 |
Past Meetings
Restricted List
CEIG Chair, Gavin Oldham, has tabled a Private Members’ Motion in General Synod, which is likely to be debated at the July group of sessions. It is designed not only to free up access to ethical investment information, but also to enable a much wider range of ethically-compliant funds to be available to PCC’s and other Church bodies. If you have any involvement in the finances of your church or another organisation, please read and respond to Gavin's background paper (text reproduced below or click on link to PDF copy at foot of page).
BACKGROUND PAPER
from Gavin Oldham, Oxford (378)
February 2007
Private Members Motion
“That this Synod considers that the list of restricted investments maintained by the Ethical Investment Advisory Group should be:
(a) published to provide easy access for all Church bodies and for individual Christians of all denominations to help them in structuring ethically the investments in their care; and
(b) made available under licence (subject to an appropriate fee) to commercial fund managers so that they are in a position to offer a range of ethically-compliant funds of varying risk, management and performance profiles, which can be available for both Church bodies and individual Christians.”
1. Purpose of the Motion
The Motion’s purpose is to open up access to the Ethical Investment policy of the Church of England in order to:
· provide guidance for individual Christians on how to structure their investments to be ethically compliant with the Church’s best practise, and to provide a ‘benchmarked’ ethically-adjusted index against which they can measure their progress;
· enable a range of investment funds to become available over time which are compliant with the Church of England’s ethical policy, offering a variety of investment and management styles. These funds, which would include ethically-adjusted index-tracking funds, could be available on both a net (for individual investors) and a gross (for church/charitable bodies) basis;
· raise the profile of ethical investment within the Church, and the public generally;
· provide an external source of revenue which would help fund our ethical investment advisory work.
The Motion therefore offers choice and the prospect of improved financial returns for the Church and individual Christians: the latter currently have no access at all to funds which are Church of England ethically compliant, as all such funds are only available on a ‘gross’ (charity) basis. It is not about overall strategy of the Ethical Investment Advisory Group, and it is not intended to open up a general debate on the rights and wrongs of specific aspects of its policy.
2. The Position to Date
The three ‘sponsoring’ bodies of the Ethical Investment Advisory Group are the Church Commissioners, the Church of England Pension Board and the CBF Investment Fund. Its non-executive (i.e. voting) membership includes representatives from each of these three bodies and from the General Synod, Archbishops’ Council and the Mission & Public Affairs division, as set out below:
Sponsoring Bodies
Church Commissioners: 2
Church of England Pensions Board: 1
Central Board of Finance: 1
4
NCI Appointments
Archbishops’ Council 1
Mission & Public Affairs 1
2
General Synod 1
Co-opted Members 2
Independent Chairman 1
Total 10
At present it is only the three sponsoring investment bodies who are in receipt of the detailed ethical investment guidance produced by EIAG, together with CCLA Investment Management who also provide the analysis and executive work in preparing recommendations for the Group.
This restriction on receipt of detailed guidance affects positive and negative aspects of the policy differently. No specific investment recommendations can arise from the positive aspects (eg: a responsible approach to the environment) since that would represent unregulated – and therefore illegal – promotion of investments. However while excluded sectors are well publicised, much EIAG effort goes into the interpretation of the guidelines to produce the restricted list of individual companies, which investors are advised to avoid. This list is held under tight control, and it forms the heart of the motion because it is not possible for one’s investments to comply with EIAG guidance without knowing the specifically excluded companies.
Parishes and other Church bodies are, of course, welcome to invest in the CBF Investment Fund which does comply with the guidance. This fund is, however, only provided on a “gross” basis (ie not for use by individuals) and, of course, offers no choice in terms of management style. On specific request from Dioceses, Cathedrals or other Anglican agencies (and even sometimes from high net worth private client stockbrokers), investment portfolios are occasionally screened against the detailed policy, but the restricted list remains under tight control at all times. Meanwhile although the Church Commissioners now invest a substantial part of their assets in an ethically-adjusted index-tracking fund managed by Legal and General, there are no such funds available for parishes, other church bodies, or individuals.
As a member of the EIAG (representing Church Commissioners) I have sought on three occasions without success to change the EIAG policy in order to publish the restricted list. The grounds on which their refusal rests, which are addressed in the next section, may be based on a predisposition towards confidentiality and caution often found within investment-related bodies. However in my view this approach is not appropriate, and indeed is denying the Church a mission opportunity.
3. Countering reasons given for non-publication
In preparation for the debate a number of potential objections have been put forward against publication of the list. Since there will be insufficient time to cover all these within the time allotted, it may be helpful to set out the reasons why, in my view, these are not valid or have insufficient weight to warrant refusal of publication.
3.1 Perception and Position/Negative Balance
It has been suggested that the focus on the restricted list in the motion might detract from the positive tone we are trying to adopt in our Ethical Investment Policy. This is a conscious change in strategy for the Group, but unfortunately the key motive is too easily taken to be an attempt to influence media perception. It has to be said that such issues of perception do occupy much EIAG focus, but in my opinion they should not be permitted to cloak the main product of our work.
