Ethical insurance and investments

Our Ethical Engagement Policy statements

We believe we can change companies from the inside

Customers of The Co-operative Insurance and Investments have asked that we use our position as a major investor, to engage companies on a commercial level. In this way, we can challenge major businesses from the inside, to improve their performance in relation to issues of concern to our customers', such as climate change and human rights, in a way that other organisations cannot.

We actively vote at AGMs and meet with the companies in which we invest to encourage them to be better, fairer businesses.

Human rights and armaments

Everyone should be entitled to basic human rights, such as a decent standard of living, and safety from torture. While human rights issues can often seem quite remote from our own everyday lives, frequently the organisations that abuse them have links to the UK. Indeed, between 2000 and 2005 alone, £1.2 billion worth of armaments and military equipment was transferred from the UK to countries that fall within The Co-operative Insurance and The Co-operative Investment's definition of an 'oppressive regime'.

So what can we do about it? We have committed to supporting the Universal Declaration of Human Rights, and will challenge the companies in which we invest to do so also. We're determined to make ourselves heard, and, as a shareholder, our words cannot be ignored.

Our policy statement on human rights and armaments

We support the principles of the Universal Declaration of Human Rights and will challenge organisations that:

• undermine basic, universal human rights, e.g. tolerate unfair discrimination;
• support, or benefit from, governments that oppress human rights;
• manufacture or transfer armaments to oppressive regimes;
• manufacture torture equipment or other equipment that is used in the violation of human rights.

Our policy in practice

Human rights in Burma and Sudan

There are many oppressive regimes across the world; however, Burma presents a combination of circumstances that make a particularly compelling case for action. We have engaged with several companies about their continued presence in the country, including various Chinese companies.

We also encouraged several companies operating in Sudan to avoid complicity in abuses of human rights but also to use its influence to encourage the government towards peace and emphasise the value to foreign investors of an end to the violence in Darfur. We advocated that companies adopt policies on the use of security forces; transparency of payments to the government; social programmes; and political influence.

TCAM also held discussions with Aggreko, which provides large-scale power shortage relief in natural disaster and post-conflict situations, to ask that they establish measures to secure human rights within its sphere of influence.

Trade and labour rights

Driven by ever-increasing competition, businesses are under more and more pressure to lower prices, whilst at the same time upping profits. In this climate, it is often the people who produce the goods we buy who lose out, and stories about the poor working conditions and protection of these workers are well documented.

We push the companies in which we invest to take a responsible approach to labour rights in their operations and supply chains, and to ensure that workers' health, safety and welfare are respected.

Our policy statement on trade & labour rights

We will seek to:

• protect workers from exploitation, e.g. oppose child labour;
• support poverty reduction, e.g. encourage the adoption of Fair Trade or ethical trading principles;
• advocate an end to trade which fuels conflict or undermines human rights, e.g. displaces people from their lands;
• encourage the promotion of co-operative enterprises.

Our approach in practice

Supply chain labour standards

TCAM has engaged with several high-street retailers, including Tesco and Primark owner, Associated British Foods over supply chain labour standards. This issue is a concern for investors as business models relying on low-cost supply bases are often associated with poor factory working conditions. These in turn may lower productivity and employees may protest through work stoppages. Companies sourcing from such factories may encounter unexpected problems and be forced to find new suppliers at short notice. In Western markets, allegations of sweatshops erode consumer confidence in brands.

We have called on companies to develop forward-looking solutions, particularly to the issues of independent auditing and the living wage. We also asked that look at more innovative solutions for addressing supply chain labour standards such as long-term partnerships; addressing existing business or purchasing practices; effective remediation and increased transparency.

Making change over time

We believe that buying low cost goods at the expense of workers' health, safety and welfare is not only morally wrong, it is also unsustainable in business terms. We worked with the ethical trading consultancy Impactt to produce a report that promotes a new approach to improving labour practices, focused on change over time, rather than simple audit compliance. It showed that such changes can have a positive impact for suppliers and purchasers, as well as workers. We have contacted 120 international companies in which we invest, to highlight the report and will provide practical support for companies to incorporate changes throughout their supply chains.

Download the report. (PDF - 3.7 MB)

Consumer protection

You could say that consumer protection is in our blood.

That's because the original co-operative business - the Rochdale Equitable Pioneers Society est. 1844 was created to provide a fair deal for local shoppers.

