Ethical investment – greenwash or something that has real meaning

You might wonder how a Company which is committed to disinvestment from fossil fuels can invest in a coal burning power plant like this. But they are doing!

One of the things that I do that occupies a lot of my time but which I talk about rarely is to be the chair of LAMIT. This is the short version of the Local Authority Mutual Investment Trust. This is basically a series of funds which enables local authorities to effectively and safely invest in funds for the short, medium and long term.

Those funds are managed for us by a ‘City’ Company called CCLA. This in turn stands for Churches, Charities and Local Authorities. In other words, they manage funds for the various none-profit making sectors in the UK and currently have about £11 billion of funds in our control. This sounds a lot but is relatively small within the ‘City’ of London where some funds have £trillions invested.

Our investment funds are directed by Boards which are composed of people from the respective sectors. In the case of Councils 8 of the 12 directors are nominated by the UK’s 4 LGAs and the remaining Board members have direct local government experience. When we set investment aims, we set them in ways that are consistent with what we know to be the ethical requirements of the LGAs who in turn understand the requirements of their member councils.

Our Church funds are largely held for the Church of England where the Board is guided by active partnership with the Church’s own fund managers. We are about to launch a fund for the Catholic Church which is based on extensive discussion with the UK’s Catholic Bishops and their advisers.

Our ownership structure means that we, and CCLA who act for us, take ethical investment seriously. It is the very cause of our existence and is the central tenet of the way that we do business.

I have been delighted recently that more and more people that I talk are talking to me about how they want their money to properly invested. They don’t want to invest in companies that despoil the environment, who invest in cheap or slave labour; who don’t take women’s and labour rights as a part of their work or who are exploitative in other ways. You might think that this has nothing to do with you because you are not an investor. I bet you are! Anyone who pays into a private pension or many public sector pensions like council ones, are effectively share or bond holders because that’s where your money is invested until you need it.

The big pension and insurance companies are aware of these conversations and are increasingly marketing their products as having an ethical framework and basis. The question is, “do they really mean it or is it just a marketing ploy?”

BlackRock, the world’s largest asset manager, holds investments worth $85bn in coal companies, a year after it promised to sell most of its shares in producers of the fossil fuel.

A loophole in the asset manager’s policy means it is still allowed to hold shares in companies that earn less than a quarter of their revenues from coal, meaning it has held on to shares or bonds from some of the world’s biggest coalminers and polluters. Those companies included the Indian conglomerate Adani, the UK-listed commodities companies BHP and Glencore, and the German energy company RWE, according to research by Reclaim Finance and Urgewald, two campaign groups.

Coal production is seen as one of the dirtiest ways of generating power, and the Intergovernmental Panel on Climate Change calculated that coal-fired power generation would have to be all but eliminated by 2050 to prevent global heating of more than 1.5°C.

Investors have gradually taken note, and BlackRock’s coal divestment pledge, first made in January 2020, was hailed by activists as a victory. Environmental groups hoped that other asset managers would follow the lead of BlackRock, which managed assets worth $7.8tn (£5.7tn) at the end of September.

The campaigners who carried out the latest research have now called for the CEO of BlackRock, Larry Fink, to divest fully from coal, including from its $24bn in assets in companies planning to expand coal production, such as Japan’s Sumitomo and Korea’s Kepco.

“One year on, it’s hard to see Larry Fink’s sustainability commitment as anything other than greenwashing,” said Lara Cuvelier, a campaigner at Reclaim Finance. “If he really wants BlackRock to be a climate leader instead of a climate pariah, he needs to start aligning green words with green deeds, and direct BlackRock’s awesome financial power towards a sustainable future. After the hottest year on record, the bare minimum for BlackRock is to get out of coal once and for all.”

BlackRock said it has completely divested all companies with more than a quarter of thermal coal revenues from active investment strategies, and that it offers clients the choice of excluding coal in its index products, which track lists of companies such as London’s FTSE 100.

Just compare that with the practical actions of CCLA.

It is working extensively not only in its own work but by leading actions on behalf of much bigger investment firms to deal with issues ranging from modern slavery to the mental health of employees. This work on mental health started in 2019 but has really come to the fore in the pandemic circumstances within which firms have been operating for the past year. The following part of this blog has been written for an investment forum, Room 101, by one of CCLAs ethical leads, Amy Brown

The development of CCLA’s mental health benchmark

We are living through a public health emergency in more ways than one. Physical health and safety may be consuming current public discourse, but we are also facing an unprecedented mental health crisis.

