Stephen Beer, chief investment officer of Epworth Investment Management Limited,
Charles Jacob Memorial Lecture 2018, 24 April 2018
Chair, members of the CFB Council and Board, colleagues
I begin with a statement.
“…it is not the responsibility of the Central Finance Board to report at all to the Conference but members of the Board have regarded it as most appropriate and highly desirable that they should give an account of their stewardship, whatever the legal responsibilities…
…Those who are involved in the professional activities of the Board either as full time employees or on a voluntary basis giving their expertise to the Investment Committee and the Council are an absolutely essential part of the whole operation. The Central Finance Board could not operate without such expertise…it is important that one should follow carefully through the implications of some of the statements that have been made within the Methodist Church in the last few months to ensure that everyone is entirely clear about future options.1”
Those are not my words but the words from a draft CFB document from 1982. Charles Jacob was the Investment Manager who steered the CFB through those times. It was a pivotal time for the CFB because it saw the church wrestle with and resolve how it should best ensure it invested its assets with a Christian approach. Much was learned on all sides, leading to significant developments in ethical investment and our Christian approach to investing today.
It saw the formation by Methodist Conference of the Joint Advisory Committee on the Ethics of Investment, which continues to this day, thirty-five years on. Much has changed since and today we are an organisation fully integrated and working together with the wider Methodist Church.
It is a great honour to be giving the Charles Jacob Memorial Lecture this year, following on from two distinguished and accomplished speakers since the Lecture was inaugurated. I knew Charles a little as he continued to be in contact with the CFB after he retired, and so I got to speak to and meet him on a number of occasions.
I am now in my 25th year at the CFB and I have been well aware from the beginning that we stand on the shoulders of our predecessors. Charles, as the first Investment Manager, brought investment expertise and an investment mindset to the management of Methodist Church investments, which continues today. He also pioneered the integration of investment and ethics; work which was developed so extensively through his successor, Bill Seddon, and to which we remain wholeheartedly committed.
How can we best describe what we do? Well, not that long after I joined the CFB as a trainee I found myself being introduced to the editor of a tabloid newspaper at a conference.
“So you work for the Methodist Church?”, he asked.
“Yes,” I replied.
“And you invest money?”
“So you make money for God?! What a great good news story!”
We would certainly not describe ourselves this way, but there is something different about what we do.
It is this subject, which we would perhaps prefer to call ‘investing with a Christian approach’, that I want to address today. It is not an approach which is getting any easier. It is still the case that we seek to apply the absolute truths of the Christian faith to messy, complicated, issues. That after all is the calling of every Christian.
We can, I think, call to mind any number of challenges facing us today. Here are some examples: Modern Slavery, the power of the media, exorbitant executive pay of executives and underpayment of those they employ; tax justice; the challenge of mining; farm animal welfare, the efficient and fair use of water; the threat of plastic waste. The Central Finance Board is actively engaging with these issues and many others on behalf of the Church today.
There is one issue we are particularly focused upon and on which I want to dwell a little in a moment, and that is climate change. What should be the appropriate, the wise, and the intelligent, response of a Christian investor to climate change? And does the answer to that question shed any light on how we should approach these other issues today?
So first of all I want to consider what we mean by the term a Christian approach to investing today.
When we talk about Christian ethical investing, what is the impression we are seeking to convey?
I wonder, if we talked to our church congregations, or our friends outside the church, what would they understand us to be talking about?
Perhaps we mean the church does not invest in defence companies, alcohol, tobacco, and gambling companies, and avoids exposure to companies involved in pornography. This is in fact the case; we do avoid companies significantly involved with these activities. In fact, when you add up the companies we currently exclude on ethical grounds, they form almost 15% of the UK equity market. But it is not everything we do by any means.
Today, as we consider what new funds we might launch to help other churches and charities, we are looking again at how we can screen companies for certain ethical characteristics. We already do this but we want to refine the approach. And it is certainly possible to score, or rate, companies on certain criteria, with some scoring so badly we might exclude them from investment. At the same time, we continue to engage with a whole range of companies on a whole range of issues. Contact with companies is made in a variety of ways, from letters to meetings, to shareholder resolutions. There are things we want companies to do and to stop doing, derived from Biblical principles and church teaching.
But this is not actually the very first place to start.
