The Church of England, Wonga and The Ethics of Investing
The news this week that the Church of England has finally cut financial ties with the much disliked Wonga, brings again into focus the question of ethics in investment. The C of E/Wonga situation was particularly interesting given that the Church was publicly taking a lofty moral position against ‘payday lenders’ whilst privately investing in perhaps the largest and best known of them. The fact that this was found out must surely have caused a fair degree of embarrassment and its perhaps surprising that it took almost a year from the investment becoming public knowledge for the Church to make their exit. It has also raised the question of what other ethically challenging investments the Church may hold and whether we as private investors should consider the ethics of our investments before making them.
According to the BBC article here – http://www.bbc.co.uk/news/business-23467750 – the Church of England have £2.8billion of their total invested funds (£5.2bn) placed in UK and overseas stockmarkets. Key stocks for them are Royal Dutch Shell, HSBC, BP, Glaxo Smithkline, BHP Biliton, Rio Tinto and Unilever.
Of course there’s a moral question itself of whether its obscene that the Church of England holds £5.2bn of investments. Many would argue that the Church should be doing good with that money rather than growing their own wealth. I imagine a great many people are surprised the church has this kind of money, but what needs to be remembered is that Churches are in essence a business – some of the biggest in the world in fact. I always think back to the Blackadder episode that opens with the Archbishop of Canterbury sitting by the Duke of Winchester’s deathbed assuring him the only way to avoid going to hell and to have his sins forgiven was to bequeath his riches and estate to the Church. Blackadder later takes over as Archbishop and is charged with doing much the same, offering safe passage to heaven and forgiveness for sins in return for gold coins. Whilst Blackadder is of course fiction, there is a strong basis of fact to the parody. You could argue that Churches are the greatest pyramid schemes of all time, quietly accumulating wealth and power over centuries. Look at the buildings they occupy, often they are virtually dripping with money. I’ve often noted that many of the grandest buildings I see in the US are Churches – be it Catholic, Mormon, Scientology, whetever… they are all seriously rich. In the States many areas virtually force householders to pay yearly donations to their local church too. Factor in their tax free status and it starts to look like a pretty attractive business model.
Of the Churches largest known stock investments, there’s not too much to take issue with in terms of the shares themselves. You could argue that investing in fossil fuel companies is not ideal when they could be supporting companies working on new clean energy sources, but obviously those tend to be high risk investments when BP and Shell are very reliable dividend earners and ultimately we are all reliant on fossil fuels for the foreseeable future so they are very much necessary. Banks like HSBC are not popular in recent times, but again we couldnt do without them. A lot of the Church’s investing cash though is invested indirectly through funds, so we’ll never likely know the full extent of the shares they hold interest in. The Church do now have their ‘Ethical Investment Advisory Group’ though who help decide what they will and wont invest in. Here’s some highlights:
– investing in alcohol is ok, since the old and new testaments celebrate it as a ‘gift’ from above, however they will only invest in companies who attain less than 5% of their turnover from it. This rules out the likes of Diageo (makers of Guinness) but not most supermarkets.
– gambling is ok in small dosages too, the limit here is 25% of turnover
– pornography is a little more frowned upon, capped at 3% of turnover
– ‘military sales’ can comprise 10% of a company’s turnover
So in brief, it would appear the Church consider drinking, gambling, porn and weapons as ok so long as they are in small doses….
Where does that leave us though, the regular private investors looking to grow our far more modest wealth? Clearly there are sectors that are questionable. Here are a few examples to think about:
Overall I’m not a fan of pharmaceutical companies. I acknowledge we need them and a lot of good comes out of them, but I think they are too powerful and are run for pure profit rather than the greater good of mankind. Spending a decade in the sports nutrition market I saw how those big companies tried to squash that industry when it saw it as competition to its own and that always left a bad taste in my mouth too. Until recently though we were briefly invested in one well known drugs company. I always was unsure of it, morally, and never intended to hold it forever but I made the decision to sell after reading an article on puppies being bred purely for experimentation and vivisection. As a dog lover, it was too much for me to feel that I had even a small part in the horror I saw in the pictures that accompanied that article. Creating a life purely to put it through pain and suffering and then ending it before it even gets close to reaching adulthood is too much in my book.
I’ve never yet owned shares in a company that sells weapons but its got to feel strange to know you are making money out of death, however indirectly. Again, there’s the argument of necessary evil and its very valid as the ‘good guys’ in wars (whoever they truly are!) wouldnt stand a chance without being equally as well armed as the other side. I’m not sure its an investment I could be comfortable with, but in fairness I’ve not yet found a company in that sector that has seemed attractive.
Smoking kills. We all know it. It also puts tremendous financial burden on our National Health Service here in the UK. So again, we could consider investing in tobacco as earning from death – BUT, it is different to Weapons in that the victims are willing participants who actually enjoy the process. People choose to smoke, and those who do presumably enjoy it. That makes this one slightly more cloudy for me, because there’s many things people enjoy that are not good for them long term and is it really fair to ban all those things? And if we’re going to say smoking is ok and legal, then someone has to supply that need. We are invested in one tobacco company, mainly for the generous dividend and I dont feel too bad about this one but may review my position in the future. On the positive side, I foresee tobacco companies moving more and more towards less harmful smoking alternatives in the long term anyhow.
Although its so much more socially acceptable, alcohol represents a similar risk to health as smoking. Sure its not a magnet for lung cancer, but how many people ever died from ‘smoke-driving’ compared to drink-driving? How many lives have been ruined by alcoholism, either directly or indirectly – careers destroyed, lives taken, family members left bereft etc…? With alcohol, whilst the risks to the individual are lower than with smoking, the risks to others are arguably higher. Again though, people have a legal right to enjoy alcohol and the vast majority of people I like to think do so responsibly so my own feeling is that investing in companies like SABMiller and Diageo is a reasonable investment.
Another staple of British life that has the potential to ruin lives is gambling. Its addictive, its perhaps socially irresponsible and of course it’s no coincidence that gambling shops are most prevalent in poor areas where those with the least money are the keenest to be parted with it in the hopes of improving their fortunes. It could be argued though that its a source of fun and enjoyment for many and another legal right to be enjoyed. When taken to excess its bad, but perhaps the real problem is lack of education amongst families and from schools about proper money sense. I certainly think more time should be dedicated in schools to financial education than to many of the subjects taught instead, and that could easily include adopting a sensible attitude to risk. Plus who are we as investors to judge gambling? What is investing if not gambling? Sure, we can reduce our risks by picking defensive shares with high dividends rather than racy, volatile growth shares, but any investment has a degree of gambling to it since no one can accurately predict a company’s future share performance. So for that reason above all, I feel gambling is a reasonable investment ethically and we do hold several shares in gambling companies – in particular GVC holdings, who I will do a share analysis on in the near future as its a share that in recent times has provided a wonderful mix of growth and dividend income.
Obviously the list of potential ethical quandaries in investing could go on much longer than this list but this article is pretty lengthy already and one man’s idea of an ethical investment could be quite the opposite to another. Its a very personal choice what shares you are prepared to invest with, or perhaps you feel comfortable in investing based purely on the numbers on a more cool and calculating basis. This incident with the Church of England and Wonga though has certainly raised the issue of ethical investing in my mind though and I’m sure in many others.