The Church Commissioners for England, the charity which manages the Church of England’s £8.3bn investment fund, made the news last week for its continued investment in Amazon.
This information was already in the public domain – Amazon is listed in the charity’s latest accounts as one of its 20 most valuable equity holdings – but the charity was challenged over it after Archbishop of Canterbury Justin Welby gave a speech last Wednesday accusing the firm of "leeching off the taxpayer".
Welby told the Trades Union Congress (TUC) last Wednesday: “When vast companies like Amazon, and other online traders, the new industries, can get away with paying almost nothing in tax, there is something wrong with the tax system.”
The implied accusation by the news coverage was therefore of hypocrisy on the Church’s part for not practising what it preaches.
However, the charity issued a statement in response to the news stories saying it had no intention to divest from Amazon and that it would instead try to influence the company’s policies through its role as a shareholder.
A spokesperson said: “We have previously been on the record that we consider aggressive tax avoidance or abusive tax arrangements to be both a business risk and an ethical issue.
“As with other issues, we take the view that it is more effective to be in the room with these companies seeking change as an active shareholder than speaking from the side-lines.”
The Church Commissioners have decided the best way for them to change Amazon’s tax avoidance policies is not to divest, but to engage in shareholder activism.
Shareholders such as the Church Commissioners are given voting rights on key issues regarding a corporation’s behaviour. This can include votes on the company’s workers' rights policies, wage structure and environmental issues. If the Church Commissioners were to divest, they would lose their shareholder voting rights so would not be able to lobby internally for change in the same way.
The Church Commissioners’ shareholder activism in other companies includes its voting against the re-election of retailer Sports Direct’s chairman Keith Hellawell and chief executive Mark Ashley in 2017. It also voted against a proposed £11m back payment to Ashley's brother and former Sports Direct IT director, John Ashley.
Also last year, the Commissioners successfully lobbied ExxonMobil to set out how the business model will be affected by global efforts to limit climate change.
When to divest?
Last week’s story was not the first time that the Church Commissioners’ investment practices have been questioned in the national press.
In a similar sequence of events in 2013, Welby made a speech in which he announced plans to create a network of credit unions that would force payday lenders such as Wonga out of business.
He was then “embarrassed” to learn that the Church held indirect investments in Wonga, which he estimated were worth less than £100,000. The charity subsequently withdrew its investment in the company a year later. And now, following Wonga’s collapse, it is considering helping to convene a purchase of the company’s £400m loan book.
So why did it divest from Wonga but not Amazon? Welby’s comments on Wonga were more strongly negative than the ones he made about Amazon. Regarding Wonga, he said the company should not even exist, so it made no sense for the Church Commissioners to try and influence its corporate policies. Whereas Welby expressed no problem with Amazon’s primary function of being an online retailer.
However, the problem with a charity being an active shareholder in a firm whose policies it disagrees with, it that it is still making money from its investment.
This can give the impression to the general public that the charity might not actually be as strongly opposed to the company’s policies as it professes. Or in this case, that Welby’s views are not matched by the charity’s investment policies.
Charities are increasingly under pressure to ensure that all the money they spend has been raised ethically, and can come in for harsh criticism if they are not scrupulous about this.
At the 2018 Charity Investment Forum in March this year, run by our title Charity Finance magazine, many investment managers urged charities not to divest from fossil fuels and instead to engage in shareholder activism while remaining invested in energy companies. Part of their reason for doing so is that fossil fuel companies can still generate returns, so it can benefit the charity financially to be a shareholder activist instead of to divest.
This is difficult ground for a charity to tread. Mainstream media’s favourite line of attack is to expose virtue signalling charities as greedy hypocrites.
If a charity does decide to become an activist shareholder in a company whose values clash with its own, it needs to be able to communicate the benefits of doing so, otherwise it can be seen as trying to have its cake and eat it.
The Church Commissioners have been publicly praised for their successful shareholder activism work, particularly in Sports Direct, so such a strategy can generate positive news when evidence is produced of a shareholder’s lobbying work.
But regardless of news coverage, choosing whether to divest or to become a shareholder activist should really come down to whether the charity feels it will be able to effect change.
This is easier when you are a large organisation, like the Church Commissioners, with a substantial investment in a company, because you have more clout.
However, there have been instances of smaller charities successfully doing this too. In 2015, a group of more than 50 charitable investors in Shell successfully lobbied for it to support a resolution on climate change.
And this action was supported by campaigning charity ShareAction, which specialises in helping investors to influence the behaviour of companies.