Socially Responsible Investment Review
Climate emergency – assessment of fossil fuel companies
The latest stage of our work on oil and gas companies and the climate emergency was finalised during the quarter. The Joint Advisory Committee on the Ethics of Investment (JACEI) reported its findings and an update on recent developments to Methodist Conference. It was responding to a request by the 2017 Conference to review the fossil fuel sector. Its report reflected the culmination of three years of work we undertook, establishing and implementing a methodology for assessing oil and gas companies in the context of projections going forward decades, together with extensive engagement with many of those companies.
We assessed 15 companies across five different categories using up to 25 metrics. As a result, the funds we manage exited three holdings – BP, Total and ARC Resources, and we excluded a further ten (including Exxon, Chevron and ConocoPhillips) based on this work. JACEI advised that there was no ethical bar to investment in Royal Dutch Shell, Equinor, ENI and Repsol. These companies have all made commitments that lead JACEI to believe they are aligned, or are close to being aligned, with the Paris Agreement to keep the average temperature rise “well below 2°C”. We will continue to engage with these companies to press for more detail on their commitments and for further action.
Royal Dutch Shell
Royal Dutch Shell announced new ambitions for transitioning to a lower carbon world. It now aims to reduce carbon intensity to be line with global warming of 1.5°C rather than 2°C by 2050. Shell continues to talk about long-term ambitions at the pace that society transitions to a lower carbon world, rather than firm targets. It is focused on reducing emissions intensity rather than absolute emissions targets. Nevertheless, the announcement set a new standard for the industry.
We co-lead on engagement with Anglo American on behalf of the Climate Action 100+ investor coalition. At its most recent AGM, Anglo American announced it was working towards a possible demerger of its thermal coal business in the next two or three years. It announced a commitment to be carbon neutral across its operations (Scopes 1 & 2) before 2040. The company also released Scope 3 estimates and outlined its approach to these emissions, which it cannot control. It was responding to our questions. These are welcome commitments by the company and we will continue to engage on the issue.
Epworth Climate Stewardship Fund
Epworth Investment Management Ltd launched the Epworth Climate Stewardship Fund for Charities in late May. The Fund applies all of our existing ethical policies and also excludes companies that derive more than 10% of revenues or profits from fossil fuel extraction. It also looks to invest in companies that positively contribute to the transition to a low carbon economy, and is designed for those of our customer who want to disinvest from fossil fuels. More information on this fund is available on the Epworth website.
We co-filed a resolution at Barclays’s AGM, as part of a coalition co-ordinated by ShareAction. This attracted the support of 24% of shareholders. The board proposed an alternative resolution with a net-zero ambition and a commitment to align its activities with the Paris Accord, but which did not have a timeline to phase out lending to fossil fuel companies.
Coronavirus & mental health
According to the NHS, one in four people in the world will be affected by mental or neurological disorders at some point in their lives. The impact of social isolation, uncertain employment, or bereavement due to coronavirus, could have mental health consequences for many. We co-signed a letter to FTSE 100 constituent companies encouraging them to protect the mental health of their workforces during this extraordinary time. We called for an action plan specific to mental health during COVID-19 to be introduced at each workplace, which may include training for managers on how to spot warning signs and clear provision of details on how to access support. So far, comprehensive responses have been received from companies including AB Foods, Experian and Halma.
In its most recent Modern Slavery statement, Tesco noted instances of Modern Slavery in its supply chain in Thailand and Malaysia. We recognise that there is Modern Slavery in most, if not all supply chains, and, while we work collectively to eradicate Modern Slavery in society, that cannot be done without first uncovering it. This transparency from Tesco is welcome, along with its further investigation and action plans for the sites involved. We have previously engaged with Tesco on Modern Slavery. We are also part of the Find it, Fix it, Prevent it engagement on this matter with companies in the hospitality sector.
In 2016, the Hampton-Alexander review set recommendations for FTSE 350 companies to improve the representation of women at the board level and in senior management. It set a minimum 33% target to be reached by the end of 2020. In February 2020, FTSE 100 companies in aggregate reached this goal. However, the FTSE 250 had not. With less than six months to go, we continue to vote on gender diversity by voting against the re-election of the Chair of the Nominations committee at FTSE 350 companies where the Board composition is not at least 33% women. We are looking at how other aspects of diversity can be considered effectively.
Corporate governance and voting
Q2 contains much of the AGM season, when companies with December year ends report to their shareholders. This year has seen an increase in the number of climate change resolutions (see Barclays above), and a number of ‘revolts’ where substantial minorities of shareholders voted against remuneration reports or executive pay schemes. These included Intertek, Lloyds Banking Group and Ten Entertainment Group among our holdings – we voted against remuneration policy in all three cases. Overall, during Q2 we voted against 63% of remuneration reports in the UK Equity Fund and 62% in the Epworth Global Equity Fund.