines or cement. Following the conference we have consulted further and we are now engaging in detailed fund design.

Carbon footprint

We are committed to managing portfolios with carbon footprints that are relatively low and measurably declining. We commission Trucost to analyse our portfolios annually. The emissions allocated to each company include Scope I & II emissions (direct and energy) and the supply chain elements of Scope III, though not the customer use elements of Scope III. In particular, the emissions released by burning fossil fuels are not allocated to the fossil fuel companies.

The data for 28 February shows the carbon footprint of the UK equity portfolios rose over the year and is above the market. One reason for this is that our ethical approach excludes the relatively lower carbon intense tobacco sector and is therefore more likely to have a higher weighting in utility companies. In addition, much of the difference between the portfolios and the market can be explained by the fact that the portfolios hold Cranswick and Hilton Food Group. These are food production companies involved in the meat industry. Trucost attributes to their footprint the carbon emissions from the animals in their supply chains.

This result raises some interesting issues. Animals do release greenhouse gasses yet we have not taken the view that meat consumption is unethical. It highlights that there are trade offs for society. We are reviewing the result nevertheless. It should also be noted that there is no consensus about how a portfolio carbon footprint should be calculated and other methodologies produce different results.

Plastics

Alongside other investors, we are engaging with the Marine Stewardship Council to encourage it to reference ‘ghost gear’ in its sustainable fisheries standard. ‘Ghost gear’ is old fishing gear that can be lost or abandoned in the ocean, significantly contributing to the level of plastic pollution.

Modern slavery

We supported an investor response to a UK government consultation, entitled Transparency in the supply chain. The response called for mandatory reporting to be expanded from the private to the public sector, noting that Modern Slavery is a risk in all organisations. It recommended improved reporting on the outcomes of actions companies take. Separately, we engaged with Watkins Jones and The Renewables Infrastructure Group about their policies and approach towards combatting Modern Slavery.

Access to medicine

We are participating in the Access to Medicines engagement programme, which will be engaging with 19 listed pharmaceutical companies on both access to medicine and the third Sustainable Development Goal, which focuses on healthy lives and promoting wellbeing for all ages. The purpose is to encourage companies to continue their efforts to improve access to medicines in low and middle income countries.

Child obesity

Healthy and adequate nutrition has long been an ethical investment concern of ours. Our policies on children’s issues and on the food industry highlight it as an area for engagement, noting both the challenges of childhood obesity and malnutrition. We have joined with an initiative run by ShareAction which aims to engage with companies about childhood obesity. ShareAction is working with Access to Nutrition, an initiative with which we are already involved. We are likely to sign a supportive investor statement later in the autumn.

Corporate governance

The quarter marks the end of the main voting season. We voted at 14 UK AGMs, opposing 67% of remuneration votes, including those for Berkeley Group, BT Group, Burberry, Cranswick, Experian, SSE and Vodafone. Insufficient boardroom gender diversity prompted votes against Nomination Committee chairs at BT Group, DS Smith, National Grid and SSE. The Epworth Global Equity Fund for Charities voted at 10 AGMs, opposing all three remuneration votes.
Full voting reports are available on request and a summary is published on our website.