Good Money Week: Using money for good

27 September 2019

Investing ethically is now becoming mainstream, Ted Harrison reports

Energise Africa

Alda Justino Mavuiango, a shop owner in Mozambique, has benefited by pay-as-you-go solar energy from SolarWorks, financed by Energise Africa

“IN THE present state of mankind,” John Wesley declared in his celebrated 18th-century sermon on the use of money, “it is an excellent gift of God, answering the noblest ends.”

Rightly used, he said, money could feed the hungry, provide drink for the thirsty, clothe the naked, and provide shelter for the stranger. “It may be as eyes to the blind, as feet to the lame; yea, a lifter up from the gates of death!”

He warned against excessive spending, however, and condemned the exploitation of workers. He called on Christians to be generous in their financial giving, and recognised that money could be misused.

The right use of money has been a Christian concern since the early days of the Church, and, between then and now, both the institution and individuals, in their earning, hoarding, or spending of money, have fallen short of the ideals taught. Today, no doubt, Wesley would be a leading campaigner against the consumer society, drawing attention to how irresponsible and excessive consumption has led to environmental degradation.

Churches and faith investors have, for many years, done their best to align their investments with acceptable beliefs and ethics, and, despite good returns promised, have avoided buying shares in, for example, arms companies, and the tobacco and gambling industries. They have monitored businesses in which they invest closely to ensure they are not exploiting the vulnerable or despoiling the planet.

Climate change has pushed the environment to the top of the agenda for all pension-fund and asset managers. Where once, for instance, a decision to invest in shares in a plastics company would have raised no ethical concerns, today, all investments connected with fossil-fuel extraction and their use are questioned.

For many years, the Church Commissioners’ investment policies have excluded direct involvement in a long list of activities that are widely recognised to be immoral or harmful. In recent times, the Church has been a high-profile campaigner against such activities as high-interest-rate lending. From 2020, church investment funds are committed to disinvesting from companies that are not taking their climate-change responsibilities seriously, and, by 2023, to having disinvested from fossil-fuel producers that are deemed not to be focusing on the internationally agreed actions and goals.

Energise AfricaCacilda Alberto Baciquete, a mother of two from Mozambique, has a pay-as-you-go solar home system from SolarWorks, financed by Energise Africa

In 2018, members of the General Synod arguing for faster and a more immediate separation of church funds from the oil industry were told by the Bishop of Manchester, Dr David Walker, deputy chair of the Church Commissioners, that engaging with companies took time, and that bringing the deadlines forward would not motivate companies to change further and faster. “It would do the exact opposite: it would take the pressure off them. Now is not the moment to do that.”

Beyond disinvestment, the Church of England’s £8-billion assets are beginning to be used proactively. In 2016, the Commissioners made a first impact investment, with the explicit objective of delivering positive social and environment impact, as well as financial returns: £30 million was invested in a fund developing an anaerobic digester and waste-treatment facilities, which will generate an income from the sale of renewable energy.

Given the complex nature of the modern financial sector, there are, inevitably, compromises to be made. There are overlaps in ownership and interest involving companies that generally meet the required ethical standards, but might have subsidiaries, revenues, or suppliers that fall below.

In practice, church investment policy provides some leeway. A company is allowed to take a small proportion of its profits from some of the proscribed activities, if, say, in the case of gambling or tobacco, it does not exceed ten per cent. Some areas of activity are entirely off-limits, however: under no circumstances would the Church Commissioners have a financial stake in a corporation that made or sold indiscriminate weapons such as land-mines, cluster munitions, or semi-automatic weapons.

The Commissioners’ Responsible Investment Framework sets out how its aims are achieved, and, in particular, demonstrates the care taken in selecting, appointing, and monitoring asset managers. Independent research is drawn on to monitor the non-financial characteristics of the Church’s public equities portfolio.

“As with every part of the churches’ mission, their investments must be guided by radical and sacrificial love,” Christian Aid declared in its 2018 position statement on climate change, when it called on all churches — as leading advocates for action — to immediately disinvest from the fossil-fuel industry. “Continuing to profit from fossil-fuel production is financially unnecessary and morally wrong; investing in the alternatives is the churches’ prophetic responsibility.”

