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Moral muscle at the AGM

by
12 October 2012

One approach to ethical investment is to seek to influence a company's policy. Huw Spanner considers how to wield shareholder power for good

SHUTTERSTOCK

God and money: above: can being a shareholder be a force for good?

God and money: above: can being a shareholder be a force for good?

THE strapline of National Ethical Investment Week, which runs from 14 to 20 October, is "Make money and make a difference." The obvious questions are: "How much - and how big?"

There are, essentially, three different approaches to ethical investment. "Negative screening" withholds your money from enter­prises that you believe to be socially damaging, either because their business is harmful - such as gambling, pornography, or the arms trade - or because the way they conduct it is harmful (the use of sweatshops or bribery, for example).

More proactive is "positive screening", which puts your money into businesses whose products or practices you consider beneficial or benign.

Critics say that a good conscience has a price, however. Screening of any kind, they insist, inevitably reduces performance, if only because it limits fund managers' options. The "sin stocks" - alcohol, tobacco, etc. - are historically very dependable, whereas worthier industries, such as solar power or recycling, are often small, and can be volatile.

The third approach, known as "responsible investment", rather than screen out questionable companies, actually seeks them out. The point is to use such influence as shareholders possess to steer the companies in a better direction.

Any shareholder is entitled to attend a company's AGM and ask a question of the board. This can be a real opportunity. Louise Rouse, the director of engagement at FairPensions, a charity set up in 2005 to promote responsible investment, asks: "When else are you going to get a chance to question the CEO directly? The thing is to ask a short, sensible question that is focused and framed in business terms, and resonates with the board.

"Most companies provide refreshments after their AGMs, and almost always the directors will mingle with the shareholders and have conversations with them. Very often, we've found that such a conversation has led to the offer of a meeting with someone senior later."

CURRENTLY there are some 120 green or ethical funds in this country (out of a total of around 6500). Mark Robertson, the head of communications at Eiris, a not-for-profit organisation that researches the performance of companies worldwide, says: "It's not necessarily the case that, if you invest ethically, you won't get a good return."

Lee Coates, the director of Ethical Investors, a firm of advisers which deals exclusively in ethical invest­ment, is more positive. "Most inde­pend­ent financial advisers probably work with a panel of only 50 funds anyway. Is there any guarantee that by investing unethically you will get a better return? The answer is no."

Almost anything that you might want to do on the financial front can have an ethical or environmental spin on it. You are not going to be able to buy commodities ethically, however; and, if you do not want any of your money to be spent on weapons, you will not be able to buy government gilts.

If you are taking out a mortgage or depositing money, you have to ask: what are they going to do with the money I give them? Building societies cannot, by law, lend your money on to businesses, dodgy or otherwise, whereas most banks will put your money into anything they see fit.

SOMETIMES, of course, prudence and conscience point in the same direction. Mr Robertson cites three recent examples of blue-chip com­panies affected by environ­mental, social, or governance issues: BP (whose share price plummeted after the Gulf of Mexico disaster); News Corporation (which has been dam­aged by the phone-hacking scandal); and Olympus, whose attempts to hide its losses nearly got it expelled from the Japanese stock exchange.

As for charities that feel obliged to seek the greatest returns on their funds, Mr Robertson says, they are risking their reputations if they do not align their investments with their aims and objectives. "How would donors to an animal-rights charity react if it emerged that its invest­ments were being used to fund cosmetics-testing on rabbits?"

Until quite recently, it was doubtful whether charities could apply ethical criteria in this area. The situation was clarified in 1991 when the Rt Revd Lord Harries, then the Bishop of Oxford, took the Church Com­missioners to court over their refusal to disinvest from South Africa.

Although he lost the case, the court established the crucial principle that trustees are not legally obliged simply to maximise the return on their investments. Earlier this year, the Charity Commission underlined this by endorsing both "programme-related" and "mixed-motive" investment (where charities invest both to further their aims and for a financial return).

So, where can you turn to for advice? "If you are not already investing ethically," Mr Coates says, "you should probably ditch your current adviser, who - presumably - has never asked you if you have ethical, social, or environmental concerns." It is now mandatory for IFAs to ask that question, but the vast majority of the 30,000-or-so advisers registered in the UK do not, generally because they do not under­stand the field. "Ask any prospective adviser to send you their 'fact find'," Mr Coates suggests, "and if they don't have an ethical question on it, don't use them."

The Ethical Investment Associ­ation (ethicalinvestment.org.uk) and Eiris's consumer website, yourethicalmoney.org, both have a geographical database of IFAs who know their (organic) ethical onions.