Now we apply these principles on a global level, using our influence as a shareholder to promote good practice in the area of consumer protection.

Our policy statement on consumer protection

We will promote:

• responsible marketing practices, e.g. with regard to marketing to children, the marketing of tobacco products and of breast-milk substitutes
• the health and safety and labelling of products, e.g. genetically modified foods.

Freedom of Information - TCAM has been in dialogue with Reed Elsevier over its strategy towards the Open Access movement.  Open Access is where the author or funding body behind him / her pays to publish the article and access is free to all. The Open Access movement's ethical argument is that, as most Science Technical & Medical (STM) research is funded by taxpayers and universities and as the information has a high public interest value, it should be free at the point of access, instead of a pay-per-view model which has proved expensive and unpopular with the research community.

Elsevier's Science, Technical and Medical (STM) publishing business is the largest in the world. In our view, the pervasiveness of the Internet in contemporary culture means that many people now expect knowledge to be free at the point of access, and this is bound to impact on the industry's business model. We continue to engage with the company on this issue.

WPP: Appropriate Client Representation & Political Lobbying

In 2008 we held discussions with the public relations company, WPP, over

• How it makes decisions on the suitability of potential clients it represents in advertising
• What policies exist to govern best practice on representation methods
• Proper use of the media and political lobbying.

WPP has since informed us of their intention to implement many of our suggestions. These included ethical training (for the top 50% of workforce), regular ethical risk review meetings and more attention to the ethics of client choice and representation in its policies.

Social inclusion

Companies have the capacity to make a real contribution to major social issues around the world , such as health, education and the provision of basic necessities like food and water.

Our policy on social inclusion is designed to encourage the companies in which we invest to consider the wider social implications of their activities.

Our policy statement on social inclusion

We will promote greater access to:

• health services and basic medicines;
• education;
• basic necessities, e.g. water;

Our approach in practice

Pharmaceuticals and the health crisis in emerging markets

Almost 2 billion people lack access to essential medicines. Improving access to medicines could save 10 million lives each year.  It is an issue characterised by profound inequality. 15% of the world's population consumes over 90% of the world's pharmaceuticals.

Between 2003-4 The Co-operative Asset Management (TCAM) chaired the Pharmaceutical Shareowners Group (PSG), an international grouping of 14 institutional investors representing £900 billion assets interest in how the sector is addressing the challenges related to the public health crisis in the emerging markets.  Following engagement with major global pharmaceutical companies, in 2004, a Best Practice Framework was launched, which sought to promote good management and disclosure within the pharmaceutical sector.  The report is attached.

TCAM is now co-convenor of PSG's successor group, The Pharmaceutical Shareowners Forum. See http://www.pharmashareowners.net/

Genetic modification

The genetic modification of agriculture has given rise to most protest and direct action.  The cultivation of genetically modified (GM) crops and their use in everyday foods have led to concerns about the environmental pollution and the threat to local biodiversity, food safety, consumer rights and choices, farmers' rights and the threat to their traditional method of planting crops from saved seeds, food security for the developing world, and the increasing dominance of multinational corporations. This will be an area of focus in 2009.

Our policy statement on genetic modification

We will challenge businesses involved in the application of genetically modified organisms (GMOs) which:

• damage the environment, e.g. through the uncontrolled release of GMOs;
• compromise human health, e.g. through a failure to account for significant risks.

Environmental sustainability

Big companies can leave big footprints

As an investor we can urge them to reduce their environmental impact. And because we speak from the position of shareholder they are obliged to listen us.

We can use our influence in a broader sense too. For example, asking the companies in which we invest to support us in lobbying the government on environmental issues. We also investigate areas that concern our customers, such as the wider environmental implications of unconventional fossil fuels, which was the focus of an extensive report in 2008.

Our policy statement on environmental sustainability

We will encourage businesses to reduce pollution and their environmental impact, and, in particular:

• reduce reliance on fossil fuels - which contribute to climate change - and increase their use of renewable energies and energy efficiency;
• end the production of chemicals that nature cannot easily break down and which build up and contaminate plants and animals;
• end the exploitation of nature - which results in the loss of plants and animals and their surroundings - and consider more sustainable natural products and services.

