The Capital of the Kingdom
Monday, 4 April 2016
| Trevor Thomas
In ‘What's the hold up? Evangelicals and Climate Action’,[1] Emma Wood challenges readers concerned about climate change to divest their fossil fuel share holdings and to switch their superannuation funds to fossil fuel-free options:
‘… we Christians need to take our money out of the fossil fuel industry and encourage others to do likewise... most adult Australians do have superannuation funds, many of which, including Christian Super, offer ethical investment options that avoid investments in tobacco, pornography, junk food advertising to children and, now, fossil fuels.’
Wood argues that switching to green electricity providers and investing ethically are two simple first steps to promoting substantive change.
The evidence supports this argument. Companies will change their behaviour if they start losing customers, and moving capital away from polluting industries to sustainable and cleaner alternatives will hasten the shift to an increasingly urgent lower carbon future.
Furthermore, investors who choose this path ‘risk’ earning higher returns. Yes, that’s right, higher – not lower - returns. Figures in Australia collected over a sustained period confirm the findings of other studies from around the world which reveal that ethically screening investments does not detract from financial performance, and may in fact enhance it. This creates a potential win-win situation for business and the environment.
However, while economic theory backs the case that companies will respond to market forces, this assumes a level playing field in the political realm. In other words, the theory works as long as these economic signals are not overwhelmed by state and federal government policy decisions. Unfortunately, this assumption currently bears little resemblance to the real world; but the good news is that individual investors like you and me can make a difference.
Fossil fuel industry subsidies globally have been estimated by the International Energy Agency at US$550 billion annually, and according to the Australia Institute Australia’s coal industry alone pockets A$4b. These subsidies keep fuel prices lower – which can be politically popular, but they distort economic development by making alternative energy sources less competitive and by enriching energy companies that have strong vested interests in preserving their privileged position. For this reason, a number of civil society groups pressing for a shift away from fossil fuels are calling on politicians to pledge to refuse donations from that industry – see for example 350.org.
As Christians, we have much to ponder in relation to contemporary economics and politics in the light of the overlapping biblical narratives around stewardship, social inclusion, justice and generosity. These narratives have often informed our choices about donations and, increasingly, ethical consumption, but not always our investment decisions.
Perhaps this reflects a certain reluctance to mention investing in the church context. The natural hesitation we feel in discussing money in polite company can be accentuated in Christian circles, where biblical warnings about the grave dangers of wealth frame discussion of investments as a distinctly ‘worldly’ rather than ‘kingdom’ occupation.
We must remember, though, that Jesus was not shy about raising issues of money and wealth in public. His teaching and public encounters highlighted the corrupting power of wealth and warned repeatedly of the danger of Mammon distracting us from what is truly important.
A direct result of this teaching is that Christian institutions (e.g. Denominational Investment Funds) have generally been early adopters of ethically screening investment portfolios under their care, seeking to avoid exposure to socially damaging activities such as gambling, tobacco, pornography, alcohol and armaments (particularly land mines and cluster bombs). This has been equally true of Christian individuals and families with resources to invest, and, since 1993 when compulsory superannuation was introduced in Australia, many Christians have found themselves with investment portfolios for the first time.
Given this democratisation of investment, it is increasingly important that we find a way of bringing a kingdom focus to our decision-making. We need to think beyond the traditional definitions of a kingdom focus (church buildings, hospitals and schools) and embrace a broader agenda of social justice and environmental stewardship.
As Wood mentions in her article, a range of ethically screened funds have emerged to assist people to avoid socially and, increasingly, environmentally negative investments. The pioneers from the 1970s and 1980s were driven by values and moral convictions. Today, most investment houses review the environmental and social performance of companies as part of their investment decision-making – it has become entirely mainstream.
The driver of this change is not only demand from ethical investors but also the realisation that companies face significant reputational risk, and financial damage, should their activities result in socially and/or environmentally negative outcomes. BHP’s tragic tailings dam disaster in Brazil, and the Commonwealth Bank’s many ethical failings across various divisions of its operations, are recent examples.
