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From Fairtrade Fortnight to National Ethical Investment Week

by Helen Wildsmith

Posted: 9 Nov 2010

Church congregations helped take Fairtrade products from specialist shops to supermarket shelves. Fairtrade Fortnight has become an important focus for raising awareness about the treatment ofthe farmers and workerswho help provide tea, coffee, bananas and other produce for us to enjoy. Ten years after the first Fairtrade Action Packs were distributed to Churches in the UK, over 70% of the UK population recognises the Fairtrade logo. Last year UK households spent £800m on Fairtrade products, benefiting people in nearly 60 developing countries. Even mainstream products like Kit Kats now bear the Fairtrade logo.

As well as spending our money in responsible ways, we can also invest it to support social justice and prevent environmental degradation. National Ethical Investment Week (NEIW) was launched in 2008 tohelp families, Churches and charities reflect their values in their investments. Climate change, human rights, poverty alleviation: these are all issues that are being addressed by green and ethical investments today. We hope that the new Action Guide for Churches, recently launched at St Mary-le-Bow in the heart of the City, will help congregations make money and make a difference in 2010 and beyond.

There are several green and ethical investment techniques that can help Christians align their investments with their values:

  • Ethical exclusions remain popular because they can help us avoid direct conflicts with our mission. Traditionally exclusions have focussed on "sin stocks": alcohol; gambling; pornography; tobacco and weapons. Today we increasingly hear people debating whether they should exclude the "worst of the worst" companies in relation to social justice and environmental degradation. This can be coupled with taking a more nuanced approach to the traditional exclusions, e.g. focusing on alcohol abuse rather than alcohol per se.
  • Influencing companies through engaging with them, or tabling shareholder resolutions, can gradually change poor corporate practice. As investment portfolios have become global, more Churches are becoming signatories to the United Nations Principles of Responsible Investment (PRI). Global asset owners and managers responsible for over $20tn are increasingly collaborating through the PRI to reduce violations of human rights and focus on systemic problems like climate change. Some investors, including major pension funds, will divest from laggard companies if engagement fails to stop violations of international norms like the Universal Declaration of Human Rights or the ILO's Core Labour Standards.
  • Treating investment as a marathon rather than a series of sprints fits well with the Christian concept of stewardship. The term has even been adopted by the City's regulators with the introduction of a Stewardship Code for investors earlier this year. "Buy and hold" investment requires the integration of longer term issues like climate change into portfolio construction and stock selection. Monitoring companies' long-term prospects is also important; and of course you have to be prepared to work with other investors to achieve change when a company's executives are unresponsive!
  • Many investors want to go beyond minimising harm and find investments that make a direct positive difference. The pull of the via positiva. High impact investments aim to deliver the direct social and environmental outcomes more investors are seeking, and they can be integrated into portfolios for two reasons. Sometimes they have risk/return characteristics that mean they can hold their own in a portfolio on financial grounds alone. Sometimes they gain a place in a portfolio because the alignment with values is so strong that poorer financial prospects are seen as a small price to pay for the benefits by the individual or charity investor.

So how do you get started and what should you ask your fund manager? Individuals can turn to www.yourethicalmoney.org or find a specialist financial adviser through www.ethicalinvestment.org.uk. Smaller charities and churches can use special pooled funds, typically called Common Investment Funds (CIFs). Some have been developed for specific denominations or types of charities, others are more generic. If your own denomination does not have a bespoke CIF, see the guide to pooled funds at www.charitysri.org for the latest comparison tables. Larger church investors (including the denomination-specific CIFs) can join the Church Investors Group, which has nearly 40 members with over £12bn of assets.

Here are some questions to ask fund managers about the techniques I described above:

  • Ethical exclusions: Who determines the policy? Is there an advisory committee? Are clients views systematically integrated? How is the screening done? Can larger investors determine their own bespoke requirements?
  • International-norms driven engagement: How are the priorities determined? Does the fund manager collaborate with other investors? Have they co-filed any resolutions recently? How did they vote on the 2010 tar sands resolutions at BP and Shell? What has their approach been to Vedanta (the troubled London-listed mining company)? Are they a signatory to the UN Principles of Responsible Investment?
  • Long-term investing: What is the portfolio turnover rate? How long does the fund manager hold the typical company for? Does the fund have a long-term financial target or does it just try to beat a short-term benchmark? Is the fund manager planning to comply with the new UK Stewardship Code? How does the fund manager tackle the investment implications of climate change? Is the fund manager a full member of the Carbon Disclosure Project (CDP)?
  • High-impact investment: Does the manager have any high impact bonds in relevant portfolios? (immunisation bonds, green bonds etc). Will the fund you are looking at be able to invest in sustainable timber, micro-finance, sustainable infrastructure etc? Can the fund manager help you allocate part of your portfolio to an appropriate high-impact approach?

Getting started can seem daunting. It is far easier to buy a fair-trade banana than sort out your finances! Perhaps we should all resolve to take one clear step this National Ethical Investment Week. What will yours be?

CCLA is owned by its Church and charity clients, for whom it manages the CBF Church of England Funds and the COIF Charities Funds. CCLA's sponsorship has helped the Ecumenical Council for Corporate Responsibility (ECCR) and the NEIW team distribute the Action Guide for Churches to over 10,000 Church contacts.

About this author

Helen Wildsmith is the Head of Ethical & Responsible Investment at CCLA Investment Management Limited.


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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.