IN RECENT years, "a new breed of activists" (as The Daily Telegraph put it) has emerged. One such is a retired priest in Oxford diocese, Canon Christopher Hall, who sits on the Ecumenical Council for Corporate Responsibility (ECCR).

He inherited some shares in Shell, and, 18 years ago, when he learnt of the horrors that that company was inflicting on both land and people in the Niger Delta, he and some friends decided to take action. "We asked questions at Shell's AGMs. We re­quested and were granted meetings with its management.

"In 1997, we collected the names of 130 shareholders with enough shares to put down a resolution; and 160 million shares supported us, and another 100 million abstained. It attracted much comment in the media, both at the time and later."

He intends to keep his shares. "I feel very strongly that I need to stay in there. Disinvesting means you no longer have any leverage at all."

Does this kind of activism actually achieve anything? In August, the Church Commissioners finally sold their £1.9-million holding in News Cor­pora­tion after (in  their words) "a year of continuous dialogue with the company" about ways to improve its corporate governance bore no fruit. What chance, then, does the ordinary woman or man in the pew have of making any difference? It depends on the issue, Ms Rouse says.

"If you're asking the company to do something that it sees as funda­mentally against its own interests . . . you're only going to get one response. At best, you can try to embarrass them. And, certainly, too, some CSR [corporate social respons­ibility] is just window-dressing. But there can be things of real substance that a company will agree to do if you can show its board how this could work for them."

ANOTHER example of the new breed of activist is Barrie Stead. A retired solicitor, he became involved in London Citizens' campaign for a living wage.

Being a "modest shareholder" in several FTSE-100 companies, he went on a training day last year, run by FairPensions, to learn how to ask questions at AGMs. He attended 15 different AGMs last year, and a further nine since. "You have to do your homework," he says; "so there is some investment of time; and you have to look smart, so they can see you're not a crank. But I would urge anyone to get involved.

"My question on the Living Wage gets a sympathetic hearing, both from directors and other share­holders; in fact, it usually gets more applause than any other question. Often, attending the AGM is the starting-point from which things can develop."

On ESG issues, Mr Robertson says that "it can take years to achieve change, but, increasingly now, around the world, companies are hearing from their investors that they're interested in their sustain­ability as well as their financial performance, and that does have an effect.

"Increasingly, too, investors are voting against a company's annual report and accounts if they're not happy with its performance on sus­tain­ability issues, and that sends quite a powerful signal."

CANON Hall has been going to Shell's AGMs since 1995. "On that occasion, there were two questions addressing ethical issues. Now, the bulk of the questions do. The board is being questioned very severely. And people in Shell have thanked us for still being in dialogue with the company - they say they need our support."

More and more campaigning groups are using these tactics, Ms Rouse says. "At Barclays this year, Christian Aid asked a question about tax oversight; WDM was protesting outside, but also had two people inside to ask about food commod­ities trading; FairPensions was asking about the Living Wage; and one of our supporters was asking about executive pay."

The Living Wage campaign has been one of the success stories. The FairPensions website (www. fairpensions.org.uk) suggests that big companies, from HSBC to Standard Life, are now committed to paying a living wage to everyone they employ.

Even if you do not own any shares yourself, Ms Rouse says, you can go as someone else's proxy. Or, if you own shares, but are too shy to speak in public, FairPensions will find a proxy to voice your concerns.

FROM this month on, everyone who is employed is required by law to take out a pension, and this is an­other area where people with a social conscience can get active. Last week, the CEO of FairPensions, Catherine Howarth, wrote in The Guardian: "We do not need a mass movement in this space, but what we're crying out for is a small cadre of citizen savers who will agitate relentlessly for a rethink in the boardrooms of our largest pension funds."

Ms Rouse elaborates: "We'd like to see people contacting their fund manager and saying 'What are you doing about this or that issue? This matters to me as a customer.' If you just say, 'I'm not keen on BP,' they'll probably just say, 'We do have this other fund available. . .' But it's perfectly legitimate for you to say, 'I'm very concerned about what BP is doing in the tar sands. What conversations have you had with them about this?', and then their response needs to be different."

If you are in an occupational pen­sion scheme, there will be a board of trustees, and someone in your workplace, whom you can tackle. If you are buying a retail pension, you can ask your financial adviser to raise a point with Aviva, or Standard Life, or whoever, on your behalf, or you can contact them direct.

Many pension funds will respond directly, once they have identified you as a customer. FairPensions' website offers "tools" that make it easy to email your fund-holder on certain particular issues, as well as providing email and letter templates for more general questions about responsible investment activity.

FairPensions' next training day takes place in London on 15 February 2013, and is free.
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