A seismic shift towards shareholder engagement by an organisation representing the world’s largest pool of institutional assets, potentially worth trillions of dollars, could be the ‘tipping point’ in responsible investment: the move to the mainstream.
The Amsterdam-based international interfaith movement, or 3iG as it is known, comprises representatives of the Buddhist, Christian, Hindu, Islamic, Jain, Jewish, Muslim, Sikh and Zoroastrian faiths. Its aim: to introduce “faith-consistent investment”, has prompted it to implement a radical switch from screening undesirable investments to prompting change in the companies whose shares its members holds
Michiel Hardon, a member of 3iG’s executive board as representative of the Geneva-based World Council of Churches, which itself has 348 member churches with an estimated congregation of 650 million Christians, is testament to this new active blend of faith and finance.
A former director at the International Monetary Fund, Hardon says if you look at 3iG’s constituent institutional holdings plus the additional private assets of believers, the total value of its impact could reach trillions of dollars: “The reason for moving away from negativescreening was that we felt it did not represent what we are as faith groups. It was also too costly. Faith groups have a vision of how the world should be and have a stewardship role to play. We believe this is more suited to positive engagement with companies. We want to do more than just say we don’t invest in gambling.”
One of his tasks is to co-ordinate the change from the traditional faith rationale of boycotting companies that do not match their values. This includes organising research and discussion forums to examine the costs of negative screening and the practicalities of engaging with companies: “We don’t manage assets here on behalf of faith groups and nor do we want to. We see ourselves as a knowledge centre for information and training. We aren’t proscriptive in terms of what asset managers or funds our members should be choosing.”
He says there is sufficient, credible research around to demonstrate that faith groups can engage and make profit responsibly: “We had our most recent board meeting in Washington DC at the start of May and we heard the successful example of the Methodist Church in the US, which has some $16bn (€11.8bn) in assets being run profitably through positive investment screens.”
In a sign of 3iG’s financial importance, presentations at the Washington meeting included future investment projections by the World Bank as well as disease prevention research from the World Health Organisation.
The 3iG board, which was formally set up in April 2005 under secretary general, Joost Douma, a former EU regional development head, meets twice a year and holds conference calls every month. Hardon says many of its larger member organisations, such as the Catholic and Methodist churches have highly proficient finance departments. The idea – straight out of most faith texts – is that the strong shall help the weak.
Hardon says the work of the New York-based Interfaith Centre on Corporate Responsibility (ICCR) has also been an influence on 3iG’s engagement tack. The ICCR represents 275 Protestant, Catholic and Jewish institutional investors with combined portfolios worth an estimated $100 billion and is highly active in the area of governance and shareholder activism.
Hardon says it is an active approach by faith investors which is not seen often in Europe: “One of our discussions is whether we might take up a similarly vigorous lobbying approach in the next five to ten years.”
For Hardon, the most important aspect of his work is to bring faiths together through finance.
“As an example, we recently had the chief economist of Bank of Israel at a seminar with other faiths including a representative of the Shinto religion, to debate the topic of microfinance funds.”
On a more practical level, he says the Lutheran Church in Sweden owns about 8% of the country’s forests along with the relevant husbandry and financial managementskills. They export this expertise to churches in Mozambique to create sustainable and commercially viable tree plantations. He says such skill sharing opportunities also exist in sectors such as water purification, renewable energy and sustainable housing.
“These are the partnerships we seek. Most faith organisations have huge pension funds to be invested for the long term. At the same time, beneficiaries expect a healthy annual return, so we have to find as many win-win situations as possible.”
Microfinance is highly topical since Bangladeshi economist, Dr Mohammad Younus, won the Nobel Peace Prize in 2006 for his work with Grameen Bank lending to the poor of Bangladesh. Hardon says the World Council of Churches has also been active in the field and will expand its activities: “We have a credit group with assets of some €300m in assets which has been investing for some decades in micro investment. We are in the process of finding more organisations to work with us, but we have to be careful. We have been approached by many international banks to work on these projects and we need to be sure of who we work with.”
One major goal of 3iG is to keep expanding the participating faiths. However, such important changes to faith investment are not without resistance: “Our view is that as faith groups we should be getting a good return on capital and we stand by the studies showing that some responsible investment strategies can give better returns. It’s not always an easy debate to work through within faith groups, but is a fascinating one. I, and the World Council of Churches, see this as missionary work, and churches live for missionary work!”