As stated in (2) above, specific positive recommendations cannot be made by the Group as this would amount to unregulated promotion of investments. So while we can and do encourage a positive approach towards, for example, environmentally-responsible investment we cannot propose specific companies. We do, however, encourage engagement with companies, and our recent success with British Airways (uniform policy) is a good and well-publicised example.
But all commentators are aware that there are companies which do not meet our ethical policy criteria, and their identification will cause no more comment than current media coverage of our ethical deliberations. The restricted list is simply a fact which results from the already well-publicised policy, and is part of the balanced view that we ought to put forward. It is right to focus on the positive, but if that focus denies transparency it implies that perception is more important than values.
3.2 “Ownership” of the EIAG Restricted List
The comment has been made that “Ownership of the UK list is a moot point”, on the basis of claims that the three investment bodies must be accountable for it because they pay for it, and must therefore individually agree publication; in other words, that it is not for the General Synod to determine this issue. The list is thereby seen as the property of the sponsoring bodies rather than an expression of values for the whole church.
However the EIAG constitution states that “The EIAG shall be responsible for disseminating its work and serving as a wider resource for the Church of England in advising on the implementation of ethical investment policies” (Section 9.4). It also makes clear that it is an Advisory body: “The EIAG shall have no investment powers and may act only in an advisory capacity” (Section 3.1). It is not the executive arm of the three NCI investment bodies. It was established by and is accountable to the General Synod: “The EIAG shall publish an Annual Report of its activities that shall be placed before the General Synod” (Section 10.1).
Because its restricted list is advisory, the recipient investment bodies can and do, from time to time, reject that advice. No-one is proposing that the three central investment bodies should publicise their own investment decisions, but the EIAG UK advisory list is not theirs to deny access to others.
3.3 UK and Overseas
The EIAG does not publish an overseas list, therefore this motion applies to the only list it does publish, the UK list. A list of excluded overseas companies is maintained by Church Commissioners, derived from the policy guidelines, but this is not an Advisory list and is not the property of EIAG.
3.4 Does publication make licensing ineffective?
It has been argued that if the restricted list is published it cannot then be provided to professional investors for a fee because they would use it anyway. However this is not possible because such action would be breach of copyright. Investment funds are managed by formal constitution set out in a prospectus and are regulated by the Financial Services Authority.
If they were to make commercial use of copyright material without formal agreement they would therefore be open to both litigation and regulatory action: hence it is not possible for the list to be used by professional investors simply by virtue of its general publication.
3.5 Risk of defamation
It has also been suggested that the naming of companies on the restricted list could give rise to potential defamatory action. In assessing whether this could be a consideration, one of the leading City investment lawyers (who has authored a book on investment law) has commented to me that he is unaware of any litigation of this kind on the basis of a published advisory list. Our restricted list is simply a statement of fact derived from a published policy: this is not actionable. It is subjective opinion, on which we regularly comment in the public domain, which might be more vulnerable to legal challenge, but we quite rightly assess this risk as insignificant.
I therefore conclude that this assortment of objections does not warrant denial of publication. However it is possible that moves may be made to amend the motion on the basis of these or other issues. Most of them are secondary matters, whereas the question I am placing before Synod is one of principle. There will of course be details to resolve following the motion and before publication actually takes place, but these should not stand in the way of a vote on the key principle of open access.
A further attempt could be made to split the motion, and it is specifically for this reason that I have addressed the issue of fund managers’ obligations under 3.4 above. Many individual Christians invest directly in shares, and it is therefore important that they should have access to the list (and not just those who can afford high nett worth private client stockbrokers!)
4. Work undertaken to prepare for this Debate
In preparation for this debate I have undertaken a number of studies and investigations. These include:
· a survey of treasurers of PCC’s, and other Christian bodies;
· discussions with FTSE, the providers of the investment indices;
· discussions and correspondence with a number of providers of collective investment funds;
· an assessment of potential revenues to be derived from licensing the EIAG policy to other fund managers.
4.1 Results of a Survey of Treasurers
Over the past few months PCCs and other Church bodies from 27 different dioceses have responded to a survey on Church investment and ethics, in preparation for the debate. Their responses show that:
· while 35% of church funds have a long-term investment timescale and a further 33% a medium-term timescale, 67% of assets are held in the form of short-term cash deposits. Only just over 12% was in stockmarket related investment, with just two holdings in non-CCLA managed assets: one with an M&G fund and the other a single equity shareholding.
· only 56% feel confident that they have enough information or advice to make investment decisions on their assets;
· 58% would appreciate information or guidance on the fiduciary duty of PCC members, while 60% would appreciate a synopsis of the Oxford Judgement which sets out the extent to which ethical considerations should be taken into account;
· of those who expressed a view 68% agreed that they would like to be able to compare their investment performance with an ethically-adjusted stockmarket index, while 66% wanted access to the restricted list of investments so that they could make their own decisions. Only 13% were not bothered about investing ethically.
