Religious Investors: From the Business Case' to the 'Ethical Case for Socially Responsible Investmen

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Religious Investors From the Business Case' to
the 'Ethical Case for Socially Responsible
Investment (SRI)

• Benjamin J. Richardson
• Osgoode Hall Law School, Toronto

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Barriers to ethics / shared values

• Aristotles classic polis association of
  persons formed with a view to some good purpose
• Modern politics does not cultivate virtue, and
  politics is reduced to the management of
  aggregated private (economic) interests
• Our postmodern world a society without a
  community
• Information, without meaning

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Business case SRI VALUE, NOT VALUES

• Investors consider social and environmental
  issues where financially material or
  profitable.
• Environmental issues like climate change present
  risks / costs or new investment opportunities.

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Business case SRI contd

• Dow Jones Sustainability Index defines corporate
  sustainability as
• a business approach to create long-term
  shareholder value by embracing opportunities and
  managing risks deriving from economic,
  environmental and social developments.

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Business case SRI contd

• International Investors Group on Climate Change
  (IIGCC) recommendation
• Encourage companies and markets in which IIGCC
  members invest to address any material risks and
  opportunities to their businesses associated with
  climate change and a shift to a lower carbon
  economy

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Retail ethics
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The win win rhetoric

• Ritchie Lowry, Good Money A Guide to Profitable
  Social Investing in the 90s (W.W. Norton, 1991).
• Amy Domini, Socially Responsible Investment
  Making a Difference and Making Money (Kaplan
  Press, 2000).

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Whats wrong with the business case?

• Not all environmental issues have a financial
  proxy
• Tendency of short-term investment horizons, and
  hence long-term environmental issues less likely
  to be seen as financially material
• Does not challenge the essence of the corporation
  as a private economic entity accountable to
  shareholders
• Investment decisions formulated by undemocratic
  methods, dominated by fund managers, trustees,
  etc

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The faith-based, ethical investment alternative,
in theory

• Guided by shared values of the faith
• Based on non-economic values
• Seeks political and social change
• Desires profitability, but not if they sacrifice
  core values
• More democratic methods of investment
  policy-making

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Early faith-based investment

• Quakers avoided financial ties with businesses
  immersed in slave trade (1700s)
• Church investors lead boycott of companies doing
  business in apartheid South Africa (1970s -
  1980s)

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However

• not all faith-based investment meets these
  ideals.
• lets look at what happens in practice today ?

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Main vehicles for faith-based investment

• 1. Religious organisations assets (pension plans
  for ministers, donations, endowment funds)
  invested in wholesale markets
• 2. Faith-based funds (retail markets) catering to
  individual investors wishing to invest in
  accordance with their faith.

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Church of England

• Its primary investment goal is to obtain the
  best possible long term return from a diversified
  investment portfolio
• (Church Commissioners Annual Report 2005)
• Ethical Investment Advisory Group established in
  1994
• Church Commissioners current policy excludes
  investments associated with alcohol, tobacco,
  pornography and certain military equipment

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Church of England

• In 1992, the Church Commissioners investment
  policy was unsuccessfully challenged in court
• Bishop of Oxford v. Church Commissioners for
  England 1992 1 WLR 1241
• The bishop had argued that the Commissioners
  should give SRI a higher priority. Court ruled
  that on trust law principles the Church should
  maximise financial returns for its beneficiaries.

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Methodists

• Ethical invest policy (2004)
• 1) alcohol tobacco
• 2) gambling
• 3) armaments
• 4) corporate governance
• 5) environment
• 5) fair trade debt relief
• 7) human rights
• 8) media ethics (including pornography)
• 9) medical food safety

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Islamic finance

• Under Shariah law, investments related to
  alcohol, tobacco, weapons, entertainment,
  financial services and certain foods (eg pork)
  are forbidden.
• Shariah law also prohibits usury - the paying or
  receiving of interest on loans and investments.
• Dow Jones Islamic Market Sustainability Index

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Friends Provident

• Established by Quakers introduced UKs first SRI
  mutual fund in 1984
• Has a Stewardship Environmental Policy that
  refers to the precautionary principle, reducing
  climate change, protecting biodiversity, etc

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Timothy Plan - family of Christian mutual funds

• Motto Investing with the Lord

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Timothy Plan contd

• We are steadfastly committed to maintaining
  portfolios that do not contain the securities of
  any company that is actively contributing to the
  moral decline of our society.
• We exclude investments in businesses involved in
  vulgar entertainment, that support
  non-traditional married lifestyles, and health
  care industries involved in elective abortions
  and contraception.

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Barriers to faith-based ethical investment

• Religious texts silent on modern environmental
  issues, and therefore unlikely to provide basis
  for agreement on many ethical investment
  decisions (let alone agreement among different
  faiths)
• Religious institutions loss of social
  capital/legitimacy - anti-religious sentiment
  eg Richard Dawkins The God Delusion Sam Harris
  The End of Faith.
• Church is a theocracy, not a democracy
• Fiduciary law assumes a passive role for
  beneficiary investors

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Formulation of investment principles
democratically made?

• US National Association of Christian Financial
  Consultants
• The sole basis of our beliefs is the Bible,
  God's infallible written Word We believe that
  it was uniquely, verbally and fully inspired by
  the Holy Spirit and that it was written without
  error (inerrant) in the original manuscripts. It
  is the supreme and final authority in all matters
  on which it speaks.

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So, whats the alternative ?

• Go for procedural values rather than substantive
  values.
• Procedure lets try to at least agree on the
  methods for democratic, transparent and
  accountable investment-decision-making
• Through participation and dialogue, shared
  ethical values to guide SRI more likely

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Interfaith alliances for SRI suggest dialogue and
participation

• Interfaith Center on Corporate Responsibility
  (US)
• 3iG - International Interfaith Investment Group
  (UK)
• Ecumenical Council for Corporate Responsibility
  (UK)
• Kairos Canadian Ecumenical Justice Initiatives

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3iG

• The mission of 3iG is to contribute to a just and
  sustainable society through responsible
  investment in a spirit of genuine interfaith
  dialogue and co-operation.

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Interfaith Center on Corporate Responsibility
(ICCR)

• Since 1971, grown to an international coalition
  of 275 faith-based investors
• Affiliated members, eg Amnesty International
• Facilitates research and cooperation among
  members for SRI-focused shareholder activism
• Examples of shareholder resolutions
• against Exxon Mobil management, demanding it set
  specific greenhouse gas reduction goals
• against McDonalds management, seeking labelling
  of any genetically modified foods

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Lessons for other SRI investors?

• Cues for ethical investment should be guided by
  non-market (civil societal) institutions
• Develop those values through participation and
  dialogue, NOT expert preaching
• Demonstrate links between ethics sustainability
  financial investment
• Fiduciary duties of investment institutions
  should be written to incorporate ethic of
  environmental stewardship

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THE END
The superior man seeks what is right the
inferior one, what is profitable - Confucius
(551 - 479 BC)