Sheila Nicoll is a lay canon of St Paul’s Cathedral, and also head of public policy at the asset manager Schroders. Over the past 18 months to two years, she has noticed a significant change in attitude: “Once, some Schroders’ clients might have said: ‘Make money — we don’t care how.’ That is now very rare.

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“Speaking personally, I would find it very difficult from a faith perspective to work for a company where such things were not considered important. At Schroders, we think in terms of sustainability, which covers a broad range of environmental, social, and governance topics.

“Investment policies must consider environmental issues such as climate change, as well as social issues such as exploitation of labour, and governance issues, including strategy, oversight, and senior-management responsibility.”

Clients, she says, want different levels of ethical involvement. “As a client-centric organisation, looking after other people’s money, Schroders has to be very clear about our clients’ aims. There is a basic level of process of sustainability integration into our entire investment process. . .

“Some clients then ask, for example, for specific investments to be excluded — armaments, for instance — and the third level is for those wanting to make a positive contribution through the way their money works, which is called ‘impact investing’.”

Schroders is now a majority stakeholder in BlueOrchard, a pioneer in micro-finance and impact investing. It is the investment arm available to clients who want their money to have a beneficial impact on society and the environment, as well as generating positive financial returns.

Should investors, for whom sustainability is a key criterion, disinvest if they suspect high standards are not being maintained? “We give companies the opportunity to change,’ Ms Nicolls says. “We wouldn’t necessarily divest immediately, but would try work with the company. Our experience suggests that it can take up to two years to bring about change.”

Simon Holman is the head of client investments at Castlefield, a partnership of investment businesses that specialise in advising charities and faith groups on investing their assets. The partnership currently advises 60 such organisations, and manages almost £100 million.

Over the past ten years, Mr Holman says, he has seen a definite growth in demand for ethical-investment advice, which has moved on from simply excluding buying shares in armament companies, or those involved in alcohol and tobacco. Ethical investment does not involve accepting lower returns, and today there is an increasing trend towards positive investment in projects and industries that will benefit society.

“What sets us apart is that we work closely with our clients to help them to define what ‘ethical’ or ‘responsible’ investment means to them. We then interpret the results in practical ways, which never ignore the need for real-world financial outcomes.”

When it comes to investing in new, untried projects, care has to be taken to research any new opportunity. Castlefield works with Ethical Screening, a company which, for more than 20 years, has been working with charities of all sizes to screen proposed partnerships and investment strategies on behalf of trustees, donors, and beneficiaries.

Tania DiezThe Vicar of Holy Innocents, Kingsbury, in north London, the Revd Natasha Woodward, has switched her bank account to Triados

The Vicar of the Holy Innocents’, Kingsbury, in north London, the Revd Natasha Woodward, says: “My interest is in having an ethical lifestyle across the board, to spend well, and buy from good businesses. I realised then that there is power in savings, and I could use that money for good.”

At Greenbelt, she heard about Triodos, an ethical bank set up for savers, investors, and organisations who want to change the world for the better. She became one of the bank’s 700,000 customers when she bought their stocks-and-shares ISAs. “I realised that there was power in my savings.”

Mrs Woodward now has a current account with the bank. “They make a charge,” she says, “but free banking for those who stay in the black is normally paid through the punitive charges imposed on those who run up overdrafts. I did not want to benefit from those who were struggling with their finances.”

Her investments, she says, have performed very well. “I haven’t lost any money. I thought I might have to take a hit, but, in some cases, they have outperformed other non-ethical investments.”

Opportunities now exist for individuals to target their investments directly into ethical projects. In doing so, they might be taking risks with their money, and may not have an easy route to withdraw their investments on demand; but, if all goes well, they can have the satisfaction of both enjoying a return on their money and making it work on behalf of others.

Many large companies are offering ethical options in their portfolios, and there are also direct ways of linking your money with those who can make the best and most ethically responsible use of it.

Schemes such as Energise Africa are attracting a range of investors to help families and businesses in sub-Saharan Africa to afford solar energy systems. The head of marketing, Rachel Mountain, says that, to date, 2000 investors have come on board, and £10 million has been put to work in ten different African countries. “We have target returns of five to seven per cent, but they are not guaranteed. We do due diligence on the companies we invest through, but have to draw investors’ attention to the risk.”