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Investor engagement to be prioritised over disinvesting, say Church Commissioners

24 June 2022

Diocese of Carlisle

A contactless giving unit in one of the churches that partcipated in a year-long pilot scheme for contactless giving, across Carlisle diocese. Read more here

A contactless giving unit in one of the churches that partcipated in a year-long pilot scheme for contactless giving, across Carlisle diocese. Read more here

THE Church Commissioners will continue to prioritise investor engagement over disinvesting as it moves towards its target of becoming net zero by 2050, its latest annual Stewardship report, published on Tuesday, states.

The report is produced annually to comply with the Stewardship Code of the Financial Reporting Council (the regulator for auditors, accountants, and actuaries), which asks signatories to measure how they are performing against its 12 principles. This year, it covers three broad themes in the work of the Commissioners in 2021: respect for the planet, respect for people, and corporate governance.

“Our thematic priorities are rooted in an attempt to understand and engage positively with the challenges of the next decade relating to climate change, nature loss and rapid social change,” the report explains.

The Commissioners plan to have a net-zero portfolio by 2050, 20 years after the Church of England, partly because of its principle that investor engagement is the most effective way to ensure companies meet environmental, social, and governance targets (News, 23 April 2021).

It set its first target towards achieving this in the first quarter of last year — to reduce by 25 per cent the carbon intensity of its public equity and directly owned real estate portfolio by 2025. Public equities made up 34.7 per cent of its assets under management at the end of 2021 — just under two per cent higher than in 2020. In 2022, the Commissioners plan to expand this target to include its infrastructure assets, with further areas of its portfolio to be added over the coming years.

The Commissioners report that carbon emissions in its investment portfolio had decreased by 27 per cent in both 2019 and 2020 because of changes to “fund managers and climate-related investment restrictions” in 2021. The carbon footprint of its portfolio, however, was above its global benchmark at the end of last year: 113.8 tonnes of carbon dioxide equivalent (tCO2 e) per £1 million invested, compared with a benchmark of 80.9 tCO2 e.

This was the result, the report explains, “of a small number of stock selection decisions by some of our fund managers, and higher exposure to certain sectors such as utilities and materials, which are required for the transition to a lower carbon economy”.

A similar reason was given for missing its benchmark for 2020, when the Commissioners reported a footprint of 335 tonnes of carbon-dioxide emissions per £1 million of revenue against its benchmark of 222 (News, 25 June 2021).

In 2021, the Commissioners disinvested from 28 companies that did not meet its Transition Pathway Initiative (TPI) targets. The same year, the Commissioners excluded 467 companies from its investments that year which were deemed to be in breach of its ethical policies. Most of these related to gambling (113), alcohol (87), defence (74), tobacco (51), and climate change (50). It also cast more than 20,000 votes, 20 per cent of which were against management resolutions, or withheld, on issues including executive pay, auditor independence, and board composition.

Other investor engagement issues included modern slavery, indigenous rights (including with mining companies), diversity, and the human-rights policies of Big Tech firms, including considering the “increased prevalence of artificial intelligence and robotics in the workforce”.

The latest report states that, at the end of 2020, 11.5 per cent of its £10.1 billion endowment fund was invested in social (£530 million) and environmental (£630 million) solutions — a total increase of about £300 million since 2019. (This figure is as of 2020 because of a six-month lag on private markets data, which delays its assessments, the report explains.) In 2021, the Commissioners report that an additional £100 million was allocated to impact investment strategies.

Social and affordable housing was another key investment priority in 2021 (in line with the report from the Archbishops’ Housing Commission) to which the Commissioners committed £70 million. This included £20 million invested in the Schroders and Civitas Social Supported Housing fund “to provide bespoke, safe, and appropriate social supported housing for vulnerable adults, addressing a chronic lack of supply in this type of accommodation”.

For the first time, the Commissioners seeded a £16 million Social Impact Investment Programme through grants to the Archbishops’ Council. The first of these went to the Women in Safe Homes fund, which works to provide “safe, stable and affordable homes for vulnerable women and their children who are homeless or at risk of homelessness”.

In a Q&A in the report, the First Church Estates Commissioner, Alan Smith, said: “The Church Commissioners believe that the next ten years will be the most consequential period in our history. The investment decisions we make, especially around the energy transition and social challenges, will be long lasting — they must be for good.

“As an organisation with global impact this means our investment decisions must consider the entire world and everything in it — people, planet, climate, and biodiversity.”

The head of Responsible Investment for the Church Commissioners, Bess Joffe, said on Tuesday: “We want to lead the field in creating a fairer society for all and commit to use all our influence and engagement capabilities to help the world transition to net zero while supporting innovation and future jobs for generations to come.”

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