It is easy, very easy, to implement a moralistic approach to investing. To promote a legalistic investment policy. A, ‘thou shalt’ – and ‘thou shalt not’ – approach. It is indeed not difficult to pursue a self-righteous approach…and to threaten with condemnation those who do not comply with our view of how the world should be.
Such a starting point plays into a view of God as an angry deity who demands impossible standards and who condemns those who fall short, with a church created in that image freely condemning likewise. It has links with a ‘works based’ theology that, as the theologian Tom Wright argues2, has pervasively infiltrated Western Christian thinking; more pagan than Christian.
We must start from a different place. A Christian approach to investing begins with God’s grace, through Jesus’ death and resurrection. In the words of St Paul, “all have sinned and fall short of the glory of God3” and “there is therefore now no condemnation for those who are in Christ Jesus4”. This, really, is where we should start. Both as Christians in our daily lives and as Christian investors.
As we seek to apply the principles of our faith to business and society today, we have in the Bible a rich set of principles from which we can draw. But if we leave out Jesus Christ’s death on the cross and his resurrection, we are not being truly Biblical at all. If we talk about Jubilee principles for cancelling debt and restructuring banks, without reference to the “founder and perfecter of our faith5”, it is difficult to see how we are being distinct. And if we skip ahead to the new creation and call for a transformed environment without reference to the person and example of the person through whom “all things were made6” it is difficult to describe our approach as, fundamentally, Christian.
Our focus on God’s grace should therefore lead to humility. Awareness of our own sinful nature and fallen state means we acknowledge that this side of the resurrection, no one is perfect, therefore no company of people is perfect, and, therefore, no company in which we might invest is perfect.
Moreover, we acknowledge that we will not get things right all the time as Christian investors.
Our focus on God’s grace at the same time leads to hope. Hope of the resurrection and new creation. Hope that the current state of affairs is not inevitable. And a conviction that change can and should start now.
Christians have been given the ‘ministry of reconciliation7’, witnesses to the Gospel and to creation renewed and reconciled to its creator. It is a great responsibility, to be “ambassadors for Christ, God making his appeal through us8” and to implore others “on behalf of Christ, [to] be reconciled to God9”. Yet this should give us great confidence. We have the right and the responsibility to speak clearly about what the worlds of business and finance might look like if they were “reconciled to God”. More specifically, we are to do plenty of imploring of people in companies. That is, to ‘beg someone earnestly or desperately’. In so doing, we need have no shame! And why should we, if we are calling mining companies to account for the number of people who have died or been injured in their operations, for example?
We should be clear at this point that we are supporters of the market economy. What we want to see is a just market economy.
In the words of Caritas in veritate, an encyclical letter of Pope Benedict 16th,
“The Church has always held that economic action is not to be regarded as something opposed to society. In and of itself, the market is not, and must not become, the place where the strong subdue the weak.”10
“The economic sphere is neither ethically neutral, nor inherently inhuman and opposed to society. It is part and parcel of human activity and precisely because it is human, it must be structured and governed in an ethical manner.”11
“Locating resources, financing, production, consumption and all the other phases in the economic cycle inevitably have moral implications. Thus every economic decision has a moral consequence.”12
John Wesley would have agreed. His famous sermon The Use of Money makes in essence the same points. He notes that:
“‘The love of money,’ we know, ‘is the root of all evil’; but not the thing itself. The fault does not lie in the money, but in them that use it. It may be used ill: and what may not? But it may likewise be used well.”13
He encourages people to, yes, give all you can, to save all you can, but first to gain all you can, which he regards as “our bounden duty”, which we should do earnestly and with all our God-given wisdom.
This injunction of course comes with conditions. We must not “gain money at the expense of life, nor (which is the same thing) at the expense of health.” That rules out for us, and presumably others too, all sorts of occupations which demand long hours or poor conditions. We must also “gain all we can without hurting our mind any more than our body”, which speaks to ethical business practice and avoidance of what he called “sinful trade”. At the same time, we must gain all we can “without hurting our neighbour”, whether in his substance, that is we must not exploit our neighbour’s land or property, or purposefully seek to damage him economically; or “in his body”, which speaks to the type of products or services with which we are associated; or “in his soul”, and in this respect, Wesley argues that if we are involved in business activities which “are either sinful in themselves, or natural inlets to sin of various kinds, then, it is to be feared, you have a sad account to make.” Indeed, he goes on to say, “O beware, lest God say in that day, ‘These have perished in their iniquity, but their blood do I require at thy hands!’”
