The Vatican and Archbishop are urging investors to align their finances…sustainably
By Raj Thamotheram
Recent events at St Paul’s Cathedral have sent shock waves through the Anglican Church.
But if we were to ask investment professionals what their religious clients ask for, the answer would generally be to exclude “sin stocks,” i.e., companies involved in pornography, weapons, abortaficients, etc. A few clients specifically ask for – and some specialist service providers offer – stewardship activities, with Christian Brothers Investments Services (USA) and CCLA (UK) being two of the best examples.
But such a focus on active ownership and the health of the market – the beta – is not so common. Should religious investors then hold themselves only to the standards of their non-religious peers who have deified shareholder value?
Imagine if Catholic and Anglican asset owners – who are major players in many countries – took the Vatican Pontifical Council for Justice and Peace report and the Archbishop’s call to act seriously to bring their practices – as mainstream investors – into alignment with this advice.
The best English language source of the Vatican document that I’ve found so far is antagonistic to the report but the translation seems accurate and professional. The economist acting as spokesperson for the report says it focused on two key issues: New global governance rules and reforms to the international financial system.
In the second part, the report supports “proposals already launched by the Dodd-Frank legislation in the United States and by the Vickers Commission in the United Kingdom, but which have not yet been implemented and are not in force due to a number of obstacles.”
Certainly the highly organized and very well-funded opposition by financial sector organisations is a big reason for the slow progress on these proposals. But on the flip side, asset owners – who could be making their influence felt – have chosen, consciously or unconsciously, to stay almost silent. While bankers, economists, regulators, celebrities and endless commentators have spoken about the significance of the protest movements, asset owners – even pension funds – have said very little. Perhaps most bizarrely, even the trade bodies set up to represent the interests of responsible investors – ICGN and UN PRI – have been uncharacteristically quiet.
So what are these proposals that the Vatican has proposed and the Archbishop is backing?
- Reduce the leverage of banks that are “too big to fail”;
- Adopt the so-called Volcker Rule which prevents banks from doing proprietary trading with customer deposits;
- More severely regulate the trading of derivatives born from insurance instruments; and
- Implement the financial transactions tax.
While it would be wrong for Catholic and Anglican investors to implement these proposals in a knee-jerk reaction, it could prove equally disastrous to not give these matters a serious consideration.
Faithful, religious asset owners could make a specific request to their fund managers to ask them to say, on paper, what they think of these proposals and what they are doing—either to support or to block their implementation, directly or via trade bodies. And, for balance, to get detailed arguments in favour of these proposals so these religious investors can make up their own minds if they are acting with integrity as well as due care.
The Vatican report highlights the complexity of today’s world and investors collectively have huge influence on governmental action. There is a well-known tendency in the financial system for the tail to wag the dog, i.e., for service providers to define what asset owners want/think. Asset owners don’t need to join #OccupyWallStreet or their equivalents around the world. But it’s a good time to think hard about the issues raised.
Simply excluding some sin stocks and a check box commitment to voting shares is no longer a good enough strategy for a faithful religious investor. If we believe in the power of systems thinking, the time to indulge in some critical thinking is now.
About Raj Thamotheram
Dr. Thamotheram has worked for over 10 years in the investment world, first for Universities Superannuation Scheme, the large UK pension fund, then with AXA IM, a large investment manager. He now works independently and is focusing on: his new consultancy (which provides strategic advisory and mentoring services on investing as if the long-term matters); growing the Network for Sustainable Financial Markets (NSFM) which he serves as President; and launching two new projects: "Preventable Surprises" and "Positive Deviants Club." You can follow him at @RajThamotheram.
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