Sustainable Investment Strategies 2016 Highlights a general agency of The United Methodist Church
Sustainable Investment Strategies 2016 Highlights Wespath invests in a sustainable and responsible manner, creating long-term value for our participants and clients while aspiring to uphold the values of The United Methodist Church (UMC). Our comprehensive approach to sustainable investment supports our role as prudent fiduciaries and our aspiration to have a positive impact on the environment and society. The following provides an overview of Wespath s sustainable investment activities in 2016. More details can be found in our 2015-2016 Sustainable Investment Report: Global Investor Sustainable Investor, available at: http://www.wespath.org/si/ 2015-2016 SUSTAINABLE INVESTMENT REPORT Global Investor Sustainable Investor AVOID Avoid Engage Invest We incorporate the consideration of environmental, social and governance (ESG) factors into investments across asset classes and in the selection of our external asset managers. Our internal framework of Avoid Engage Invest guides our activities. Avoid Based on long-standing United Methodist social concerns, we avoid investing in certain companies because their core business relates to one of our six ethical exclusions 1 or because of the financial risks they face from specific sustainability-related issues. Engage We leverage our seat at the table with global companies and engage with them in order to create positive financial, environmental and social change. Invest We aim to invest wisely by evaluating the competencies of our external managers in integrating ESG issues into investment decision-making, and by thematic investments dedicated to seeking market-rate returns and demonstrable social and environmental impact. 1 Core business activities related to the production and distribution of alcoholic beverages, tobacco products, gambling, weapons, adult entertainment, or the operation of privately-owned correctional facilities.
Promoting Good Corporate Governance Wespath holds shares in over 5,400 companies around the world. We have the opportunity, and an obligation, to vote at the Annual General Meetings (AGMs) of these companies to influence a company s governance and business practices. We promote internationally recognized corporate governance best practices including: board independence and diversity; performance-based executive compensation; robust audit and control practices; appropriate shareholder rights and transparent reporting. We also support shareholder resolutions regarding the incorporation of ESG issues into corporate strategy, when they promote long-term value creation. Board diversity in the United States specifically the inclusion of women on boards is an important corporate governance-related area of focus for us. In 2016, we successfully influenced three companies within the S&P 500 Index Simon Property Group, Comcast Corp. and Equifax to increase the number of female directors on their corporate boards. Research 2 has shown that companies with diverse boards exhibit a stronger mix of leadership skills and improved understanding of consumer preferences. Both are linked to better stock market and financial performance. Wespath s engagement efforts span years, and achieve results: Engagement Timeline Board Diversity Comcast Simon Property Against Equifax Shareholder Resolution(s) Engagement letters sent to all three companies: Comcast, Simon Property and Equifax Wespath voted against members or chairs of the nominating committees because of a lack of diversity on their corporate boards (only one female director) Wespath escalated engagement efforts and filed shareholder resolutions at all companies Comcast appointed an additional woman to its board Simon Property appointed an additional woman to its board Equifax appointed an additional woman to its board November December February March November 2012 2013-15 2015 2016 2 2012 and 2014 Credit Suisse research report, Gender Diversity and Corporate Performance, links board diversity to better stock market and financial performance (higher return on equity, higher price/book ratios and improved growth prospects). Promoting Good Corporate Governance 3
Responding to the Transition to a Low-Carbon Economy In December 2015, world leaders reached a historic agreement to enact policies to limit global temperature increases to two degrees Centigrade above pre-industrial levels. The Paris Agreement went into effect in 2016, sending a clear signal to companies and investors that climate change is an issue that the global business community cannot ignore. Wespath believes that climate change is a material investment risk that must be managed. We are preparing for and supporting the transition to a low-carbon economy by identifying and prioritizing where climate change related risks and opportunities are likely to occur across our funds. UN PHOTO/FRED FATH Former United Nations Secretary-General Ban Ki-moon (left) speaks to the press on April 22, 2016 following the Signing Ceremony for the Paris Agreement on Climate Change. On the right is Christiana Figueres, former Executive Secretary of the U.N. Framework Convention on Climate Change (UNFCCC). Chevron and Occidental Petroleum In 2016, Wespath filed two shareholder resolutions at Chevron and Occidental Petroleum which received unprecedented levels of support (over 40%) from investors for first-time, climate-related resolutions. Alongside United Kingdom (U.K.)-based investor Hermes EOS, our resolution called for Chevron to stress-test its fossil fuels portfolio in anticipation of a low-carbon future. We filed a similar resolution along with the Nathan Cummings Foundation at Occidental. We believe this type of analysis is critical in understanding a company s long-term strategic positioning. Transition Pathway Initiative (TPI) We worked with international investor peers to create and launch the TPI, a public, online tool that helps investors assess how individual companies are positioning themselves for the transition to a low-carbon economy. We were one of 13 global investors, representing $2.4 trillion in assets, that came together to develop the TPI, which will enable investors to better understand how this shift to cleaner sources of energy could affect their portfolios. The Church of England s National Investing Bodies and the U.K. s Environment Agency Pension Fund in partnership with the Grantham Research Institute at the London School of Economics led this initiative. TPI Initiative International Investors 13 global investor peers $2.4 trillion in assets under management 4 Sustainable Investment Strategies 2016 Highlights
