According to a report in the Times this week, Church uses shareholder power to sway oil giant. Of course, the activist investor is hardly a new phenomenon, but it is interesting to see the Church of England enter this particular fray.
Many investors are quite passive, ignoring invitations to AGMs (or, at most, casting their proxy votes as the Board recommends), and just selling their shares when they need money or the price is right (even then, I doubt that most small shareholders check the share price frequently). But shareholders are the owners of the company and, as such, have the ultimate power of control over the directors.
The typical activist investor, if indeed there is such a beast, builds up a significant shareholding (a few percent of a large organisation) in a company they see has been underperforming but has greater potential, and lobbies for change. This may be the appointment of one or more directors of their choosing or a break-up of the company. Whatever the reason, the intention is to make a profit.
The second type of activist is the person or organisation that buys a minimal number of shares simply to give them the right to attend the AGM, from where they may harangue the management on an issue about which they feel strongly. The C of E fits into this category in terms of philosophy – their lobbying is for ethical rather than financial reasons – but they are an institutional shareholder, and a significant one at that, with £6.7bn invested. If they represent the future for institutional investing, company boards may be in for a harder time than usual.
The headline refers to the Church’s £5.8 million shareholding in ExxonMobil, the world’s largest oil company. They have a proposal going to vote at the AGM in May calling on the board to publish annual assessments of the impact on the company of implementing the climate deal agreed in Paris in December, intended to restrict the rise in average temperatures to a maximum of 2° above the pre-industrial norm.
Without getting involved in a discussion of the feasibility of such an outcome, suffice it to say that the expectation is that, in the event of such a policy being carried through, at least part of what are currently designated as valuable oil reserves would fall into the category of ‘stranded assets’. The argument goes that, if the 2° target is to be met, then there is only a certain amount of carbon dioxide that can safely be released into the atmosphere, and hence a limit on the total quantity of fossil fuels that can be burnt.
The Church managed to get BP and Shell to put similar proposals to the vote last year, but Exxon is a tougher nut to crack and has resisted this and other climate-related motions. However, this time the US Securities and Exchange Commission ruled that the company could not prevent the motion from being put to a vote.
It is perhaps to be expected that the Church of England (and, indeed, other religious bodies) might take a moral stance on some issues and behave in this way. Less predictable is the support of other even larger and more mainstream institutional investors including, according to the story, AXA Investment Management, BNP Paribas and Legal and General.
These institutions are responsible for managing many hundreds of billions of pounds of pensions and other savings, with a remit to achieve the best return for their clients. For those who want an ‘ethical’ investment, there are plenty of funds around that avoid buying shares in, for example, tobacco companies or arms manufacturers.
For those who disapprove of fossil fuels, there are also funds around that invest in ‘green’ energy, although their value is almost entirely at the whim of government and the amount of public subsidy they choose to grant. It could be argued that large institutional investors have no business making ethical statements of this kind when their business is to make money for their clients.
On the face of it, it seems more logical for the Church (or any other investor) to sell their shares in companies they are less than happy about. Indeed, the church commissioners have previously disposed of their investments in companies mining coal or producing oil from tar sands, following activist pressure.
They could equally well have divested from oil companies, including Exxon. However, the church commissioners are also under an obligation to achieve the best return on their investments in the long term, which introduces a point of conflict between financial and ethical considerations. Where should they draw the line? There may be other campaigners who would want them to go much further. How about banks (if anyone still considers them a good investment) or food manufacturers, given the current worries about obesity and the evils of sugar?
Is a strictly ethical investment policy in fact compatible with the requirement to achieve good financial returns? There are limits, of course, otherwise we might all be tempted to invest in drug smuggling. There are also legitimate business areas such as tobacco and arms that most people would at least want the choice of saying no to. But is conventional energy a step too far?
In the case of ExxonMobil, the church commissioners are keeping invested while trying to shift how the company operates. If they succeed, they might wilfully reduce the value of their investment, which would itself be unethical given what they are employed to do. If, however, they don’t succeed, then this looks more like window-dressing for the sake of public image.
If ‘ethical’ investors really want to encourage a shift away from fossil fuels, they should be buying shares in companies that may provide the energy technologies of tomorrow, rather than trying to force a move towards greater use of solar and wind technologies that are simply not fit for purpose in a modern society. That would indeed be a brave move, and one we could all applaud.