Couple the words ‘religion’ and ‘investments’ and they may bring to mind unsavory episodes like the collapse of Italy’s Banco Ambrosiano – owned by the Vatican Bank – in the mid-1980s, or the 1999 scandal at Florida-based Greater Ministries International, whose officials were said to have defrauded unwitting investors of more than $100 mn.
However those who believe there’s something fishy about religious groups getting involved in investing should think again. They are not only largely conscientious and active investors, they are also adept at defining issues of concern and bringing them to the attention of the public and the companies in their portfolios.
Faith-based investors have long worked with NGOs like Amnesty International, Ceres and Greenpeace to identify human rights and environmental issues and to ask companies about policies in these areas. The issues that concern these investors are, broadly speaking, the same as those monitored by SRI and other ethical funds, says Adam Kanzer, general counsel and director of shareholder advocacy at Domini Social Investments, a fund manager managing $1.9 bn.
Domini’s advisors often work closely with faith-based institutional investors when exploring ethical issues. For Kanzer, companies that encourage open dialogue with these investors can identify and manage potential areas of risk earlier and even improve their corporate image.
Yet, until recently, ethical questions were seen as non-commercial distractions, and typically ignored. Now many of the issues championed by faith-based investors are part of the mainstream – not least because of the potential legal, regulatory and reputational risks they entail. ‘Climate change is no longer an issue just for Greenpeace, but also for Citigroup and AIG,’ reminds Mark Regier, stewardship investing services manager at Mennonite Mutual Aid (MMA) which has around $1.2 bn under management. Regier echoes a growing body of opinion among investors, religious and otherwise.
Invest thy talents
Religious institutional investors range from the small – with $5-10 mn under investment – to major funds like the United Methodist Church with over $10 bn. ‘Smaller funds tend to use an external fund manager who they rely on to apply their ethical criteria,’ observes Barbara Hayes, chair of the UK-based Ecumenical Council for Corporate Responsibility (ECCR), whose members include 75 church institution investors. ‘Larger funds have their own fund managers and researchers on ethical issues.’
What many faith-based investors have in common is a willingness to examine how the companies they invest in do business, and to let them know if something doesn’t please them. At Honeywell’s annual meeting in May, Texas-based Providence Trust asked for a study of pay disparities between the company’s top executives and average workers. The resolution failed, but the wide support it garnered (17 percent) caught the attention of both the company and the media.
Shell’s 1997 annual meeting was a watershed for many religious and other ethical investors. At issue were Shell’s environmental and corporate responsibility policies, their implementation, verification and how they were reported to shareholders. Of particular concern were Shell’s policies on human rights and the environment in the Niger Delta, highlighted after the November 1995 hanging of environmental activist Ken Saro Wiwa and eight others. At his brief military trial in October 1995, the activist had accused Shell of waging an ‘ecological war’ in the Delta.
ECCR worked with Amnesty International, the World Wildlife Fund, the UK’s Pensions & Investment Research Consultants (Pirc) and others to frame resolution 10, which was proposed by an ECCR member at the meeting. In spite of the board’s recommended opposition, the resolution gained significant support, winning 10.5 percent of the votes cast with a further 6.5 percent abstaining. Extensive media coverage of the issues put further pressure on Shell to explain its environmental and human rights policies.
Shell has come a long way since 1997, so much so it was joint winner of the award for best CSR practice – alongside competitor BP – at the IR Magazine UK Awards 2002. Simon Buerk from Shell’s international media relations team notes the company’s increasing efforts to ‘integrate the economic, environmental and societal aspects of the business.’ Such efforts, he says, are easy to sell to mainstream investors, too, since the efficiencies achieved ‘will produce economic and financial benefits as well.’
Strength in numbers
In May 2003 an international coalition of religious organizations and advocacy groups published Bench Marks for Measuring Business Performance. The coalition describes the project, which took around a decade to put together, as ‘a comprehensive set of social and environmental criteria and business performance indicators drawn from a body of internationally recognized human rights, labor and environmental standards and principles.’ The ECCR played a major role, boasts Hayes: ‘The document is accepted as a common basis for research and action among church investment groups worldwide.’
Nor was Bench Marks the work of some fringe organization. One member of the coalition, the Interfaith Center on Corporate Responsibility (ICCR), has a membership of around 275 faith-based institutional investors with a total of some $110 bn under management. A Canadian coalition member, Kairos, represents ten inter-church coalitions, each with numerous member funds. Faith-based funds may vary widely in size and investment style, but Bench Marks should help them present a united front on issues of mutual concern.
Patricia Wolf, executive director of the ICCR, notes how effectively the faith-based community works in partnership with other NGOs to further CSR, environmental and sustainability issues. Indeed, she says, religious investors often identify and gather information on issues before other ethical investors or the mainstream take them up.
‘Our members have put a great deal of pressure on large pharmaceuticals producers and distributors to make HIV treatment both accessible and affordable in, for example, sub-Saharan Africa, where the spread of the virus is reaching pandemic proportions,’ Wolf comments. This argument is now both broadening and gathering pace. SRI investors are asking all companies active in high-risk regions what they are doing to protect affected workers and to encourage prevention among other staff. The argument is that HIV affects the number of days lost to illness and the morale among the workforce, and investors need to know about both.
Open dialogue
‘When we find an area of concern, we initially request a dialogue with the company by sending a letter directly to the CEO or the chairman of the board,’ says Vidette Bullock-Mixon, director of corporate relations and social concerns at the United Methodist Church’s general board of pensions. In such cases, it is often the IRO who responds to present the company’s position. ‘However, if we are not satisfied with the company’s explanations, we may take more formal actions,’ she adds. These may include open letters to the press and resolutions at the annual meeting. Companies wishing to avoid public discussion of their business practices had better be ready to open up to these investors.
‘Companies don’t necessarily have to agree with us, but we want to see constructive dialogue,’ notes Regier. ‘The number one reason why we divest is if companies refuse to talk to us, or won’t bring competent people to the table.’ When dealing with problematic issues, Hayes, too, wants to deal with ‘staff with specific responsibility for the areas under discussion’ rather than company spokespeople with only superficial knowledge of the issues.
‘We can only develop a productive relationship with the company if the IR people are open and honest,’ posits Domini’s Kanzer. ‘It is critically important that IROs understand the issues, and that they provide investors with access to the real decision-makers.’ Shell’s Buerk points out how his company is furthering the dialogue: ‘All our companies around the world have specialized teams who engage with stakeholders on a number of issues.’
God & mammon
Many faith-based investors adhere to the opinion that, when engaging with companies, faith is a motivation rather than an agenda. Certainly they avoid companies that, owing to their business or business practices used, would be considered unethical. However, this doesn’t detract from the goal of delivering solid investment performance. A company may be ethical and transparent, but if it is poorly run, it is of no interest to these investors. ‘As long-term shareholders, we aren’t there to knock holes in the company, we’re there for the long haul and want to see a strategy that is going to produce long-term performance,’ confirms Regier.
With an increasing volume of funds under management, more religious institutions are tending to the financial as well as spiritual needs of their flocks. Faith-based investors and ethical/SRI funds share many concerns, and continue to work together to address them. The drafting of Bench Marks has given them a common framework. And they are not afraid of confronting companies when the situation requires it. Companies willing to engage with them will find them loyal and constructive shareholders.