Developing World Market We invested $30 million to help bring renewable energy to developing countries through our Positive Social Purpose Lending Program. Wespath joined with the Church Pension Group, the pension fund for the Episcopal Church, to invest in companies that provide solar energy to communities located in lesser developed countries that are not connected to national power grids. This microfinance investment, with investment manager Developing World Markets, provides financing to 11 institutions operating across nine countries. These organizations help people purchase solar-powered lanterns, home solar kits, and other products and services to light their homes, refrigerate their food and charge their mobile devices in an increasingly connected world. According to the United Nations, over one billion people globally have no access to electricity, while another billion only have occasional access. For many around the world, energy access is vital to supporting a move out of poverty. In 2016, Wespath also sought opportunities to invest in companies positioned to benefit from a low-carbon global economy, which we believe represent attractive longterm investments. We invested $350 million in two public equity strategies focused on companies providing lowcarbon solutions, including energy efficiency, renewable energy, water infrastructure and pollution control. Over one billion people globally have no access to electricity, while another billion only have occasional access. For many around the world, energy access is vital to supporting a move out of poverty. Photos courtesy of Off Grid Electric Responding to the Transition to a Low-Carbon Economy 5
Identifying Human Rights Risks Wespath seeks to influence change to improve the lives of those affected by human rights abuses while helping our participants and institutional clients meet their investment objectives. The United Nations Guiding Principles on Business and Human Rights (Guiding Principles) provide the foundation for our activities. Shareholder Engagement Identifying Human Rights Risks Case Study: Challenges and learnings from a transnational mining company s efforts to implement the U.N. Guiding Principles on Business and Human Rights in rural Peru The Guiding Principles have gained widespread support from policymakers, companies, investors and civil society as a global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity. During 2016 we engaged companies on human rights issues, as businesses face many risks when operating in regions torn by violence, conflict and weak rule of law. We achieved a number of positive results. Caterpillar Wespath has engaged Caterpillar on human rights issues for a number of years. This is a company subject to scrutiny because of the use of its products by the Israeli Defense Forces in the Palestinian territories. During 2015 and 2016, in response to Wespath s engagement, Caterpillar strengthened and improved disclosure relating to its human rights policy, including conducting human rights impact assessments in alignment with the Guiding Principles. Notably, the policy applies beyond the company s direct operations to include its suppliers and dealers. Dakota Access Pipeline News relating to the Dakota Access Pipeline (DAPL) construction and its impact on the treaty territory of the Standing Rock Sioux Tribe received significant media coverage in 2016. Wespath collaborated with other investors to engage the companies involved in the project by asking that they conduct meaningful consultation with affected groups (predominantly Native American communities) and address human rights-related risks aligned with the Guiding Principles. Specific actions about our activities regarding DAPL are available at: http://www.wespath.org/humanrights/. a division of Wespath Benefits and Investments, a general agency of The United Methodist Church Newmont Mining Corporation Wespath participated in a collaborative engagement regarding Newmont Mining Corporation s implementation of the Guiding Principles. Our engagement activities included a 2015 visit to two of the company s gold mines in rural Peru. The insights gained from our visit positively influenced the way we engage global companies on human rights issues. In 2016, we published a case study containing practical learnings and engagement questions for investors on five key challenges faced by the extractives sector when implementing the Guiding Principles. The full report can be found at: www.wespath.org/humanrights/. As a result of this engagement, Newmont established a plan to evaluate complaints and grievance mechanisms a core component of a robust human rights program and a three-year plan to track the effectiveness of its security training in relation to human rights. 6 Sustainable Investment Strategies 2016 Highlights
Investing With Impact Our Positive Social Purpose (PSP) Lending Program is one of our positive impact investment strategies, which reflect the intent that our global investment activities make a positive impact on society and the environment, while earning a market-rate return. community development properties, including community centers, charter schools, health centers/clinics, homeless shelters and grocery stores, microfinance lending in developing markets, including Latin America, Eastern Europe, Southeast Asia and Sub Saharan Africa. PSP began in 1990 with a $25 million commitment to affordable housing and surpassed $2 billion in cumulative investments in 2016. During 2016, Wespath initiated more than $130 million in new PSP loan purchases and forward commitment activity involving over 2,400 units of affordable housing across 37 transactions that will serve families, seniors and populations with special needs. Rochester View Apartments This affordable housing property targets the special needs population (mental health and income-eligible deaf community) in Henrietta, New York. The PSP Lending Program invests in loans promoting affordable housing, community development and entrepreneurship among underserved populations worldwide. The PSP Lending Program focuses on investing in three categories: affordable multifamily rental housing for families, seniors and those with special needs, Wespath s PSP Lending Program Statistics Investments in all 50 states Global microfinance loans in developing countries Surpassed $2 billion in cumulative investments in 2016 Promoting Sustainability We will continue to evaluate how environmental, social and governance issues affect our investments and how we can respond accordingly. We have many opportunities to promote more sustainable financial markets creating long-term value for the participants and institutional clients we serve and leaving a positive impact on the environment and society. We will continue to promote more sustainable financial markets creating long-term value for the participants and institutional clients we serve. Investing With Impact 7
Caring For Those Who Serve 1901 Chestnut Ave. Glenview, IL 60025-1604 847-869-4550 wespath.org wespath.org Copyright 2017, Wespath Benefits and Investments, a general agency of The United Methodist Church. All rights reserved. 5035/050917 Published April 2017