The Methodist Investment Committee
Review of the UK Stewardship Code and SRI policy
The Financial Reporting Council ("FRC") is an independent UK regulator responsible for ensuring public confidence in the financial reporting and governance of UK companies which includes setting accounting, audit and actuarial standards.
The FRC published the Code in July 2010 to set guidelines for institutional investors in order to promote best practice in their engagement with the companies in which they invest. The FRC considers that institutional investors have a significant amount to gain from good stewardship and reporting standards in any companies that they might invest in, and that they have a responsibility to ensure that they engage effectively with those companies in their role as owner.
The Code sets out the level of good practice which the FRC believes investors should aspire to achieve. The Code does not apply mandatory requirements but does require investors to explain why any principle of the Code has not been complied with.
Target is primarily investment managers
The Code is directed at firms which manage equity assets, but institutional investors delegating responsibility to investment managers such as Pension Schemes are encouraged to report on their compliance with the Code. Property fund managers are not referred to explicitly and appear to be outside the intended scope of the Code. The "comply or explain" approach is used to avoid irrelevant or disproportionate requirements impacting on the institutions.
Principles of the Stewardship Code
The seven key principles of the Code are outlined below.
Principle 1: Institutional investors should publicly disclose their policy on how they will discharge their stewardship responsibilities.
Principle 2: Institutional investors should have a robust policy on managing conflicts of interest in relation to stewardship and this policy should be publicly disclosed.
Principle 3: Institutional investors should monitor their investee companies.
Principle 4: Institutional investors should establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value.
Principle 5: Institutional investors should be willing to act collectively with other investors where appropriate.
Principle 6: Institutional investors should have a clear policy on voting and disclosure of voting activity.
Principle 7: Institutional investors should report periodically on their stewardship and voting activities.
Investment managers' policy statements
Central Finance Board (CFB)
The CFB has a policy statement regarding the Code, displayed on its website, which outlines its response to the seven principles. The CFB also publishes detailed policies and other information which further demonstrate compliance with the Code on its website, including the following:
- voting policy
- reports of voting activities
- socially responsible investment reports
The Joint Advisory Committee on the Ethics of Investment recognises the CFB's support of and response to the principles of the Code in its 2011 Report to the Methodist Conference (available on the CFB website).
However, following the production of that report, both the Methodist Ministers' Pension Scheme (MMPS) and the Pension and Assurance Scheme for Lay Employees of the Methodist Church (PASLEMC) has invested in assets not under the management of the CFB (the Mayfair Capital Income Plus Fund).
The Mayfair Capital Income Plus Fund does not invest in UK shares and so does not fall under the intended scope of the Code.
The Trustees support the principles of the code and consider the CFB to be compliant with all principles of the code.
The Trustees will continue to monitor compliance with the code at least every 2 years.
Socially Responsible Investment
The SRI policy of the Methodist pension schemes is that scheme assets should be invested in accordance with a social, environmental and ethical stance which is consistent with the aims of the Methodist Church.
The Central Finance Board (CFB) has a comprehensive SRI policysummarised within its mission statement with which it invests the assets of the scheme. This follows the SRI objectives of the Methodist Church.
The Joint Advisory Committee on the Ethics of Investment provides an annual report to the Methodist Conference. This outlines whether the CFB is meeting the Methodists' SRI policy.
The CFB provided the Trustees with advice in relation to the recent appointment of the property manager, Mayfair. The Mayfair Capital Income Plus Fund invests its assets in line with its Ethical Investment and Environmental policies, which the CFB deemed appropriate in the context of pooled property investment.
Given the size of the investment the CFB has two representatives on the Investors Committees of Mayfair funds, which meet quarterly to approve the funds' investment policies. In this capacity there is opportunity to influence investment policy according to ethical principles.
Delegation with control
It is the responsibility of the Trustees to monitor the investment managers to ensure continued compliance with their stated SRI policies. This is achieved as follows:
- regular reporting on SRI by the CFB
- detailed accounting of the principles and actions of the CFB
- attendance at the Investment Committee meetings by the CFB
- regular reporting and presentations to the Investment Committee byMayfair
The CFB, as the investment manager internal to the Church, has Methodist principles integrated into its operational process. Regular reporting ensures its activities remain transparent and easily monitored. Pooled property investment is external to the Church but the CFB was able to assist the trustees with the necessary ethical evaluation and guidance. This is accompanied by regular reporting. For these reasons the Trustees consider the SRI policies of the Methodist pension schemes to be satisfactorily implemented under the current arrangements.