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Wonga, the archbishop and the Ethical Investment Advisory Group: interview



The day after the archbishop of Canterbury said he would try and compete payday lenders like Wonga “out of existence”, it was revealed that the Church of England invests in the venture capital firm that helped get Wonga started in 2009.

Speaking to BBC Radio 4’s Today programme, Justin Welby said he was “irritated” and “embarrassed” at the revelation, which was brought to light by an investigation by the Financial Times.

The church’s investments are split between three national investing bodies: the Church Commissioners for England, the Church of England Pensions Board and the CBF Church of England Funds, which are managed by CCLA.

All three are covered by policies put forward by the church’s Ethical Investment Advisory Board (EIAG), and its secretary Edward Mason spoke to Blue & Green Tomorrow.

What does the fact the Church of England can invest indirectly in Wonga say about the way it screens its investments?

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We have a very clear policy on payday lending and other forms of high interest rate lending, in that we don’t invest in it.

This exposure to Wonga came about through an investment in a pooled vehicle. That means it’s not a vehicle that only we invest in, but a number of different investors will invest in it. It’s an area of investment where you can’t have the same control over what goes into the fund.

We have a different policy approach there, which requires the investing bodies to make an assessment of the likely materiality of exposure to restricted areas of investment, and to monitor that in the course of the fund’s life, which is obviously what we’ve done in this case.

The investment in Wonga is very small: £75,000 which represents 0.3% of that fund. Judging that against the pooled fund’s policy, that’s not a material exposure, so although it’s not something we like – we don’t support payday or high interest rate lending – it is an investment that can be managed.

The Church of England allows investment in companies that derive up to a quarter of turnover from tobacco, gambling, alcohol and high interest rate lending, and 3% for pornography and 10% for weaponry. Wouldn’t 0% be a more sensible level of investment?

The thresholds are set individually across each policy. We look at the way in which business operates, so on an area like payday lending, for the specialised companies that’s what they do; they do payday lending. They may have one or two other activities but a 25% threshold will capture any company that is a payday lender.

A 25% threshold does the job so that’s our standard test as to whether a business is substantively involved in something that’s a major part of their activities.

You will have seen we have zero tolerance for indiscriminate weaponry – that’s cluster munitions, landmines, nuclear weapons and nuclear fissile material. That’s because it’s so contrary to our values as a church. It is possible to assess companies against that threshold, and we do it there because we think it’s in line with our values and because we are able to capture companies with any exposure in those areas.

On something like pornography, because again, we don’t want exposure to producers of pornography or people who are supplying it, we have a 3% threshold. We’ve taken advice from our screening service adviser – we use specific research providers in these areas – and they advised us that 3% was the minimum that they could screen against.

The church had a similar challenge over its investment in News Corporation, regarding the alleged hacking of phones. What is the church doing to pre-empt and prevent future embarrassments?

We have our policies; we apply them where we can. Where we have to get exposure to areas through pooled vehicles, then we have this test of materiality. So there hasn’t been a breach of policy of our ethical investment framework in this instance.

The Church Commissioners is quite a sizable institutional investor – its portfolio is £5.5 billion – and it needs to access a wide range of different investments to generate the returns, to provide the income for the church year-on-year, to fund its activities and to pay the pension liabilities that it is responsible for.

There’s a whole legal framework on that and it has to manage very carefully the number of exclusions that it operates. The archbishop of Canterbury said today that it is a complicated area, the investments are complicated and business involvements are complicated. We absolutely do our best to be ethical within the constraints of the investment vehicles that are available and the legal framework.

The EIAG, as its name suggests, is an advisory group. Therefore, could the national investing bodies choose to reject its ethical investment recommendations?

They have legal right to invest in anything they wish. They are responsible for their investments and responsible for ensuring the way they invest are appropriate for the values of their beneficiaries.

But all the policies that we publish have been adopted by them. I present the policies to the trustee bodies, and we have a process of dialogue as policies are being developed. It’s inconceivable that [they would not accept the policies].

Ethical investment among private investors seems to be gradually moving towards more positive strategies – those that maximise social impact and actively benefit the environment, for example. Has the church considered these alternative strategies?

An individual investor can do whatever they want with their money. If they want to put it all into microfinance or all into renewable power infrastructure, they have the freedom to that. They can invest exactly as they want.

An institutional investor like the Church of England investing bodies can’t do that. It’s not their money; it’s someone else’s money. That’s what fiduciary responsibility means: you’re looking after money for someone else.

That means the pensioners who are receiving the pensions, the parishes that receive money to fund their ongoing activities so there is a Church of England presence in every parish of the country. So there’s a legal framework for that, and there’s a limited extent to which you can take ethical considerations into account in managing that money. We do that to the maximum extent possible.

In the UK stock market, the Church Commissioners excludes 12% because of our ethical restrictions. That’s a lot of the stock market to exclude, but we do it because it’s the right thing to do and we think that’s what our beneficiaries want. But there are constraints.

In terms of positive investment, they have to meet the returns criteria, because again that’s what the obligations of the investing bodies are – to generate the returns the beneficiaries need – and there are some very interesting investments. The Church Commissioners invests a substantial £200m in Generation Investment Management, for example. That’s invested with full integration of sustainability considerations and that is a very positive form of ethical investment, and something that we’re doing and exploring.

There are different ways in which ethical investment is applied is applied across the portfolio. We have the exclusion as our bottom line; there’s this sustainable investment mandate, but there are constraints.

Further reading:

Archbishop ‘embarrassed’ at Church of England investment in Wonga backer

‘We will compete you out of existence’, Archbishop tells payday lenders

‘The church must see caring for the environment as part of morality’

Church of England urged to use theology as motivation for fossil fuel divestment

The Guide to Sustainable Investment 2013