© Wespath, a division of the General Board of Pension and Health Benefits of The United Methodist Church

Divestment 2014 Conference Forum

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Agenda—Climate Change

• Background

• United Methodist Position

• Annual Conference Summary

• Strategies—Passive, Active, Divestment

• Resources

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Climate Change

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Climate Change

Goldman Sachs: October 2013

• In our view, investors need to take into

account the risks of regulatory intervention

influenced by climate change, irrespective

of their stance on the subject

• The inherent unpredictability of regulation

around carbon emissions creates

investment risk…we have long held the view

that early adopters in any sector can build

competitive advantage by mitigating

emissions and managing energy

Source: Goldman Sachs, What is the Climate for Change? October 2013

Relevant to Shareholder Value

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Carbon Tracker

The 2012 report, Unburnable Carbon highlights three points:

Source: carbontracker.org

To stay below a 2 Celsius

global rise in temperature,

the world’s carbon budget

through 2050 is 565 GtCO2

Proven fossil fuel reserves

are equivalent to 2,795 GtCO2

Only 20% of the total reserves

can be burned, leaving up to 80%

as potentially “stranded assets”

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350.org

Activist organization promoting action on

climate change, including divestment of fossil fuels

• 500+ campaigns in the

United States

• 22 cities

• 18 foundations

• Nine colleges and universities

“It is wrong to profit

from wrecking the climate.”

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UMC Guidance

Environmental Stewardship, Resolution 1026

“We urge all United Methodists, their local churches,

boards and agencies to examine their roles

as stewards of God’s earth and to study, discuss,

and work to implement (environmental stewardship).”

¶160(D), Global Climate Stewardship

“We therefore support efforts of all governments to require

mandatory reductions in greenhouse gas emissions and

call on individuals, congregations, business, industries

and communities to reduce their emissions.”

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Annual Conferences

Two annual conferences addressed resolutions

related to fossil fuels in 2013

Northern Illinois:

Approved divestment of the

“Filthy Fifteen”

Detroit:

Defeated action to petition

GBOPHB to divest from

fossil fuel companies

It is anticipated that this trend will increase in 2014

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Three Investment Strategies

Which one is right for you?

Passive Investment Active Investment Divestment

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Passive Investment

Pros:

• Low cost

• Ease of administration

• No need to “pick a side”

Cons:

• Requires little accountability

to shareholders

• Leads to entrenched management

• Ignoring the problem won’t make it go away

• Heightened risk of divestment campaigns

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Active Investor

Pros: • Direct avenue of communication

to encourage corporate action

• Has potential to add value

• Increases corporate accountability

to shareholders, employees and

society as a whole

• Proven as an effective method

to drive change

Cons: • No guarantee of success

• Some headline risk to investor (You are invested in THAT?)

• Higher costs than passive or divestment strategies

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Divestment

Pros:

• Alignment of money and mission

• Makes a statement (action-oriented)

• Creates headline risk for companies

• Can drive change if “tipping point”

is reached

Cons:

• Power is permanently relinquished

• Unlikely to result in change

• Eliminates 10% of the investment universe (fossil fuels)

• Shares transferred to ???

• Other sectors in portfolio still at risk (climate change)

• Walking away from the problem won’t make it go away

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Other Considerations

• The size of the task

• Absence of a clear strategy

• Lack of legislative/regulatory framework

• Fiduciary duty

• Consumer behavior

• Companies acting in the absence of regulation

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Wespath Advocacy

• Environmental Justice and Investments

working group

• Leading investor coalition with

ConocoPhillips and Occidental Petroleum

– Joined investor coalition with XOM

• Co-filed shareholder resolution with

Emerson Electric that received 38% support

• Testified at EPA hearing in support

of ultra low-sulfur fuel standards

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Resources

Carbontracker.org

Ceres.org

EPA.gov/climatechange/

Res. 1002 U.S. Energy Policy

and United Methodist Responsibility

Res. 1023 Environmental Justice

Riskybusiness.org

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Agenda—Israel/Palestine

• Background on Kairos Palestine, the Boycott,

Divestment and Sanctions (BDS) movement,

and the Kairos Response

• Divestment targets

• GBOPHB response

• Annual conference action and activities

• Additional information

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Definition of Kairos

Source: Wikipedia and E. C. White, Kaironomia p. 13

Kairos is an ancient Greek word meaning the right

or opportune moment (the supreme moment)

In rhetoric, kairos is “a passing instant

when an opening appears which must be driven

through with force if success is to be achieved”

In the New Testament, kairos means

“the appointed time in the purpose of God,

the time when God acts”

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Kairos Palestine—A Moment of Truth

Source: A Moment of Truth, Kairos Palestine, December 15, 2009

“…the Christian Palestinians’ word to the world about

what is happening in Palestine”

“…we Palestinian Christians declare that the military occupation

of our land is a sin against God and humanity”

“…demands that all peoples, political leaders and decision-makers

put pressure on Israel and take legal measures in order to oblige

its government to put an end to its oppression and disregard

for the international law”

“…non-violent resistance to this injustice is a right and duty

for all Palestinians including Christians”

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Boycott, Divestment and Sanctions National Movement Members

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Boycott, Divestment and Sanctions (BDS) Movement

The call urges various forms of boycott against Israel

until it meets its obligations under international law by:

• Ending its occupation and colonization of all Arab lands

occupied in June 1967 and dismantling the Wall

• Recognizing the fundamental rights of the Arab-Palestinian

citizens of Israel to full equality

• Respecting, protecting and promoting the rights of

Palestinian refugees to return to their homes and properties

as stipulated in United Nations Resolution 194

Source: Palestinian BDS National Committee

21 Separation Wall

22 Settlement Expansion

23 Settlement Expansion

24 Checkpoints

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United Methodist Kairos Response

