Church Investors Group: Engaging with Investor CDP non-responders

 

The Church Investors Group (CIG) is the institutional church investor membership body that brings together 55 Christian institutional investors, largely from Britain and Ireland but also increasingly from further afield. Collectively their assets total over £15 billion. Members of the CIG have long recognised the importance of environmental issues in their ethical investment practice and the investment value at risk should investee companies not participate in the anticipated transition to a low carbon economy. The Group's members are acting collectively and are acutely aware of the important role that they must take in promoting the change that we want to see. Several of the members are also in the process of creating and/or have already created their own carbon reduction plans such as the Church of England's Shrinking the Footprint, and the Methodist Church's Carbon Reduction Project.

As investors, CIG members are working through the Institutional Investors Group on Climate Change to build a strong voice pressing policy makers for a policy framework that hastens the transition to a low carbon economy. Furthermore, in their role as engaged shareholders they are aware that it is important to raise environmental operating standards across the UK market (see below), in addition to working with individual companies where particular effort is required (for instance several of the largest CIG members are part of the Aiming for A initiative). The CIG sees the Carbon Disclosure Project as the perfect partner for this ongoing work.

Example of CIG Engagement Across the FTSE350: CDP Laggards
There are many CIG members among the 767 investor signatories of CDP’s Climate Change programme, and the group has been in conversations with companies about improving both their carbon disclosure and carbon reduction strategies for over a decade. They are therefore familiar with the CDP process; understand the value of disclosure through CDP and recognise the power of CDP data to help make informed investment decisions. They welcomed the introduction of the CDP Performance Grading system over the last few years: giving each respondent an easily comparable grade (devised from a transparent and rigorous methodology) has proved an effective means to encourage companies to take further action on mitigating climate change.

In addition to providing the secretariat to the CIG, CCLA has been engaging with CDP laggards on behalf of the CIG for several years. Carrying on from the previous work of Victoria Barron, Andrew Adams, Analyst: Ethical and Responsible Investment, explains how the performance grade has been integrated in to their engagement work with CDP laggards in the FTSE 350:

"In 2014 we continued to engage with companies across the market, seeking to lift all boats on a rising tide. We felt that, as the largest companies in the UK, all FTSE100 companies should be leading the way by taking action to lower their carbon footprint and demonstrating this by achieving at least a C grade performance score in their CDP response (79% of the FTSE100 did so in 2013). To achieve a C grade a company must disclose a significant amount of information in their response to the CDP and be able to demonstrate positive action on climate change (for example setting and meeting companywide carbon reduction targets). For mid-cap companies a decision was taken to continue focusing on companies in the carbon intensive sectors (energy, utility, materials, and industrial companies). Additionally, for the first time this year the CIG included the consumer discretionary sector in the engagement following a review of the carbon footprint of the portfolio of a CIG member..

Letters were sent to senior management with investor relations teams copied in. Those that didn’t respond to the CIG initially were followed up during the spring. In total 53 companies were contacted and of these 58% showed some improvement in their response, the vast majority of these moving up at least one carbon performance grade. 15 companies reached the C grade we requested."

These results come at a time of increasing awareness by corporations of their environmental responsibilities especially given the UK governments decision to mandate disclosure of scope 1 and 2 emissions in UK listed companies’ annual reports. However, the CIG’s results above can be attributed to their efforts in engaging companies directly. In choosing which mid-cap companies to target, CCLA worked with academics at the University of Edinburgh to create two randomly selected groups of companies; a test group that would be contacted and a control group made up of similar companies that were not contacted. Assessments after two year of engagement show, with a 95% confidence rate, that the shift in performance grades at these mid-cap companies was indeed the result of the CIG’s dialogues with companies.

Andrew goes on to explain how the CIG continues to develop their company engagement approach and how the Group works with CDP to ensure its success:

"This year we intend to continue to contact those companies that are yet to achieve a C grade in both the FTSE 100 and FTSE 250. Due to the successes of the last two years we now have increased capacity to extend the engagement with mid-cap companies to include nine out of ten sectors (all but Financials). The increased scope of the market wide engagement adds yet more companies to the test and control groups by which we hope to prove the efficacy of well targeted company engagement.."

Benefits: Robust and more transparent investment portfolio
Through using CDP data, not only have the CIG members been able to compare companies to their peers, but the wealth of data has enabled concerned CIG members to track how companies are answering and improving year-on-year, and as a result, has helped them act as good stewards of the environment. Andrew concludes, "Hopefully over the next few years we can ratchet up our expectations of companies and redefine our classification of a CDP laggard. We look forward to the next FTSE 350 Report being published in October."

More details of the CIG members' approach to engagement are available in the Group's recently published Guide to Corporate Engagement.

*as defined by CDP

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