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The Church as Institutional Investor

by Edward Mason

Posted: 15 Jun 2011

How do you invest £8bn ethically?

The Church of England has three national investing bodies charged with the management of the Church's pension and endowment funds - the Church Commissioners, the Church of England Pensions Board and the CBF Church of England Funds. Their combined assets exceed £8bn.

This wealth creates a challenge, and an opportunity, to model a style of institutional investment that reflects Christian values.

Ethical investment by the Church has always involved avoidance of some areas of investment, like the shares of companies whose main business is tobacco or armaments.

Increasingly, however, the ethical investment practised by the Church of England focuses not only on what shouldn't be owned, but also on the responsibilities and possibilities arising from what is owned. Share ownership gives the Church a huge opportunity to talk to companies on issues of business ethics.

In addition, the Church's ethical investment policies today have to cover much more than issues arising from the ownership of shares, bonds and property. Institutional investment now embraces new asset classes like currencies and commodities and new practices like short selling. This gives the Church an opportunity to engage with the investment community on issues of investment ethics.

To meet the challenges of investing £8bn ethically the national investing bodies fund the Church's Ethical Investment Advisory Group (EIAG) and its staff Secretariat.

The EIAG is undertaking a comprehensive review of all of the established areas of investment exclusions. The aim is to develop more nuanced, distinctly Christian policies that do more justice to the complicated ethical issues involved and can be implemented internationally. Our new defence investment policy, for example, incorporates just war theology, and newly emphasises the need to avoid any investment in manufacturers of indiscriminate weaponry.

The EIAG and its staff engage with many companies every year. In 2010 we had a big impact on the mining company Vedanta Resources when, after a long period of engagement, we decided that the company was not responding to our concerns about its treatment of local communities, and recommended that the investing bodies disinvest. The two bodies that held shares, the Church Commissioners and the Church of England Pensions Board, immediately agreed and disposed of their holdings.

Faced with this challenge to the legitimacy of its business practices, Vedanta has appointed a new Chief Sustainability Officer and accepted in full the recommendations of an independent review into its approach to environmental and social issues. We shall watch how these recommendations are implemented.

Presently one of our priorities is engaging with BP about operational safety. We are also running a programme to communicate to company remuneration committees the strong concerns we have about excessive executive bonuses.

The holdings of the national investing bodies are increasingly diversified internationally. Gone are the days when most of the holdings were in the UK. Not only do we take specialist advice on applying our investment restrictions internationally, we are also increasingly working with institutional investors in other countries, including Church investors, to extend our engagement reach. The national investing bodies have recently taken up membership of the influential US body, the Interfaith Center on Corporate Responsibility, which supplements our long-standing membership of the Church Investors Group for Church investors in the British Isles.

The EIAG also collaborates widely in responding to the challenges posed by the increasing diversification of asset classes held. In particular, we follow developments in responsible investment practice through involvement in the United Nations Principles for Responsible Investment, the Institutional Investors Group on Climate Change and UK Sustainable Investment and Finance.

The EIAG has given its own detailed and practical advice to the investing bodies on multi-asset absolute return investments, covering issues such as when short selling is ethical and when it is not, and when trading in commodities may cause harm to the poor and vulnerable. These issues are discussed with fund managers to whom the investing bodies are considering giving investment funds.

We intend that our engagement with the investment community will help to shape thinking on ethics by practitioners in the financial sector. Too often in the markets reflection is limited to consideration of whether a practice is legal, not whether it is ethical.

The Church of England is far from the only investor in the City working hard to be a responsible investor, but, uniquely as Christian institutional investors, we can draw on the Scriptures, centuries of theology, and great moral authority.

Investing £8bn ethically is a challenge. We seek to meet the challenge through avoidance where necessary, and engagement where possible. We believe we can have an impact on business, the investment community, and wider society and opinion. As the national Church, that's where we want to, and must, position ourselves.

About this author

Edward has been Secretary of the Church of England's Ethical Investment Advisory Group since 2009.

Revd Dennis Nadin - Posted: 15 Nov 2011

Can you tell me if the Church voted for or against the Remuneration Report at the 2011 AGM of the Lloyd's Bank Group.

Did a representative attend the AGM? I didn't see another clergy collar there but it would be good to learn in order to plan for next year.

Ranjeet Guptara - Posted: 30 Oct 2012

It is refreshing to see people think carefully about conscientious wealth management.

David Shipley - Posted: 16 Mar 2013

How does this ethical approach inform the Church's position as a substantial investor in High Street commercial property in the UK? Unreasonable rents have been blamed for the closure of numerous high street shops and consequent damage to communities and local economies. Your obligation as trustees to maximise rental income is surely in conflict with your social obligations.


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Disclaimer

The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.