ETHICAL investment in businesses inside conflict-ridden areas — including Ukraine, Gaza, and Mozambique — is among the many emerging priorities of the Church of England Pensions Board, its fourth annual Stewardship report, published on Wednesday, says.
Since the Pensions Board and Church Commissioners disinvested from Shell, BP, and other oil and gas firms a yr ago (News, 23 June 2023), investor engagement — in addition to now specializing in the most important fossil-fuel consumers — has shifted towards peace and reconciliation.
Adam Matthews, the chief responsible-investment officer on the Church of England Pensions Board, writes in his introduction to the Stewardship report that “many conflicts are either catalysed or sustained by extraction of natural resources. In turn these resources flow into global supply chains of the varied sectors and firms during which we’re invested.”
He gives the instance of Cabo Delgado in northern Mozambique where “extraction for mining and natural gas are widely acknowledged, including by the community leaders we spoke to, as having been significant contributors to this conflict.”
How corporations operating in conflict zones respond was due to this fact “a critical part” of the Board’s engagement last yr, he says. “Any future peace within the region can even depend upon greater local profit sharing from well-run corporations that recognise they need the social licence not only of the national government however the local communities inside which they operate.”
Mr Matthews continues: “Often the straightforward presence of an extractive company, even extremely well run, can destabilise and alter endlessly the local environment inside which they operate and in turn create the conditions for conflict.
“While that is an evolving priority area for the Pensions Board, it also has strong intersections with our wider work: conflict dynamics will further exacerbate human-rights risks, and increasingly, local dynamics are also impacted by a changing climate.”
The Stewardship report points to 1000 instances of shareholder engagement, predominantly on the topics of climate change, mining safety, nature/biodiversity, modern slavery, “Big Tech”, executive remuneration, and sewage leaks into UK waterways.
The report also states that two-thirds of the Board’s shareholder votes on climate change in 2023 (64.3 per cent) went against management due to a misalignment with climate objectives.
The Board excluded 447 corporations from its portfolio, 53 on the grounds of climate-alignment, but most of which profited in a roundabout way from gambling (110) and alcohol (96), and defence and firearms (104). It also voted in 99.6 per cent of the shareholder ballots in 2023, and dissented from company management recommendations in 18.4 per cent of votes.
It reproduces a letter sent earlier this yr to the Archbishop of Canterbury by the comedian Joe Lycett, who called on the Pensions Board to disinvest from water corporations which might be spilling sewage (News, 23 February).
The report says: “Our engagement with water utility corporations continues into 2024, and we’ll report on progress next yr.”
By the tip of 2023, the Pensions fund was valued at £3.3 billion, up from £3.2 billion the previous yr, the Stewardship report says. Excluding index-linked gilts, the fund yielded a 7.3 per cent return (in comparison with a ten-year average of seven.8 per cent). Although the fund’s value is on the rise, it still has not regained its 2021 value of £3.7 billion.
In 2023, the most important proportion of assets within the common investment fund was index-linked gilts, valued at £704 million, up from £599 million in 2022. These are designed to closely match the income streams needed to pay pensions, the report says, and help to regulate the fund’s exposure to inflation and interest-rate risk.
Public equities, which was the most important proportion in 2022, when it was valued at £829 million, is now the second largest, at £700 million.
Mr Matthews said of this on Tuesday: “Given the improved funding position of the schemes, we have now taken the chance to scale back the extent of investment risk, which, in practical terms means we have now reduced our exposure to equities.”
