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Questions and Answers: Human Rights Guideline

Published February 26, 2015

  • 1) Why does Wespath have a guideline relating to human rights?

    Wespath is committed to investing in a sustainable manner, which includes encouraging companies to address and manage environmental, social and governance (ESG) issues in their operations. Recognizing a shared concern with United Methodist retirement plan participants and other stakeholders about the importance of protecting human rights, the agency formalized and later strengthened a human rights guideline. The guideline helps inform the execution of our sustainable investment strategy of active ownership.

    The guideline provides direction for identifying and managing excessive sustainability risk linked to human rights, which could potentially affect the value of assets held on behalf of Wespath-administered benefit plans and our institutional investment clients. We believe a company poses excessive sustainability risk when it derives significant revenues from countries demonstrating a prolonged and systematic pattern of human rights violations, from conflict-affected areas where significant human rights violations are widely documented and/or where breaches of international law occur. Companies with significant exposure to these high-risk areas could see their operations negatively impacted. This could adversely affect the value of the securities of those companies that we hold on behalf of our participants and institutional investors.

  • 2) The Human Rights guideline references the financial risks to companies doing business in high-risk operating areas. Shouldn't Wespath be more concerned about the welfare of vulnerable people in these areas?

     

    Wespath cares deeply about the welfare of vulnerable people in high-risk areas. The guideline's reference to the financial risks to companies doing business in high-risk operating areas recognizes the directive of The United Methodist Church (UMC) General Conference regarding the administration of benefit plans. It has delegated to Wespath responsibility for administering these plans "…solely in the interest of the participants and beneficiaries and for the exclusive purpose of providing benefits to participants and their beneficiaries."

    However, through our years of sustainable investing, we have come to strongly believe that effective strategies to reduce corporate risk include the protection of human rights. This is a key reason why we engage companies on human rights issues. Accordingly, our Human Rights guideline focuses on creating positive change for affected communities and manages financial risk.

  • 3) How does Wespath identify "high-risk operating areas," as described in the Human Rights guideline?

    Wespath's Human Rights guideline provides two definitions of "high-risk operating areas":

    — "Countries demonstrating a prolonged and systematic pattern of human rights violations," which we have defined as "countries with a ‘worst ranking' in Freedom House's annual Freedom in the World report."

    — "Conflict-affected areas where significant human rights violations have been widely documented," which may include sectors of a country's economy recognized as prolonging conflict and violence (for example, the oil, gas and mining sectors' role in conflicts over natural resources) and areas where a United Nations Security Council resolution or an advisory opinion by the International Court of Justice has identified that significant breaches of international law occur. This definition of "breaches of international law" aligns with the United Methodist Church's Social Principles (¶ 165.D).

    Wespath has engaged Sustainalytics, an external research provider with expertise in assessing sustainability risk in high-risk operating areas, to help identify the affected companies.

  • 9) Is Wespath concerned that the Human Rights guideline could potentially be viewed as punishing Israel?

    Wespath is not divesting from Israel. We remain invested in publicly-traded Israeli companies that meet our investment criteria.

    The UMC General Conference 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." Excluding from investment the securities of companies with unsustainable business practices involved in the Israeli settlements located in the Palestinian territories is consistent with our fiduciary obligation to our participants and other stakeholders, as directed by the UMC General Conference.

  • 11) How does Wespath monitor and update the Human Rights guideline?

    Wespath continues to monitor the countries listed on Freedom House's annually updated "worst of the worst" list, as well as geopolitical situations where conflict exists and significant breaches of international law occur. We seek advice from a wide variety of internal and external stakeholders; examine the Social Principles; review the investment activities of our global peers; discuss issues with our investment managers, research providers and other secular experts; and seek the guidance of our board of directors and other United Methodists. We work with our external research provider, Sustainalytics, to assess sustainability risk and to monitor and update the list of companies affected by our Human Rights guideline.