Wonga wall

Posted on: July 29th, 2013

Wonga wall

Wonga wall

The Wonga storm that hit on the weekend has generated more media coverage for ethical investment than we have seen for a long while. The debate also highlights the challenges for those who want to integrate ethical concerns with financial goals. Both are helpful conversation starters …

Yet the Archbishop of Canterbury has my sympathy. He is still fairly new to the role and he is a decent type.  Waging war on Wonga and then finding out that you invest in them is not ideal.

Archbishop Welby knows more about ethical investment than most people do, yet he is not a fund manager and he has to rely on others to make investment decisions for him.

The challenges he faces are not however unique to the Church of England. This is a common challenge for those running high profile  organisations.  His investment team has a duty to manage the Church pension scheme prudently – but he has a duty to lead the organisation – and that includes managing its reputation.  As such, like many other business and charity managers he has to navigate a myriad of ethical challenges and bring together different groups who may not even understand one another.

The Church may only indirectly invest £75,000 of their £5.2 billion in Wonga (if reports are correct) – and Wonga may be a technically sound investment, but is it morally acceptable? And if not – do morals matter? After all there are no prizes for being unable to meet pension or other liabilities.

As with any investment the options are binary – invest or disinvest. Ethical investors often have a third option ‘engage for change’ but if Wonga has a business model that is totally at odds with the Church’s beliefs then this may not be realistic.

Yet this is not a new debate for ethical investors. Stewardship investment analysts have previously struggled with the pros and cons of investing in Provident Financial and others, who, despite charging scarily high interest rates were seen as acceptable because borrowerss alternative options were considered far worse .  Loan sharks. This debate put Stewardship, a fund range shaped by Quaker and Methodist beliefs, at odds with many who were concerned about ‘Doorstep lending’ which included the ‘Church Poverty Action Group’ and others.

As one might expect Archbishop Welby has taken the Wonga situation seriously and is responding to criticism in an open and honest fashion, yet as I understand it he has to decide where to go from here.

Having worked behind the scenes with Stewardship and its ethical fund managers for many years I suspect the road ahead of him may be a bumpy one. Issues of this kind are rarely clear cut and I have often been surprised by who does and does not want strict ethical investment screens. There are a surprising number of people who work in industries that are heavily criticised by ethical investors who are deeply morally motivated – and there are other groups that you would expect to have strong views but simply do not. Stereotyping in this area is highly inadvisable and issues are often far more complex than on-lookers realise.

So if I were in the Church’s shoes right now I would probably start by considering the following:

  • Does our investment strategy dovetail with our campaign strategy/mission (and if not – should it)?
  • Are we at risk of incurring financial losses either by upsetting our supporters or if the value of the company we are criticising falls as a result of our campaign?  If so – what should be done?
  •  Can we, or should we work with Wonga (or others) to better understand the issues?
  •  Is there scope to effect change that may help meet our financial and ethical goals and benefit both parties and/or society?
  •  Is our ethical investment policy fit for purpose?

With regard to the final point, the Church’s published ethical policy may well not be the only ethical guidelines used by the Church’s various fund managers – but it is what is available to the media and others.

From what I have read (links below), the information that is in the public domain is does not appear to be terribly comprehensive or clear. To my mind – as well as making sense both financially and ethically – ethical policies should be transparent and easy for external parties to digest.

Identifying a few clear, negative exclusions that would bring investment policy into line with the Church’s wider aims is likely to be  well worth considering.  Fund managers can have a habit of over-egg the risks associate with doing this as it can take them out of their comfort zones (and benchmarks).  Yet it has long been recognised (eg in CC14) that it may be less risky to avoid certain stocks than to hold them for the benefit of hugging a benchmark.

In this particular case I would encourage an ethical policy review earlier rather than later.

And whilst I welcome the profile this is bringing ethical investment, I also hope that this will help focus attention on the rather bigger challenge of addressing poverty, in the UK, in 2013…