The Financial Times of 16 April 2011 reported that the Church Commissioners (CC), which manages over £5 billion on behalf the Church of England and its staff, will vote against excessive pay awards in the companies in which they have a stake. Specifically, this will be where bonuses are more than four times basic salary—irrespective of judgements about the worth or value of the specific senior executives. The Archbishops’ Council said the CC will “support variable remuneration which genuinely rewards success and aligns the interests of executives, shareholders and wider society.”
Although I believe the relevance of this one single criterion is open to challenge, the announcement of this bold position by the CC is to be applauded. It also begins to address a key question I have raised before: does the standing presumption that fund beneficiaries only care about financial performance hold up to scrutiny? It is this presumption on which much of the fund management sector’s behaviour is based—and that holds back social investment in the UK. Once this key premise is challenged, the pathway to investment strategies which take social impact into account becomes far clearer.
The CC is able to take this stance from a position of strength in several respects. First, its financial performance has been good—its funds have risen by 15.2% since last year, well ahead of comparator performance of 12.7%. I happen to believe that, over time, investors like the CC, who practice a form of ethical investing, will outperform mainstream competitors. Secondly, the CC is on very firm doctrinal ground. Much writing in the Bible is in opposition to greed, particularly its excess. I cannot say if the CC has surveyed its beneficiaries, as we have suggested all fund managers do regarding their beneficiaries’ ethical preferences, but it is very unlikely that its clergy would object to such a stance. We wish other ethically based groups would show similar consistency. Far more common is the sort of story I heard last week about a well-known organisation whose endowment is invested in shares of a company whose actions cause the sort of damage the charity spends resources combatting. Such harmful inconsistency is what comes from pretending investment and expenditure on good works lie in two separate and unconnected worlds.
By virtue of its strong moral authority, which we have commented on in a blog post from January 2009 (A Golden Opportunity for the Church Commissioners), the CC inhabits a leadership position. By taking a moral stance whatever the consequences, it opens the way for the moral or social impact of actions to be taken into account in investment decision making. Once this occurs, all investments with strong social impact are in play and we then come to the beginning of three dimensional (risk, financial return and social impact) investing. Watch this space!
First Published in Third Sector in April 2011.