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Church of England Pensions Board aware of link between investment and conflict

05 June 2024

Its fourth annual Stewardship report has been published

The cover of the report

The cover of the report

ETHICAL investment in businesses within conflict-ridden areas — including Ukraine, Gaza, and Mozambique — is among the emerging priorities of the Church of England Pensions Board, its fourth annual Stewardship report, published on Wednesday, says.

Since the Pensions Board and Church Commissioners disinvested from Shell, BP, and other oil and gas firms a year ago (News, 23 June 2023), investor engagement — as well as now focusing on the largest fossil-fuel consumers — has shifted towards peace and reconciliation.

Adam Matthews, the chief responsible-investment officer at the Church of England Pensions Board, writes in his introduction to the Stewardship report that “many conflicts are either catalysed or sustained by extraction of natural resources. In turn these resources flow into global supply chains of the various sectors and companies in which we are invested.”

He gives the example of Cabo Delgado in northern Mozambique where “extraction for mining and natural gas are widely acknowledged, including by the community leaders we spoke to, as having been significant contributors to this conflict.”

How companies operating in conflict zones respond was therefore “a critical part” of the Board’s engagement last year, he says. “Any future peace in the region will also depend on greater local benefit sharing from well-run companies that recognise they need the social licence not just of the national government but the local communities within which they operate.”

Mr Matthews continues: “Often the simple presence of an extractive company, even extremely well run, can destabilise and change forever the local environment within which they operate and in turn create the conditions for conflict.

“While this is an evolving priority area for the Pensions Board, it also has strong intersections with our wider work: conflict dynamics will further exacerbate human-rights risks, and increasingly, local dynamics are also impacted by a changing climate.”

The Stewardship report points to 1000 instances of shareholder engagement, predominantly on the topics of climate change, mining safety, nature/biodiversity, modern slavery, “Big Tech”, executive remuneration, and sewage leaks into UK waterways.

The report also states that two-thirds of the Board’s shareholder votes on climate change in 2023 (64.3 per cent) went against management because of a misalignment with climate objectives.

The Board excluded 447 companies from its portfolio, 53 on the grounds of climate-alignment, but most of which profited in some way from gambling (110) and alcohol (96), and defence and firearms (104). It also voted in 99.6 per cent of the shareholder ballots in 2023, and dissented from company management recommendations in 18.4 per cent of votes.

It reproduces a letter sent earlier this year to the Archbishop of Canterbury by the comedian Joe Lycett, who called on the Pensions Board to disinvest from water companies that are spilling sewage (News, 23 February).

The report says: “Our engagement with water utility companies continues into 2024, and we will report on progress next year.”

By the end of 2023, the Pensions fund was valued at £3.3 billion, up from £3.2 billion the previous year, the Stewardship report says. Excluding index-linked gilts, the fund yielded a 7.3 per cent return (compared to a ten-year average of 7.8 per cent). Although the fund’s value is on the rise, it still has not regained its 2021 value of £3.7 billion.

In 2023, the largest proportion of assets in the common investment fund was index-linked gilts, valued at £704 million, up from £599 million in 2022. These are designed to closely match the income streams needed to pay pensions, the report says, and help to control the fund’s exposure to inflation and interest-rate risk.

Public equities, which was the largest proportion in 2022, when it was valued at £829 million, is now the second largest, at £700 million.

Mr Matthews said of this on Tuesday: “Given the improved funding position of the schemes, we have taken the opportunity to reduce the level of investment risk, which, in practical terms means we have reduced our exposure to equities.”

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