• Formed October, 2010 as “…a global movement

in the United Methodist Church responding to

‘Kairos Palestine,’ an urgent plea from Christians

in the Holy Land for decisive action supporting

a just peace in Israel/Palestine”

• “The UMKR movement(’s)….goal is to bring about

a just peace for Israelis as well as Palestinians”

• “…working to put actions behind the denomination’s

words and seeks to align the church's investments

with its resolutions opposing Israel’s occupation

of Palestinian land”

Source: United Methodist Kairos Response

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UMC BDS Targeted Companies

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Other Companies Identified

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General Board Response

• West Bank visited by GS and CIO in October 2012

• Human Rights and Investment Ethics Task Force

co-convened with GBGM. Will issue a report

for public comment

• Balanced Social Values Plus Fund being repurposed

as the Equities Social Values Plus Fund

(January 1, 2015 expected inception date)

• Positive investment opportunities on the West Bank

being actively explored

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Human Rights and Investment Ethics Task Force

Name Title Organization

Bishop Ken Carter, Chair Bishop, Florida Area Florida Annual Conference

Ms. Geeta B. Aiyer, CFA President Boston Common Asset Management

Ms. Barbara A. Boigegrain General Secretary GBOPHB

Rev. Dr. Susan Henry-Crowe General Secretary General Board of Church and Society

Mr. Samuel Jones Asst Dir, Human Rights Program The Carter Center

Mr. Thomas Kemper General Secretary General Board of Global Ministries

Dr. Jeffrey Kuan President Claremont School of Theology

Dr. Ellen Ott Marshall Assoc Prof, Christian Ethics Candler School of Theology, Emory U.

Ms. Harriett Olson General Secretary and CEO United Methodist Women

Rev. Chuck Savage Executive Director Georgia United Methodist Foundation

Rev. Dr. Ed Tomlinson Pastor Lanier UMC, Cumming, Georgia

Bishop Hope Morgan Ward Bishop, Raleigh Area North Carolina Annual Conference

Mr. Jim Winkler General Secretary/President National Council of Churches

Mr. David Zellner Chief Investment Officer GBOPHB

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Human Rights and Investment Ethics Task Force

The purpose of the Human Rights and

Investment Ethics Task Force is to identify

resources, principles, and procedures that

express our commitment to human rights,

taking into account fiduciary responsibility

and ministry priorities, consistent with the

global mission of The United Methodist Church.

Purpose Statement

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GBOPHB: Brief Statement

• GBOPHB is one of the world’s leading socially responsible investors. We advocate for change and make meaningful social impact investments

• We support the UMC’s call for a just and lasting peace in the Middle East

• We went to the region to see for ourselves the challenges confronted by the Palestinians

• The issue is very complicated. As a fiduciary for all participants, we can’t endorse “symbolic” gestures demanding divestment

• We will continue to evaluate options for demonstrating support that are aligned with prudent investment practices

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Equity Social Values Plus Fund

(ESVPF)

Existing Screens

Added Screens

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ESVPF Implementation

• Offered to self-directed defined contribution (DC)

plan participants and Wespath clients

• July-December 2014: Communicate change

and request election from all BSVPF participants

• Default for non-election: Multiple Asset Fund

• Target implementation: January 1, 2015

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Minimal Diversification in BSVPF

Asset Class MAF LS BSVPF

U.S. Equities X X X

Developed International Equities X X

Emerging International Equities X X

Real Estate Investment Trusts X X

U.S. Treasury Securities (nominal) X X

U.S. Treasury Securities (inflation-linked) X X

Positive Social Purpose Loans X X X

Corporate Bonds X X

High Yield Debt X X

Emerging Market Debt X X

Stable Value Assets X

Commodities X X

Alternative Investments X X

Cash X X X

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Small Group of ‘Only Fund’ Investors

Balance ($M) Count Amount

($MM)

% of

Fund

> $100 19 $2.87 4.3%

$50 to $99.9 19 1.32 2.0%

$25 to $49.9 31 1.04 1.5%

$10 to $24.9 55 0.91 1.4%

$1 to $9.9 41 0.19 0.3%

<$1 12 0.01 0.0%

Total 177 $6.34 9.5%

Total fund: $66.7 million

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2013 Annual Conference Action

Approved

Call on GBOPHB to divest

from CAT, HPQ, MSI 3

Divest conference funds from GE 1

Create a task force to identify

companies “aiding the Occupation”

and report back to AC

3

Tabled or Defeated

Create task force 1

Divest conference holdings

from CAT, HPQ, MSI 1

Referred

Divest conference holdings

from CAT, HPQ,MSI 2

Approved divestment from coal producers and consumers 1

Defeated call on GBOPHB to divest from fossil fuel companies 1

Israel/Palestine

Fossil Fuels

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2014 Annual Conference Activities

• Conference Liaisons are contacting conferences

with 2013 divestment activities

• Reviewing 2014 annual conference materials

for new petitions and resolutions

• Identifying which conferences allow “last minute”

petitions and resolutions

• Helping the conferences develop a “response”

to petitions and resolutions

• GBOPHB representative to attend

annual conference sessions that have

or could have BDS activity

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Source: Ecclesiastical Investment Management, Amity Insight, January 2013

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Ceres Roadmap for Sustainability Human Rights

“Companies will regularly assess key risks

related to human rights throughout their entire

operations, and will employ management systems

that are aligned with internal policies and support

the implementation of universal standards.”

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Source: The Ceres Roadmap for Sustainability

Human Rights Performance

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