“All creation is the Lord’s, and we are responsible for the ways in which we use and abuse it.” (The Book of Discipline of The United Methodist Church 2012, ¶160.)
Frankly, the citizens of the world over many generations have not been good stewards of God’s creation. The Social Principles of The United Methodist Church (UMC) acknowledge that “the current utilization of energy resources threatens this creation at its very foundation.” (¶160B.)
Our Strategic Approach to Climate Change helps us prepare for and support the transition to a lower-carbon economy by identifying and prioritizing where climate change-related risks and opportunities are likely to occur. Read more about our efforts to tackle climate change while promoting the long-term sustainability of the funds we manage on behalf of our participants and clients.
Scientific studies show that greenhouse gas emissions are at the center of the problem, so strongly contributing to global warming that its pervasive and lasting impacts can be felt throughout our ecosystems, our societies and our economies.
As stated in the Social Principles, “We therefore support efforts of all governments to require mandatory reductions in greenhouse gas emissions and call on individuals, congregations, businesses, industries, and communities to reduce their emissions.” (¶160D.)
Government action has been set in motion—recognizing the threat of climate change, world leaders gathered in Paris in December 2015 for the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change (COP21). The meeting resulted in an unprecedented agreement adopted by 195 countries establishing a long-term goal to limit warming to less than 2-degrees Celsius (3.6-degrees Fahrenheit) from pre-industrial levels. Wespath Benefits and Investments and our Wespath Investment Management division (Wespath), along with other UMC agencies made our voices heard at this historic meeting—to read about our actions, click here.
Implications for Investments
The pledge that emerged from COP21 provides investors with increasing confidence to support and accelerate investment in low carbon technologies, energy efficiency and climate change adaptation.
Companies that fail to adapt to this new reality face risks from the economic and physical impacts of climate change—from changing government regulations to rising sea levels. Wespath and other sustainable investors expect companies to demonstrate their strategic plans for, and response to, climate change in order to protect the value of our investments.
We are positioning our investments for a more sustainable future—read more:
Sustainable Investment Strategies
Wespath employs a comprehensive sustainable investment strategy with three core components:
Avoid: Our Ethical Exclusions reflect United Methodist concerns for human dignity, health and peace. Wespath avoids investing in companies with core business activities involved in producing and/or providing products and related services for: alcoholic beverages, tobacco products, adult entertainment, weapons, gambling and privately-owned correctional facilities.
Engage: In our role as Active Owners, we seek to improve company performance relating to material environmental, social and governance (ESG) issues (including climate change) through public policy and corporate engagement, as well as proxy voting and the filing of shareholder resolutions.
Invest: Wespath’s Positive Impact Investments reflect the intent that our global investment activities have a positive impact on society and the environment. They currently focus on our Positive Social Purpose (PSP) Lending Program, which supports affordable housing, community development and microfinance projects.
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Active Ownership Addresses Climate Change
Wespath’s active ownership strategy addresses climate change through public policy and corporate engagement, as well as proxy voting and the filing of shareholder resolutions. For example, our engagement activities encourage companies to be more energy efficient, disclose greenhouse gas emissions, set emissions-reduction goals, and strategically factor potential regulatory changes into business plans and core operations, demonstrating a shift toward a lower carbon economy.
In 2014 and 2015, Wespath focused its efforts on the oil, gas and mining industry:
Anglo American and Rio Tinto—in 2016, co-filed shareholder resolutions asking for robust disclosure on five areas of climate change-related risk and opportunity, including emissions management, asset resilience to carbon legislation, and public policy positions related to climate change. Both resolutions had the backing of management and passed with overwhelmingly strong support—96.25% of shareholders voted in favor of the Anglo American resolution; Rio Tinto received a vote of 99.16%.
ConocoPhillips—led a collaborative investor engagement to discuss carbon asset risk with company executives. In response to our efforts, the company disclosed the potential impact of four possible carbon pathways on its portfolio—the first major U.S. oil and gas company to do so. This provides investors with more complete information in order to assess the company’s long-term ability to compete in carbon-constrained marketplaces.
Chevron—met with corporate management to discuss multiple aspects of the company’s environmental performance, specifically focusing on greenhouse gas emissions, development of renewable energy sources, long-term sustainability risks related to reliance on carbon assets, and political spending on environmental issues. Wespath filed a shareholder resolution ahead of the company’s 2016 annual shareholder meeting, asking Chevron to issue a report on the impacts of fluctuating demand and price scenarios on the company’s existing reserves and resource portfolio. Chevron’s resolution received a 41% vote in favor, reflecting an unprecedented show of support for a first-time filing.
Exelon—engaged company leadership to discuss the organization’s corporate sustainability plan.
Exxon Mobil—participated in an ongoing dialogue with corporate management regarding the company’s environmental policies and performance, including establishing and disclosing goals to reduce greenhouse gas emissions, searching for non fossil fuel-based sources of energy, and spending on environmental political issues. Wespath co-filed a shareholder resolution in 2015 asking Exxon Mobil to include sustainability as a performance measure when setting executive compensation levels. The resolution was subsequently withdrawn after the company agreed to voluntarily provide additional disclosure.
Occidental Petroleum—filed a shareholder resolution ahead of the company’s 2016 annual shareholder meeting, requesting a report to evaluate the long-term business impacts of public climate change policies. The resolution requested the company explain how current capital planning processes and business strategies incorporate analyses of the short- and long-term financial risks of a lower carbon economy. It received a 49% vote in favor, and similar to the Chevron resolution, garnered an unprecedented level of support for a first-time resolution.
