Presented by Neville White – Head of SRI Policy & Research
Ecclesiastical Investment Management Ltd.
24 April 2014

Ecclesiastical Investment Management Ltd
 Part of the Ecclesiastical Insurance Group founded 1887

Owned by All churches Trust
– all distributable profits to good causes
 Top 10 UK donor – strategic plan to donate £50m over three years

Ecclesiastical launched its first SRI UK retail fund in 1988
 Suite of six ethical retail and charity funds – across geographies and asset classes
 Total Assets Under Management £2.25bn*

Award winning, experienced team with a strong retail proposition
*Source: Ecclesiastical as at 31/12/13
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The Many Models of SRI
• SRI is an umbrella term which encompasses many approaches including ethical, responsible, sustainable, and environmental, social and governance (ESG)
Negative criteria
‘ethical’ adopted by faith investors applying a moral dimension to investing
TRADITIONAL ETHICAL
(FAITH BASED) FUNDS
Positive criteria emerge after 2000 following changes to UK pensions legislation
ENVIRONMENTAL
FUNDS
SRI
FUNDS
ESG FUNDS
BEST IN CLASS
THEME FUNDS
(CLIMATE CHANGE)
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Applying Positive Criteria to a Portfolio
• Applying negative criteria is (relatively) straightforward
• Identifies moral imperatives, but adds little value to process
• Does not allow investor to work for change
• Does not allow engagement to raise business standards
• What would a sustainable tobacco company look like?
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Advantages of Applying Positive Criteria to a Portfolio
• Holistic, integrated investment methodology
• Represents a ‘complete’ active strategy
• Material ESG risks should be seen as core management issues
• Adds value
• Reduces long-term risk
• Supports long-term investment horizons
• Provides engagement platform for change
• Dovetails with wider UK Stewardship Code responsibilities
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Our SRI Process – an Integrated Approach
Negative Screen
10% Threshold:
 Alcohol Production
 Gambling Operations
 Pornographic or Violent Material
 Strategic Armaments

Tobacco Production
Other Factors:
 Animal Testing (cosmetics)

Intensive Farming
Negative
Screen
Positive
Screen
Engagement
Positive Screen
 Business Practices
 Community Relations
 Corporate Governance

Human Rights
 Labour Relations
 Environmental Management
 Healthcare
 Education

Urban Regeneration
Decision
Monitor &
Review
Positive criteria may serve as a brake on investment; e.g. no oil or mining
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Our Nine Positive Investment Pillars
Positive Screen
 Business Practices
 Community Relations

Corporate Governance
 Human Rights
 Labour Relations
 Environmental Management
 Healthcare

Education
 Urban Regeneration
• Each stock is monitored and assessed against the nine positive criteria
• Essentially we are looking for each stock to earn its place in the portfolios
• The investment case and the sustainability case are given equal weight
• Six areas of business behaviour (risk)
• Three sustainable sectors
• Identifies engagement need
• BUT how do you assess the environmental, social and governance positives?
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Evaluating Environmental, Social and Governance (ESG) Positives
•
Unlike negative criteria, positives can be subjective and challenging
• Materiality, and risk weighted factors of primary importance
Environmental
Air & Water Pollution
Biodiversity
Ozone-Depleting Chemicals
Pesticides
Climate Change
Resource Productivity
Environmental Management
Energy
Transport
Tropical Hardwood
Nuclear Power
Mining & Quarrying
Waste & Toxic Chemical Management
Water Management
Social/Governance
Access to Medicine
Affordable Healthcare
Equal Opportunities
Bribery & Corruption
Health & Safety
Human Rights
Child Labour
Labour Standards
Supply Chain Management
Community Giving
Community Initiatives
Corporate Governance
Diversity
Executive Remuneration
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Research, Research, Research
• EIM employs Sustainalytics as its principal ESG data research provider
• One of several distinctive ESG providers that analyse ESG risk (EIRIS; MSCI etc.)
• Quantitative and qualitative data; controversies monitor; peer group ranking; ESG ratings
• Provides first stage ‘data dump; and materiality analysis
• Secondary research conducted in house including engagement
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Investing in Bullion – is it Ethical?
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Investing in Bullion – is it ethical?
• Mining and extractives avoided as part of failing positive criteria tests
• Fund managers had appetite to invest in an ETF bullion fund for diversification reasons
•
Ethically, bullion could be viewed as ‘benign’ i.e. a store of value
• But we asked
– where does the gold come from and is it ethical?
c40% of supply is recycled c15% is artisanal or illegal
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The rise and rise of Gold ETFs
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Gold - Utility
• Whilst gold does have multiple applications its principle utility is investment
•
Gold is effectively a ‘parallel’ currency and highly portable
• Gold is unique in that it is extracted principally as a “store of value”
• Held as bullion in State and national reserves and as private wealth
• Half of all gold entering the supply chain is directed at the jewellery industry
• Only 10% is used for industrial and electronic purposes
• Ethical utility given health, safety, conflict and environmental impact is low
• Precious metal mining (gold and coltan principally) is fuelling conflict
• Traceability challenges fuel phenomenon of “dirty gold”
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Gold - Traceability
• Gold supply chain is not linear
• “Scrap gold” may be recycled, pre-owned, laundered
• Gold can be owned by many participants within the supply chain
•
“Dirty gold” has become an industry issue owing to traceability concerns
• Mine supply is broadly traceable apart from unregulated artisanal mines (15%)
• Integration of mining and refining provides some assurance
•
Industry is beginning to coalesce around reputation and “conflict free” gold
• Chain of custody is vital
– i.e. integrity of inventory, bar serial numbers
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Gold – Ethical Issues
• Gold is a primary conflict mineral particularly in Democratic Republic of Congo
• 2007 Uganda produced $500 worth of gold, but exported $75m mostly from DRC
• Specific ethical challenges associated with gold are
–
human rights issues in high impact emerging markets
– Congo, Burkina Faso, Mali etc (up to 15m enslaved)
toxicity: gold is benign but requires cyanide in refining; tailings require intense management
corruption – the industry is open to bribery, theft and forcible sequestration risk in theatres of conflict
- gold produces more waste per ounce mined than any other metal e.g.
• at state of the art Newmont Mine in Indonesia one ounce of gold is recovered from 250 tonnes of rock
• one ring generates 20 tonnes of mineral waste
• smelters add 142 million tonnes of sulphur dioxide to the atmosphere every year – 13% of global emissions
the disparity between environmental impact and the amount recovered is at its starkest with gold
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Gold – Accentuating the Positive
• We engaged intensively with the World Gold Council
• The only investor to engage with the WGC on conflict free gold
• Industry increasing its efforts around eliminating the worst practices
• Kimberley rejected as a model as gold is not easily identifiable
•
•
•
• Industry started from scratch on a new verification and accreditation standard
Conflict Assessment
Company Assessment
Commodity Assessment
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Gold – Accentuating the Positive
• EIM led investor engagement with WGC on global conflict-gold standard
• Held two seminars for investors in London to outline the Standard
• Offered advise on draft Standard
• Remained an informed and engaged investor throughout process
• Concluded Gold ETF could be held given the contribution of engaging
• Engagement and informed contribution significantly added value to our investment
• And all because we asked….
Is holding gold in an ETF bullion fund ethical?
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Questions and Answers
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