1) What led Wespath Benefits and Investments (Wespath) to adopt these guidelines?
Wespath actively pursues strategies designed to address the risks from investing in companies with inadequate management of environmental, social and governance (ESG) issues. We share the concerns of many United Methodist stakeholders about the importance of addressing climate change and protecting human rights, and have strengthened our investment policy guidelines relating to our sustainable investment strategy of active ownership. These guidelines will provide direction for identifying and managing the excessive sustainability risk that could potentially affect the value of assets held on behalf of benefit plans and institutional investment clients.
2) What was Wespath’s process in developing these guidelines?
The issues of climate change and human rights are not new to Wespath given our long-term involvement in sustainable investment and the concern for these issues in the United Methodist Social Principles. However, in preparing the guidelines, we studied the United Methodist Social Principles to understand current Church positions regarding climate change and human rights. We listened to important voices knowledgeable about these two topics within and outside the Church. We jointly convened (with the General Board of Global Ministries) the UMC’s Human Rights and Investment Ethics Task Force, and we continued to build on that collaboration with three UMC general agencies. In addition, we collaborated with other leading sustainable investment asset owners in the U.S. and abroad.
3) Which groups in The United Methodist Church provided input to these guidelines? Which groups outside the Church provided input?
We relied on, and we continue to collaborate with, the leadership of the General Board of Global Ministries, the General Board of Church and Society, United Methodist Women, representatives of several annual conference task forces, and other groups and individuals within The United Methodist Church interested in these topics.
Outside the Church, we relied on, and we continue to collaborate with, several of our investment managers with ESG expertise. We also talked with a number of collaborative investor initiatives including faith-based members of the Interfaith Center for Corporate Responsibility (ICCR); Ceres (a leading non-profit advocate for more sustainable environmental practices); the staff and signatories to the UN Principles for Responsible Investment (PRI); and many secular sustainable investment leaders. We carefully researched and analyzed information from notable non-government organizations. Those devoted to promoting human rights included Human Rights Watch, the Business and Human Rights Resource Centre; Amnesty International; the Robert F. Kennedy Center for Justice and Human Rights; and the Carter Center. Organizations focused on climate change included the World Resources Institute and The Carbon Tracker Initiative.
4) Are these guidelines necessary for prudent investment management of participant and UMC-affiliated institutional funds? Is it possible they could hurt performance since their application results in limiting the number of stocks Wespath can hold?
Wespath believes that developing and adopting these and other guidelines that address environmental, social, and governance (ESG) issues is a requirement for prudent fiduciary management of investment funds. We strongly believe that these guidelines will lead to improved investment performance by addressing Wespath investments in companies with unsustainable business policies and practices.
5) To what extent will the exclusion of securities described in these two guidelines affect the holdings in Wespath’s funds?
In 2015, Wespath Investment Management, Wespath’s investments division, contracted Sustainalytics (a global ESG research provider) to identify and assess the management policies and practices of companies that pose excessive sustainability risk under our new guidelines. With external research provided by Sustainalytics, we have identified 39 companies for exclusion under the Human Rights guideline, and nine for exclusion under the Climate Change guideline.
6) The new guidelines focus on fulfilling Wespath’s fiduciary responsibilities. Shouldn’t Wespath develop guidelines based on fulfilling The United Methodist Church’s moral or ethical principles or statements?
The General Conference of The United Methodist Church has delegated to Wespath responsibility for administering benefit plans “…solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries…” Hence, while we are guided by the Social Principles in setting our priorities, any policies and guidelines that Wespath develops must adhere to this General Conference directive.
7) To what extent will Wespath communicate these guidelines to annual conference delegates?
Wespath maintains an ongoing dialogue with key representatives from the annual conferences. We have responded and will continue to respond to the many inquiries we receive from the annual conferences regarding our sustainable investment strategies and these new guidelines.