At this point, the Christian investor is tempted to throw up their hands and say ‘Who, then, can be saved?’!14
But of course the point is we aim to do what we can, driven by grace, in humility and in hope.
No fire and brimstone but bold, loving encouragement and conviction.
And we are but one part of the picture. We are not campaigners but investors, on behalf of the church part owners of companies. We are not the prophet in the wilderness, but more those striving to be faithful where God has placed us. As Bill Seddon has remarked in the past, not like Elijah, but more like Obadiah.15
Such then is the basis for a Christian approach to investing. It is, I believe, fundamentally different from other types of ethical, or responsible, investing. A Christian approach rests firmly on the Biblical worldview, informed by centuries of church wisdom. It is rooted. We have found that this can nevertheless be an inclusive approach, bringing in and working alongside others with different worldviews but common concerns.
Our wholly-owned subsidiary, Epworth Investment Management, invests for churches and charities outside Methodism. It has a range of clients from different perspectives which are nevertheless attracted by ethical investment based on a foundation of values.
The challenge of each time may vary, but the starting point remains the same.
I believe that today, the age in which we live, this is more important than ever in the history of Christian ethical investment. It contrasts with ethics by opinion poll, or social media storm, or subject to sudden changes in the climate of public opinion.
Of course in one respect, a changing climate is of particular concern. Back in 1983, thirty five years ago, we were not thinking about global warming. Let alone the implications for Christian investment institutions.
A recent internal CFB paper noted:
According to the IPCC, for a thousand years prior to the industrial revolution (1750-1800) greenhouse gases (GHG) remained at a fairly constant state, changing for natural weather events but not from human activity . Since then, human-generated, ‘anthropogenic’, emissions have increased the quantity of GHG in the atmosphere, causing the mean temperature of the planet to increase by almost 1°C between 1880 and 2012 . Total anthropogenic emissions between 2000 and 2010 were the highest in human history, with 78% arising from fossil fuel combustion and industrial processes.
Two years ago, average CO2 concentrations exceeded 400 parts per million for the first time. It presents today an urgent existential threat to humankind, and the world as we know it. And a profound example of how men and women have disregarded and dismissed their Garden of Eden mandate.
The Methodist paper, Floods and Rainbows – Christian Faith Concerning the Environment, was published in 1991 before climate change was a concern, but its words are relevant:
“This is God’s world. God orders, brings into being, sustains, and will ultimately complete the whole universe.”16
But that as creatures made ‘in the image of God’,
“We are to be stewards of the world on God’s behalf, custodians of its amazing richness, companions to its variety of creatures, its “priests”. We are to represent the whole created order to God, and to God within the creation”
“We have become the greatest abusers of the earth, exploiting it with selfish carelessness, and adopting an attitude of ruthless arrogance towards nature.”
One cause might be because the market has become a place where, in this respect, “the strong subdue the weak”.17
As another Papal encyclical, Laudato Si, argues:
“…economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment. Here we see how environmental deterioration and human and ethical degradation are closely linked. Many people will deny doing anything wrong because distractions constantly dull our consciousness of just how limited and finite our world really is. As a result, ‘whatever is fragile, like the environment, is defenceless before the interests of a deified market’”18
Laudato Si goes on to argue that:
“…we need to reject a magical conception of the market, which would suggest that problems can be solved simply by an increase in the profits of companies or individuals. Is it realistic to hope that those who are obsessed with maximising profits will stop to reflect on the environmental damage which they will leave behind for future generations? Where profits alone count, there can be no thinking about the rhythms of nature, its phases of decay and regeneration, or the complexity of ecosystems which may be gravely upset by human intervention.”19
We should note it is a deified market that is the problem, not markets themselves. Indeed, as a CFB paper, Theology of Creation20, noted in 2002, environmental degradation was an important feature of communist economies.
Understanding causes is important for finding solutions. But time is running out, the world including investors is having to play catch up, and the ethical case for global action is becoming stronger. If no action is taken, it is predicted that the average temperature could rise to between 3.7C and 4.8C.21
Hope in God’s Future, published by the Methodist Church in Britain in 2009 – that is to say, nine years ago – makes the point that:
“In encountering biblical warnings about the consequences of failing to love and deal justly with those in need, it is hard to escape the conclusion that in continuing to emit carbon at rates that threaten our neighbours, present and future, human and other than human, we are bringing God’s judgement upon us. Even here we should not despair: that God judges rather than abandons us is a sign of God’s grace and continuing love for us.”22
The CFB has been playing its part.