Our approach in practice

Over recent years we have held several meetings with Drax, the biggest coal-fired power plant in Europe is a natural target for campaigners who see carbon intensive 'King Coal' as a chief culprit in global warming. In ways, Drax is a model that other coal-fired power plants should aspire to. It is the most efficient of the UK's coal-fired stations, fully equipped with Flue Gas Desulphurisation and a commitment to biomass co-firing. However, Drax will remain out of sync with political and environmental agendas as climate change and fossil fuels receive such attention and economic Clean Coal Technology and Carbon Capture and Storage remain out of grasp. From 2012, Drax will have to pay for all its carbon pollution permits, which could get very expensive.  Drax's biggest problem is that it is just one (enormous) coal plant, so its room to diversify into lower carbon power is limited. For this reason, we divested from the company during 2008.

Biofuels: risks and opportunities of an emerging industry

Biofuels have been hailed as the answer to two major issues facing humanity: climate change and our reliance on fossil fuels. However, they may not be the panacea they have been made out to be. Although biofuels are in theory 'carbon neutral', the energy and chemicals needed to grow, transport and refine them can often mean they save very little greenhouse gas emissions and in some cases may even make climate change worse! The growth of some biofuel crops has led to rainforest destruction and in some places people may be forced from their land. We have been working with the biofuels industry, charities, government and the investment community to promote a more sustainable approach to biofuels.

Download the Biofuels booklet (opens as PDF - 2.0Mb)

For a copy of the full report on biofuels please contact: responsibleshareholding@cfs.coop

Global climate change

The Co-operative Asset Management is co-ordinating an investor letter to large oil and gas companies involved in oil sands. The letter is supported by major UK investors and is being drafted in conjunction with Ethical Funds of Canada and other U.S. investors active in this arena. The letter will focus on:

• Carbon intensity targets and viability of mitigation options
• Local environmental management including tailing ponds and water use
• Respect for First Nations legal rights and other stakeholder engagement
• Conservation areas and land-use planning
• Greater disclosure for shareholders on how all of the above are to managed to protect their licence to operate.

TCAM also supported a letter drafted by OilchangeInternational to the U.S. Securities & Exchange Committee urging it to press ahead with draft plans to implement new rules on how oil and gas companies should disclose their reserves and any associated liabilities. We have also joined North American investors in conversations with Chevron Corporation and asked the company to justify why further investment in unconventionals remained in shareholders interest in view of the collapse of the oil price and the imminent internalisation of environmental and social costs.

Do we practice what we preach?  

Why not find out? Environmental sustainability is a big part of running a good business

We believe that the long-term stability of our economy depends on an appropriate response to climate change, and it is to the benefit of all that insurance companies incorporate the risks from climate change and the need for migration into our business strategies.

As a result The Co-operative Insurance and Investments has joined together with the Association of British Insurers (ABI) and other businesses from the insurance sector to become signatories to a set of six principles called ClimateWise:

• Lead in risk analysis
• Inform public policy making
• Support climate awareness amongst our customers
• Incorporate climate change into our investment strategies
• Reduce the environmental impact of our business
• Report and be accountable.

To see how The Co-operative Insurance and Investments has progressed against these principles to date, download the documents below:

Please read:

• ClimateWise and The Co-operative Insurance
• Read our external auditors statement* on how we have progressed against these principles. (PDF - 0.1Mb)

Animal welfare

Our customers have expressed a number of concerns around the issue of animal welfare, and so we encourage the companies we invest in to take positive steps toward addressing their impacts on animal welfare; whether it be ending the sale of fur or stopping the testing of cosmetics on animals.

Our policy statement on animal welfare

We will encourage:

• a move away from intensive animal farming systems, e.g. battery cages;
• an end to the reliance on animal testing for cosmetic or household products;
• support for the development of alternatives to animal testing;
• an end to the animal testing;
• an end to blood sports, which involve the use of animals or birds to catch, fight or kill each other.

Our approach in practice

The Co-operative insurance and investments engagement - fur trade

In our Ethical Engagement Policy consultation in 2005, 82% of CIS customers called for an end to the reliance on animal testing for cosmetics and household products while 89% agreed CIS should encourage the development of alternatives to animal testing. It continues to be an issue of strong public opinion.

We have recently undertaken a review animal testing regulation with regard to household products. We have recently written to twelve companies to ascertain the extent of their related operations and to advocate an end to unnecessary animal experiments.

