The Glebe Trust and Ethical Investing
Shared with Justice Ministries by Rob Robertson, St. Andrew’s Presbyterian Church Ottawa, November 23, 2012
The purpose of this brief paper is to review some current practices and thinking about ethical investing (sometimes called socially responsible investing) and to assess whether the Glebe Trust should adopt ethical guidelines. I will review the relevant material from the Presbyterian and United Churches and from advocates of ethical investing, and then suggest ways that the Glebe Trust might fit its practices into a simple framework for ethical investing.
The issue of ethical investing was addressed in 2002 by the PCC General Assembly. While accepting that no economic activity is “amoral,” the General Assembly emphasized the existing legal obligations of Trustees to combine return and risk considerations in a way that is in the best economic interests of the beneficiaries of a Trust. It took the view that generally Trustees should not limit investments for social or political reasons unless “they undermine or contradict the aims and ministry of the congregation.” Even where the General Assembly or the Justice ministries recommend against certain investments, it was concluded that Trustees have an obligation to show that similar returns are available through other investments. Existing ethical investment funds were reviewed, and the conclusion was drawn that it was not clear that the views implicit in them would be supported by a majority of Presbyterians. It was thought that it would be impossible for the denomination to create its own screens “without incurring costs and risks.” However, in practice I understand that the PCC screens out tobacco and gaming companies.
The United Church of Canada has been more open to the idea of ethical investing. It applies screening criteria for the investment of its pension funds and general revenue. In doing so it has two categories of exclusion. First there is “qualitative criteria”; this means that it looks at both the good and the bad in a company before it judges. Second, there is “exclusionary criteria”; this means that there are some industries that they “seek to avoid.” The five areas assessed are:
- Business Practices – Does the company have a code of ethics that it follows and has it been convicted or accused of engaging in questionable business practices?
- Community Relations – Has the company engaged in community development, been sensitive to First Nations, promoted human rights abroad etc.?
- Employee Benefits – Does the company have an employee ownership scheme and offer same sex benefits and provide health and safety measures or does it act in a discriminatory way or use sweat shops?
- Environment – Does the company engage in good environmental stewardship, relative to other companies in its industry?
- Products – Is the company involved in the production of alcohol, tobacco, pornography, weapons or in gaming and lotteries?
According to the Mennonite Central Committee there are 54 mutual funds that follow socially responsible criteria. These are funds that attempt to make socially responsible investments as well as devoting a small percentage of profit to community development work. Some of the funds are managed by a company called Meritas. It considers investments under the following headings:
- Respecting the dignity and value of all people.
- Helping build a world at peace and free from violence.
- Internalizing a concern for justice in a global society.
- Exhibiting responsible management practices.
- Supporting and involving communities.
- Practicing environmental stewardship.
In practice, the portfolio of some Meritas funds does not look significantly different than the Glebe Trust’s, with investments in transportation, banks, and energy.
The Tides Foundation is another organization interested in the subject. The principles it suggests are the following:
Goals and Screens
Goals – invest in companies that demonstrate these characteristics:
- Their products and services contribute to basic human needs, including consumer health and safety.
- They exhibit superior performance in the protection of basic human rights, and the hiring, training, and promotion of minorities and women.
- They exhibit innovation with respect to products which protect or enhance the environment and/or which evidence superior performance relative to waste utilization and pollution control.
- When operating internationally, they meet the local standards of host countries for all of the above social and environmental dimensions.
Screens – avoid investing in companies that demonstrate these characteristics:
- Their products and services are unsafe in normal use (such as tobacco and gambling).
- They are weapons systems contractors or derive more than 10% of their gross revenues from defence contracting or subcontracting.
- They do not practice responsible corporate governance.
- They broadly violate fair labour practices.
- They have a record of failure to abide by federal, provincial, and local environmental regulation and/or are participating in nuclear power plant technology (this screen could be re-evaluated if nuclear technology evolves).
- They are responsible for systematic human rights violations or contribute to repressive governmental practices
Churches exist to fulfil a Christian mission. Money is one element in helping them do that. The Glebe Trust is an important mechanism in maximizing the money available for St. Andrew’s to fulfil its mission. However, in trying to maximize returns the Glebe Trustees cannot be oblivious to competing concerns. Clearly, Trustees do not want to act in ways that would bring discredit or discord to the congregation. That would ultimately impair the pursuit of St. Andrew’s mission.
The first challenge for Trustees lies in identifying the kind of investments that are undesirable for our church. The PCC recognizes that such investments exist, but it despairs at identifying them pro-actively. It also worries that the investments identified by others as undesirable may not have the agreement of a majority of Presbyterians. (Query: Is it in the interests of the church to make investments that a significant minority oppose?) Certainly the views of individual members do vary considerably. Examples might include the issues of nuclear power or the defence industry. Some ethical investment guidelines include them; some do not. It is also true that over time Christian views of what is desirable evolve. An example is the inclusion of same-sex benefits as an issue for consideration in assessing a company; in the 21st Century a significant number would see this as indicative of good practice, whereas in the 19th they did not. In the end, there is no sure mechanism to determine what views individual Presbyterians have on social issues. However, there are ways to determine what views the PCC and St. Andrew’s have, as expressed in their statements and their activities. It is clear that at present there is a concern for respecting international human rights, good stewardship of the environment, fair treatment for aboriginal people, the provision of social housing etc. Glebe Trustees cannot determine what a majority of Presbyterians think, but they can know the stated social goals that our church has from time to time. Trustees should avoid undermining these goals.
Relevant to this issue is the PCC statement that investors must demonstrate that similar returns are available from investments other than those screened out. I suggest that given the vagaries of the market, Glebe Trustees would not have difficulty in arguing that acceptable, alternative investments hold the promise of comparable returns, and therefore this obligation is of negligible concern.
The second challenge is whether investment decisions should not only avoid the socially bad but also promote the socially good. It is fair to say that the Glebe Trust has no program mandate and that Trustees do not present themselves as necessarily expert in the area. That being said, it is suggested that Trustees should not close their eyes to opportunities to advance the social goals of the congregation and the denomination where that is consistent with the financial best interests of the congregation. It is not out of the question for Trustees to be urged by the congregation to invest in green technologies or aboriginal enterprises for example. In my view, where two purposes can be accomplished at once, Trustees should be open to that. However, this is different than the Trustees actively seeking to turn the Trust into a vehicle for social investing. That would require considerably greater research than is now required and more complicated judgements on risk. Mutual funds that advertise socially progressive portfolios could be used, but those portfolios may not vary markedly from what the Glebe Trust would otherwise hold, and would carry with them administration fees and the diversion of some profit to charitable purposes other than St. Andrew’s.
Handling social issues in the context of investment decisions is a challenge, but one that Trustees can meet with study, reason and reference to the Minister and Session for counsel where required. It is not anticipated that this will have to be done frequently.
Based on the above analysis, the following ethical principles are suggested for adoption by the Glebe Trustees:
- The basic obligation of Trustees is to advance the best financial interests of St. Andrew’s through investments compatible with the aims and ministry of the congregation and The Presbyterian Church in Canada.
- Trustees and financial advisors will give reasonable scrutiny to investments to ensure they do not support activities that could be considered socially regressive or potentially harmful to the reputation of St. Andrew’s. Trustees will be particularly mindful of social concerns expressed from time to time by the congregation and The Presbyterian Church in Canada in making such determinations.
- Where potential investments that could advance the social goals of St. Andrew’s and The Presbyterian Church in Canada are suggested for consideration by a congregational body, Trustees will give serious consideration to such proposals provided they are financially sound.