The Responsible Investment Association of Australasia estimates that half of all money invested by Australians is put through ESG (Environment, Social, Governance) risk assessment as a routine part of the investment process.
Beyond simply ruling some investments in and others out (‘positive screening’ and ‘negative screening’), however, the ethical investment space is also characterised by increased levels of engagement between investors and investee companies. Some institutional investors are large enough to exert significant influence on the companies that they invest in, and increasingly this extends to social and environmental risk management.
As these large institutions represent individual investors or super fund members, we should feel emboldened to engage with them around issues of climate change and ethics more broadly. When I speak to groups about this process, I outline three simple steps to push for change:
- The dumb question: Please can you tell me if I have any fossil fuel investments in the portfolio that you look after for me?
- The smart question: Please can you give me the option of avoiding these negative activities within this fund? (What makes this question smart is that, if they say no, you can lodge a complaint, and this is a magic word in the Australian Investment industry that triggers a serious response from any organisation that has an Australian Financial Services Licence.)
- Make the move: If the fund is not prepared to take you seriously, then find a fund manager that is. (Remember you risk lower returns by staying in a fund that does not take environmental and social risk seriously.) A little research through the RIAA website will give you a range of fund managers and advisers that will help you choose a better destination for your savings.
Individual shareholders have joined this trend, voting on a number of shareholder resolutions proposed by groups like the Australian Centre for Corporate Responsibility and Get-Up that have been put to major banks, supermarket chains and resource companies.
Building on the foundations of ethical screening and engagement, there is a new emphasis on ‘impact investment’. This is particularly popular with philanthropic trusts, but is also gaining attention in superannuation and traditional fund management circles.
The term captures the dual objective of the investor: to generate financial returns, but also to target specific social and/or environmental outcomes. In fact, the investment will only be considered to have been a success if it achieves both its financial and impact goals. This requires effective measurement and tracking of outcomes in the social and environmental space, and as such is assisting charities and not-for-profits to engage with aligned investors to achieve good results.
Impact investments include such things as social housing, social impact bonds (where governments pay investors a success fee for reducing a social negative such as prisoner recidivism or family breakdown, as these outcomes save significant future government outlays), habitat restoration, renewable energy and social enterprise. Charitable foundations are drawn to the sector as it allows them to invest their capital in change, not just in the income that it generates each year.
Christian Super, the organisation mentioned by Wood, has been a leader in the incorporation of Social Impact Investment in their portfolio. (This an observation, not a recommendation. Do more research and seek professional advice before making any investment decision.)
Today in Australia there is no good reason for Christians not to apply principles of environmental stewardship and social responsibility to all aspects of life, including investment. This involves choosing positive options and, in my view, taking an active role in the divestment process. Divestment is an important tool that:
- Challenges the status quo and the dangerous concept of ‘business as usual’; it is a protest against gradualism and inertia;
- Removes the social licence from fossil fuel companies to set the agenda on energy policy and climate change, and;
- Protects portfolios from the risk of ‘stranded assets’, should global agreements to limit carbon emissions render some mines and power stations inoperable before they have generated the expected returns on investment.
In a very real sense, we cast a vote every time we invest a dollar. Every dollar invested rewards one company over another. These votes create the world of tomorrow by capitalising those organisations that will invest and employ sustainably to build their future success. We can choose to vote for social responsibility and environmental sustainability or we can choose not to – either way, the decisions we make will have a material impact on the present and the future. If you vote for ‘business as usual’ then you can hardly complain that you do not like the results.
Can you afford not to act? The poor and the planet are waiting.
Trevor Thomas is Managing Director of Ethinvest. His previous roles include chair of the board of TEAR Australia and NSW TEAR Coordinator (together with his wife, Judy). Trevor, Judy and family live in a community house in Sydney's inner-west.
[1] In Zadok Perspectives, 130, Autumn 2016, 11-12. You can subscribe to Zadok here.