I conclude from these responses that the lack of investment choice and information/guidance on fiduciary/ethical responsibilities is resulting in many church bodies achieving sub-optimal performance with the assets entrusted to their care. By opening up access to the restricted list in the way I am proposing, all these issues will be addressed as the range of investments available increases and greater information and guidance is given.
4.2 Discussion with FTSE
With the agreement of the Church Commissioners I have held discussions with FTSE to explore their willingness to prepare and publish the ethically-adjusted FTSE-350 index on a public basis. They (the FTSE Index company) have confirmed their positive interest in so doing, and making it available for license. This means that the index would be available on the internet and elsewhere for benchmarking any investment portfolio, whether individual or institutional.
Publication of the index will also make it possible to draw a quick “impact analysis” of the cost of our ethical restraint at any time, simply by comparing the ethically-adjusted FTSE-350 index against the ordinary FTSE-350 index: this is an important aspect in carrying out our fiduciary duties in recognition of the conclusions of the Oxford Judgement.
4.3 Discussion/Correspondence with fund managers
My investigations indicate that a number of fund managers would be well disposed towards introducing funds based on the Church of England policy within their offerings, even to the extent of re-aligning the ethical policy of their existing funds. Clearly such soundings can only be indicative at this time, but fund managers are clearly conscious of the potential market for such offerings, both on a gross and net basis.
Meanwhile Legal and General, who manage c. £1.5bn of Church Commissioners’ UK Equities via a ‘passive mandate’ indexed to the ethically-adjusted FTSE-350 index, have confirmed that they would be prepared to provide a generally-available indexed fund on the same basis. In order to achieve the close tracking for which they renowned, they estimate that an indexed fund would require c. £15-20m initial capital: I envisage that this will be achieved in the launch process..
Indexed funds have experienced considerable appeal in recent years, as many investors feel more comfortable about linking their investments to a publicly available benchmark. It is even possible for funds to be created which track the index while protecting against capital loss.
The significance of the potential for such an indexed fund is heightened by the findings of the investment survey. Bearing in mind the predominance of long-term Church assets, this would offer PCCs and other Church bodies the opportunity to model their investment strategy on that of the Church Commissioners’ published approach in order to improve their own investment performance.
4.4 Potential Revenues
If the Motion is passed, all professional investment bodies who use or publish the Ethical Investment Advisory Group’s policy will pay a license fee which will help fund its work, thus reducing the expense for the three original sponsoring bodies. At present the annual cost is c. £200,000. This cost is shared in agreed proportions between Church Commissioners, the Pensions Board and the CBF Investment Fund.
The charge for licensing use of the policy would be in the order of an average 0.1% of funds under management. Therefore, in order to wholly substitute the cost of our ethical policy, the value of funds under management would need to be c.£200m: a realistic prospect over the next few years.
As the value of funds under management exceed this total, the ethical policy will produce a net benefit which could accrue to Archbishops’ Council, thus reducing the cost of the NCIs on a steady-state basis.
5. How can we justify denying access to our policy on theological grounds?
“You are the light of the world. A city on a hill cannot be hidden. Neither do people light a lamp and put it under a bowl. Instead they put it on its stand, and it gives light to everyone in the house. In the same way, let your light shine before men, that they may see your good deeds and praise your Father in heaven”
(Matthew 5: 14-16)
In Matthew’s Gospel, Jesus speaks of the need to hold our values high in order to give inspiration to others: it is a call to mission.
Our Ethical Investment Policy is just such a gift from God. The values which shape our ethical policy are a means of communicating with business and the financial world that principles are worth standing by, and that morality has a place within the markets. While we hope this will be achieved by engagement with companies, we need to back our principles visibly by the preparedness to withhold investment, as demonstrated by the advisory restricted list.
This paper sets out many pragmatic arguments in favour of publicising EIAG guidance, but the strongest is this: standing firm, courageously, for what we believe. Many investors are seeking just such a message of principle: surveys show that at least 30% of investors would like to invest ethically, but they are faced with a bewildering array of secular ethical offerings, none of which fully reflect their beliefs. Access to the Church of England’s policy will assist individual Christians greatly in this pursuit.
This is therefore a mission opportunity, and I hope the Synod will use it to speak clearly to the EIAG and ask it to lift its bar on publicising the restricted list, for the benefit of both Church bodies and individual investors.
Postscript
In secular life Gavin Oldham is Chief Executive of The Share Centre, a retail stockbroker. As such, he wishes to make clear that there is no factual or potential conflict of interest for him in proposing this Motion. The Share Centre has no intention to establish a fund based on the Church’s ethical policy. If the Motion is passed, it may publish the policy and the ethically-adjusted index for general access on its website and elsewhere, subject of course to the normal license fee being paid to EIAG.
 |
click button to download the background document as an Acrobat (.pdf) file - in Windows, right-click and choose 'save target as'. |