Ecclesiastical Investment says that churches can assist in ethical banking

08 August 2014

DEMOTIX

One of many: the headquarters of ​the multinational pharmaceutical and healthcare company, GlaxoSmithKline, in Brentford, west London 

One of many: the headquarters of ​the multinational pharmaceutical and healthcare company, GlaxoSmithKline, in Brentford, west Londo...

A REPORT from Ecclesiastical Investment Management states that companies in the UK and the United States have paid up to £150 billion in fines for misconduct over the past five years.

But the author of the report, Neville White, the head of policy and research at Ecclesiastical, said this week that, although the problem was vast, Christians were an important part of the solution.

"There's a clear role for the Church in supporting responsible capitalism. The Church is doing this incredibly powerfully, led by the Archbishop of Canterbury," he said.

While banks attract attention for their misdeeds, Mr White's research suggests that malpractice has been common across many other sectors.

The report says: "Poor practices, and in particular consumer-facing mis-selling, have become endemic, if not systemic." The report identifies car manufacturers, pharmaceutical companies, the technology industry, and energy firms as among those who have received large fines for bad behaviour in recent years.

The scale of money lost to regulators through fines was vast, Mr White found. The money paid out in compensation to victims of Payment Protection Insurance (PPI) mis-selling now topped £22 billion - enough to pay for two London Olympics, or the entire UK transport budget for a year.

The lowest estimate of total fines paid amounts to some 12 per cent of UK public spending. As many as 6000 bankers are said to have been suspended or sacked for suspected fraud since the start of the financial crisis.

While the causes of this were complex, Mr White said that it was clear that huge multinational companies were struggling to enforce ethical conduct from corporate HQs. Besides globalisation, poor training, commission-based pay, and inadequate regulation are all named in the report as possible causes for an explosion in malpractice by businesses.

Mr White argued that investors and consumers should be concerned. "The serious point is that money [taken in fines] cannot be used to reinvest or to pay it back to shareholders. The last five years,we have gone through a global economic meltdown where the public sector is being cut back. It seems egregious that, while that goes on, the private sector gets away with this."

Another report by the think tank ResPublica on "virtuous banking" last week proposed that bankers should take an oath, binding them to act morally. The director of ResPublica, Phillip Blond, said: "Britain's bankers lack a sense of ethos, and the institutions they work for lack a clearly defined social purpose. An oath would finally place bankers on the road to absolution."

Mr White said that he liked this idea, but that long-term cultural change could also be enforced on companies from the outside, by investors and consumers. "During boom times, business ethics becomes a nice thing to do; but it's absolutely fundamental when economies go into recession. Customers will vote with their feet, and are looking to put their money and trust in business which go along with their values.

"The Churches together have £13 to £15 billion in assets under management [in Britain]. This is a large amount of money that can bring to bear across the markets. They are doing a fantastic role in engaging for change and higher standards across equity markets here and in Europe."

Mr White said that the Church Commissioners, who earlier this year reported the best results for their fund for eight years (News, 30 May), were not only getting large amounts of profit out of their investment, but also helping firms to behave responsibly.

"This is a real challenge to investors," he said. "Rather than disinvesting and saying: 'We think those companies are beyond the pale,' we are trying to use our influence to protest to these companies. But at what point do you say certain companies' behaviour is so bad it comes unethical?"

The C of E's ethical investment guidelines do not prohibit investment in specific types of activity, but place limits on what percentage of a firm's turnover can come from prohibited fields. For instance, a company that derives more than three per cent of its revenues from pornography, or 25 per cent from tobacco, gambling, or high-interest lending is deemed unsuitable for investment.

It was this last guideline that was breached by the Commissioners' investment in the private equity firm that owns the payday lender Wonga (News, 26 July 2013). The Commissioners have now sold their stake in Wonga, however, which was worth less than £100,000 (News, 11 July).

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