Pre-pandemic research showed that poor mental health costs the government between £24bn and £27bn per year. That was before Covid-19. Government-enforced lockdowns, rigorous social distancing measures and strict quarantine rules have resulted in a new era of unique psychological distress. A report by Simetrica-Jacobs and the London School of Economics estimates the daily wellbeing cost to adults during this time at £2.25bn. Or £43 per adult per day.

So many of us are now under a cloud as we struggle through the pandemic. Companies need to be aware of the problems faced by their staff.

Why is this relevant to investors?

As investors, we want the companies in which we invest to be successful. Poor mental health in the workplace costs employers in the private sector an average of £1,652 per employee. This is for every employee. Sickness absence, combined with “presenteeism”, staff turnover, and “leaveism” all contribute.

We believe that poor mental health represents an obstacle to corporate success. Put simply, employers are losing billions of pounds because employees are less productive, off sick or leaving work all together.

What is the opportunity?

Local authorities play a key remedial role in supporting those with poor mental health in their communities. They also have a duty to safeguard the mental wellbeing of their own two million-strong workforce. Yet there is a third avenue—frequently forgotten—that can help to address the problem from the ground.

As investors, with circa £46bn collectively, local authorities have an opportunity to use their influence as stakeholders to improve the way that businesses approach the health of their people.

Why take this opportunity? Because as guardians of public money, they have a moral and economic duty to push for positive change. Because irrespective of its cause, the workplace is a setting that can assist in the identification of mental illness and facilitation of proper treatment. Because creating a positive environment for mental health costs less than failing to do so: the average return to employers for every £1 spent is £5.

CCLA’s mental health engagement work

We began our mental health programme in February 2019. Using the recommendations set out by the government commissioned Thriving at work report, and the input of an advisory committee, we created a set of best-practice measures for companies to address. On discussing these with some of our investee companies, it quickly became clear that we were the only investors asking questions about workplace wellbeing.

In April 2020, in the thick of the first Covid-19 outbreak, we built a coalition of investors with £2.2trn in assets under management and wrote on their behalf to the CEO of every FTSE 100 company. The letter urged these 100 leaders to protect the mental health of their 4.7 million employees during the pandemic.

The value of positive influence

Of the 100 companies targeted, 74 responded. We were encouraged in many ways; though there was little commonality in approach, insufficient monitoring, and a lack of commitment by senior leaders. Our work confirmed our belief that poor mental health is a systemic—rather than company-specific— problem. It requires greater pressure from stakeholders.

In response, we are building the CCLA Corporate Mental Health Benchmark. The benchmark will act as a framework for investors to assess how companies compare on safeguarding the wellbeing of their workforce. By introducing a new element of competition, it will also incentivise companies to address poor workplace mental health head on.

CCLA would love to hear from you

We are working in partnership with Chronos Sustainability in building the benchmark and are delighted to have the support of mental health charity, Mind, and Lord Dennis Stevenson as we take our next steps.

We are running a public consultation into the design and scope of the benchmark, which will be live until the end of January 2021. If you would like to contribute, or for more information, please visit CCLA.

My Plea to you!

Just to make clear I don’t get paid for my work with CCLA which I do on behalf of the LGA. So when I ask you to consider the following two things I won’t be getting a commission if you follow the first piece of advice!!

Firstly, if you are someone who works within the Church, Charity or local authority sectors please find out whether or not your organisation is rising to the investment challenges of good ethical investment. Does it really mean it – is it as good as probing the organisations it invests with a s CCLA is. Of course, the next question has to be:

Secondly, is your organisation invested within CCLA already and if not why not. This is particularly true for this within the Catholic Church whose funds will be launched in April.

On top of these two there is a further question for us as individuals. Are the bits of money that we have for savings and pensions doing the right things for us and the communities we live in. The little bit of cash that Erica and I have is kept with the Lodge Lane Credit Union. We make a decent return on it by way of dividend but just as importantly for us that money is lent to people in deprived parts of Liverpool as easily accessible and relatively cheap loans which release them from the fear of loan sharks and spivs.

Please note that this blog is a personal one and all thoughts in it, unless attributed to someone else, are my own and not necessarily those of LAMIT or CCLA.

About richardkemp

Leader of the Liberal Democrats in Liverpool. Deputy Chair and Lib Dem Spokesperson on the LGA Community Wellbeing Board. Married to the lovely Cllr Erica Kemp CBE with three children and four grandchildren.
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