Corporate governance

As an investor, we want to see the businesses in which we invest adopting a culture of openness and fairness. When companies embrace these values the benefits are passed on to their workforce and supply chains.

After all in our opinion, a transparent and well-managed business is more likely to be a successful one.

Our approach to corporate governance

We will challenge companies to:

• adopt and implement all appropriate codes of best practice, e.g. the Combined Code of Corporate Governance;
• avoid excessive pay to directors and rewards for failure;
• have strong safeguards against fraud, bribery and corruption.

We were the first institutional investor to publicly disclose our voting policy in 2002 and our voting record is available here.

Our approach in practice

Executive remuneration

As a responsible shareholder, The Co-operative Asset Management believes good standards of corporate governance are essential in companies in which it invests.  As a responsible investor we want to share in the long-term success of businesses in which we invest.  But if a company fails to create value for its shareholders, we believe its wrong to give rewards to management that are to disproportionate shareholders returns no matter how difficult the economic situation. TCAM took this position long before the downturn.  For example:

• It voted against Northern Rock remuneration reports prior to the credit crunch
• It has refused to support RBS executive remuneration continuously since 2002
• It was one of few institutional investors to vote against the RBS/ABN-AMRO deal
• In 2002, it became the first institutional investor to make its entire voting record available to the public on-line.

In March 2009, we wrote to the Chairmen of the UK FTSE 350 companies to call for fairness and restraint on directors' pay to reflect the current challenging economic conditions.  The letter is attached.

View our policy on responsible shareholding

Responsible shareholding (PDF - 1.1Mb)

View our UK Corporate Governance and Voting Policy. (PDF - 0.2Mb)

How we manage our Ethical Engagement Policy

Representing our customers' ethics

The decision to adopt a customer-led Ethical Engagement Policy was a major step for us.

It meant going into uncharted waters because we were the first insurer in the world to do it.

Before doing anything, we asked our customers what they thought of the idea and 44,000 took the opportunity to respond. Their comments have helped to shape the Ethical Engagement Policy set out on this website.

Since we recognise that people's concerns change over time, we are committed to regularly re-appraising our customers' views and updating our Policy accordingly.

Responsible investments: investing for value, engaging for change

Our Responsible Shareholding team implements our ground breaking Ethical Engagement Policy across all the companies in which we invest. Company performance on corporate governance and social, ethical and environmental management is analysed to identify where good of bad management of an issue may impact upon share price, and to identify where a company's practices conflict with our customers' ethical concerns.

The Co-operative Asset Management is a signatory to the UN Principles for Responsible Investment (UNPRI). The UNPRI is a voluntary code for investors aimed at raising awareness of corporate and environmental responsibility. It is a set of six environmental, social and corporate governance guidelines, supported by 35 possible actions, designed to guide institutional investors towards responsible investment. It also aims to encourage engagement with companies to lead them on a "path of continuous improvement".

Read about examples of the many projects we've been working on, from protecting workers in China to promoting wind power and campaigning against excessive pay for top directors.

View our approach to responsible investment in practice

Responsible shareholding PDF 0.8Mb

Applying the Policy to our investments

Our Ethical Engagement Policy does not mean we refuse to invest in certain business activities; e.g. animal testing. It means that we will invest in most companies, but we will seek to use our influence as a shareholder to try and improve the ethical performance of these businesses in line with our customers' views.

Take the issue of child labour, for example

If a company in which we invest is found to be using child labour, we will try to resolve the situation using our influence as a corporate shareholder. Primarily this is through:

• private meetings with senior management
• voting at the Annual General Meetings (AGMs) of companies
• correspondence with the company urging change.

We use commercial arguments too

As well as basing our views on ethical grounds, we also believe that such practices could impact on that company's long-term financial performance. For example:

• a media campaign could impact on the company's reputation
• a consumer boycott could impact on sales as well as reputation
• litigation could arise, which could have financial repercussions for the company.

Our successes and failures are all out in the open

We are completely open in how effective we have been in actively promoting our customers' ethical concerns through our investments.

This is why:

• we vote on every shareholder resolution that is put before us by every company in which we invest
• we make all such voting decisions available on this website
• we commission an annual audit of the implementation of the Policy from an external, independent organisation
• we report back to customers on the implementation of the policy and the audit findings, in a 'warts and all' fashion, in The Co-operative Group's annual Sustainability Report. View our latest report.