In 2009 we launched our first policy on climate change. This committed us to managing portfolios with relatively low and declining carbon footprints, and to a focus on carbon emissions from companies whose shares we held. It applied – and still applies – to every company across all sectors.
We added to this another policy, focused more intensely on the main contributors to greenhouse gas emissions, namely electricity generators24. This policy pushed for reductions in emissions and emissions intensity from these companies. It led to one divestment, RWE, and another company, Drax, being excluded from investment, and engagement with other companies.
Two years later we published our third policy, which focused on the implications for different fuels25. We underlined our practice of encouraging companies to act consistently with reducing carbon emissions by 50% in 2050 and we took a dim view of thermal coal and tar sands. This policy led directly to a large number of exclusions, including some divestments. The largest of these was Glencore, which had significant exposure to coal, but we also excluded a large number of oil exploration companies.
And now, as you may have heard, Methodist Conference last year asked JACEI to push for an acceleration of our effort to analyse fossil fuel companies. Principally, to accelerate our assessment of the extent to which their business investment plans are aligned with the Paris Agreement to limit the average rise in temperature to “well below 2 degrees”.
It is fair to say that this work has dominated our ethical investment work over the past few months. And this has happened during a major operational review, implementation of MiFID II regulations, the planning of new fund launches, the publication of at least four new ethical investment policies on other subjects, and the active management of outperforming funds. I therefore do want to acknowledge here the hard work of our dedicated team.
We will be reporting on progress to Conference in July, but I wanted to say a few words about the work today.
First, we reviewed the vast range of scenarios available. Basically, they seek to work out the implications of scientific projections of climate change for energy resources. Most go with a +2C starting point and try to reverse engineer to suggest what amounts of fossil fuels would be consumed consistent with this temperature rise. We prefer those which err on the side of caution and which do not assume there will be a large roll-out of technologies such as carbon capture and storage, which we are not convinced will happen.
At this point I should note that in the CFB we do not place much store by analyst forecasts beyond a couple of years at most, so figures forecasting fuel use in 2030, 2050, or further out we consider highly inaccurate; they will be wrong. But the point is they are illustrative projections. They give a sense of the scale of the challenge.
After identifying key scenarios, it is possible to come to some conclusions about overall global consumption of fossil fuels by certain dates – a timeline if you will. The challenge is how to assess companies rigorously in this light. What does complying with the Paris Agreement actually mean for an individual company? After all, it is clear that fossil fuels will still be consumed in a well below 2C world, if at much lower levels.
We have been developing a methodology which looks at key criteria, including asset mix, investment plans, and company strategy. We will rate companies and use that as a basis for engagement and a judgement of companies’ progress. We will start with our direct holdings, but we need to view them in context. It is important to note we operate in a dynamic market economy. Things are constantly changing. Companies are adapting.
Look for example at the moves Shell has made. It now publishes Scope 3 emissions data; data on emissions from the use of its products – together with ambitions for future levels. It is a big investor in renewable energy. Can it do more? Most probably yes. The oil tanker that is Shell has turned slightly. We need to work out if it will turn sufficiently.
That, in summary, will be the focus of much of our attention in the months to come. But I want to bring us back what we are trying to achieve. We are not trying primarily to cleanse our conscience and feel better or look better by selling some more oil companies; even though we may conclude we need to. That is pointless and hypocritical. The aim is to play our part in encouraging the world to reduce carbon emissions. And we are keen to focus attention further across the portfolios – at the companies which demand heavy use of fossil fuels and which then are responsible for emitting greenhouse gases. The utilities; the transport companies; and heavy industry. And we will continue to do so mindful of our duty to be wise stewards of church and charity investments, including the pension funds upon which our ministers and staff rely.
Some might hear echoes there of those debates thirty-five years ago but the CFB I see today is intrinsically linked and integrated with the church of which it is a part and which it serves.
Together, with others in the church fulfilling their anointed roles too, we can work to be a Christian witness to the world; with a Christian approach to investing, imploring others on behalf of Christ, and together as we navigate the complex world of investing with a Christian approach holding “fast to the hope before us…a sure and steadfast anchor…”26