Wespath also seeks to influence policymakers as they consider climate change-related policies that affect business and investment. In 2014 and 2015, we:
Supported a global climate agreement at COP21
Initiated a joint UMC general agency letter signed by Wespath Benefits and Investments, Church and Society, Global Ministries and UM Women—calling for an international agreement at COP21 to limit global warming to less than 2-degrees Celsius. COP21 ultimately produced an unprecedented agreement supporting this long-term goal—the position advocated by the UMC.
Signed the 2014 Global Investor Statement on Climate Change outlining several actions intended to increase low carbon and climate-resilient investments while calling upon governments “to develop an ambitious global agreement on climate change by the end of 2015.” More than 400 investors with $25 trillion in assets signed the statement.
Signed an investor statement delivered to the Group of Seven (G7) Finance Ministers in advance of their May 2015 meeting. The statement—signed by the CEOs of 120 investors with $12 trillion in assets—requested action on climate change, delivering a strong message that investors believe such action would create investment opportunities. In response, the G7 pledged to “decarbonize the global economy over the course of this century”—an announcement that helped set the stage for the agreement at COP21.
Joined companies and institutional investors in writing to 29 state governors in support of lower carbon emissions, which would reduce corporate costs and create long-term value for shareholders. The governors were urged to include renewable energy when implementing the new Carbon Pollution Standards for electric power plants.
Co-signed a letter to Alberta, Canada’s Premier, Rachel Notley, joining 120 investors with $4.6 trillion in assets in supporting Premier Notley’s announcement for plans to update and strengthen Alberta’s climate change policies. The government subsequently disclosed details about plans to shutter coal-fired power plants by 2030 and increase the province’s carbon tax.
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Managing Excessive Sustainability Risk Linked to Climate Change
As a long-term investor, Wespath favors investing in companies that have sustainable business practices. To assist in identifying and managing environmental, social and governance (ESG)-related risk in general, the board of directors (board) adopted a policy on the management of excessive sustainability risk in 2014.
The policy recognizes that there may be instances when a particular issue, set of companies and/or industries pose high levels of risk to investors. In such instances, the board will approve an investment guideline to inform the execution of Wespath’s active ownership strategy.
The policy, “Management of Excessive Sustainability Risk,” is found in Wespath’s Statement of Administrative Investment Policy, Section III.D.2.:
ESG issues can present an excessive degree of sustainability risk to the General Board’s* funds due to their fiduciary implications and their importance to The United Methodist Church. When Wespath identifies such issues, it will develop a guideline regarding its company-specific engagement priorities. This guideline may also lead to the exclusion of certain companies until the risk of holding securities in the affected companies has been resolved, or if Wespath believes that it cannot reasonably mitigate the sustainability risk.
The Fiduciary Committee and UMC Principles Committee must approve all guidelines relating to the management of excessive sustainability risk.
* The General Board of Pension and Health Benefits of The United Methodist Church (General Board) is now Wespath Benefits and Investments—effective July 18, 2016.
In 2014, the board approved an investment guideline for climate change, with a specific focus on thermal coal.
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Climate Change (Thermal Coal) Guideline
Wespath’s research has shown that developed nations are shifting away from electricity generated from coal (known as “thermal coal”) to other fuel sources. Thermal coal is the most carbon-intensive fossil fuel. We believe that in many markets coal will be heavily taxed or significantly replaced by alternative fuel sources—absent the development of technologies to mitigate coal’s environmental impact. This could result in a meaningful deterioration in the value of securities in companies that derive a significant portion of their revenues from the production and consumption of thermal coal.
The Climate Change guideline focuses on companies with the highest exposure to thermal coal through “pure play” extraction and mining activities. This guideline provides direction for identifying and managing the excessive sustainability risk related to thermal coal that could potentially affect the value of the assets held on behalf of benefit plans and institutional investment clients.
Wespath continues to believe that constructive engagement is the most powerful tool for effecting corporate change and supporting the transition to a low-carbon economy. Engagement may therefore be required for companies in the mining and electric utility sectors that are close to the threshold for exclusion. In these cases, Wespath will review the company’s historic and projected involvement in the coal industry before recommending engagement or exclusion.
Wespath contracted with Sustainalytics (a global ESG research provider) in 2015 to identify and assess the management policies and practices of companies that pose excessive sustainability risk under our guideline. Following external research provided by the firm, we have identified ten companies for exclusion under the Climate Change guideline.
Complete text of the Climate Change (thermal coal) guideline can be found here.
Our Climate Change (thermal goal) guideline fully aligns with our fiduciary obligations to our participants and also aligns with the many United Methodist Church statements on environmental protection. The Social Principles “strongly advocate for the priority of the development of renewable energies,” (¶160B) and Resolution 1002, US Energy Policy and United Methodist Responsibility, declares, “the United States must move beyond its dependence on high carbon fossil fuels that produce emissions leading to climate change…”
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Equity Social Values Plus Fund
The Equity Social Values Plus Fund (ESVPF) is a passively-managed fund investing in U.S. and non-U.S. publicly owned companies that fulfills investor preferences for a heightened focus on corporate environmental and social performance. ESVPF, in response to the concerns expressed in petitions approved by a threshold number of annual conferences, excludes companies with fossil fuel reserves used for energy purposes and specific companies that are the subject of annual conference resolutions concerning peace in the Middle East.
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Climate Change Resources
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