Rodger Spiller: Weighing investment with values

Opinion

Anglican synod's decision on fossil fuels in line with John Wesley's push for business social responsibility.

In the light of the latest step by churchgoers in Auckland to further align their money with their values, all investors are being challenged to think about the impact of their investments. The idea of responsible or ethical investment - considering principles as well as profit - involves investors taking into account environmental, social and governance issues (commonly referred to as ESG).

The recent decision of the Anglican Church's Auckland Synod to "ensure no diocesan funds are invested in corporations whose main business is the extraction and/or production of fossil fuels, and that existing holdings in such corporations are divested in two years" is the latest development in a long-standing history of church money being invested responsibly.

As early as 1760, John Wesley argued in a sermon, The Use of Money, that investors ought to take account of business social responsibility. Wesley was a Christian and social reformer, and one of the first figures to speak out against the slave trade. He saw the role of the investor "not as a proprietor, but as a steward".

In the 1960s, when the Vietnam War ignited public opinion, the first responsible investment shareholder resolutions were filed by church groups and student bodies at Dow Chemical's AGM, questioning their involvement in the production of Agent Orange.

And in the 1970s, the US Episcopal Church filed a shareholder resolution at General Motors' AGM, calling for the company to withdraw from South Africa. This proposal led to co-ordinated efforts by religious groups and other investors concerned about social justice to use their combined resources to help end apartheid.

In May this year, following recent calamities in Bangladesh apparel manufacturing plants that resulted in an overwhelming loss of life, the Interfaith Centre on Corporate Responsibility led an initiative of investors and stakeholders, including 202 organisations representing over US$3.1 trillion ($3.7 trillion) in assets under management, calling on industry leaders to implement systemic reforms that would ensure worker safety and welfare, and to adopt zero tolerance policies on global supply chain abuses.

The momentum for responsible investment is reflected in the uptake of the United Nations' Principles for Responsible Investment (PRI), which includes more than 1000 investment institutions as signatories, with total assets under management of approximately US$30 trillion - about 20 per cent of the world's capital.

The PRI believes that responsible investment leads to a more complete understanding of a range of material issues which should ultimately result in increased returns and lower risk. It notes the increasing evidence that ESG issues can be material to the performance of portfolios, particularly over the long term.

Further evidence of the financial performance of responsible investment was provided in the 2013 Responsible Investment Benchmark Report released in July by the Responsible Investment Association Australia. It showed that five-year returns had been stronger in all Australian responsible fund categories compared with the benchmark and average mainstream funds.

The report also found that in New Zealand, funds managed under responsible investment portfolios totalled $22.6 billion, a growth of 17 per cent and a substantial 38 per cent of total assets under management across the country.

There is a spectrum of activities investors can undertake to respond to climate change - and many are doing so. You can "exit with voice" as the Anglican Church's Auckland Synod has done in resolving to exclude companies from its portfolio and publicising that decision.

Another approach is to remain invested and to use the power of your shareholding to engage with the company. For example, in the hierarchy of climate change impacts, brown coal is more polluting than black coal, so you might engage with a big resources company to stop it investing in new brown coal mines. Indeed, many of the big miners are already selling off such assets.

For New Zealanders who want to take the issue of climate change seriously there are a range of options. You can have your KiwiSaver or other funds invested with a fund manager that excludes fossil fuels' extraction. Alternatively you can invest with a fund manager that engages with companies about climate change.

Consumer magazine has recommended going to the Responsible Investment Association website (www.responsibleinvestment.org) for information about certified financial advisers, fund managers and superannuation funds, and looking for the certified responsible investment symbol. This symbol is an easy way to tell if a financial adviser, fund manager or superannuation fund is involved in responsible investment and has met the Responsible Investment Association's certification requirements.

Traditionally, investment advisers ask you only about your goals and risk profile in order to determine which investments are most appropriate for you. However, best practice requires that they also ask about whether environmental, social, or ethical considerations are important to you. In Australia, the Securities and Investment Commission states that advisers should do this.

Three key responsible investment questions for every investor are: What are the important issues for you when considering investment? Are there companies or industries you wish to avoid investing in? Do you want to foster engagement with companies by investing in them and communicating your environmental and social concerns to them to encourage their continuous improvement?

•Dr Rodger Spiller is an authorised financial adviser at Money Matters, specialising in responsible investment. His disclosure statement is available on request and free of charge.