Among others, the Archdiocese of Toronto has begun to take that advice. Beginning in 2015, the archdiocese instructed its investment managers to consider environmental, social and governance factors (ESG) before making investment decisions with its master trust fund worth $528 million.
Canada’s largest and richest archdiocese has also joined the Shareholder Association for Research and Education — SHARE. The organization consists of more than 30 institutional investors across Canada with combined assets under management of more than $14 billion, including the United Church of Canada and Canadian Labour Congress.
Membership in SHARE gives the Archdiocese of Toronto the opportunity to be part of resolutions presented at corporate annual general meetings demanding changes in corporate practice and policies.
Chancellor of Temporal Affairs Jim Milway is aware the archdiocese is not breaking any new ground. The Loretto Sisters, the Sisters of St. Joseph and the Basilians, among others, paved the way years ago.
But Milway is very clear about why the archdiocese has taken these steps.
“It’s something we should do because we’re Catholic,” Milway told The Catholic Register.
Toronto’s decision to fine-tune its investing style may also represent an opportunity for smaller dioceses around Ontario. Peterborough has already decided to throw its investment funds into the Archdiocese of Toronto’s master trust, in part based on Toronto’s adoption of ESG policies. Milway believes the arrangement may be attractive to other smaller dioceses who would not have enough money to attract the sort of industry-dominating investment managers that Toronto has overseeing its investments.
The archdiocese’s master trust consists of two large sources of funds — $239 million invested for the Roman Catholic Episcopal Corporation of Toronto covering everything from St. Augustine’s Seminary to ShareLife and the Shepherd’s Trust, and $289 million from Catholic Cemeteries.
The master trust is divided roughly into three types of investment, each managed by different firms: Canadian equities (30 per cent), fixed income instruments like government and corporate bonds (30 per cent), and international (mainly U.S.) investments (40 per cent).
The archdiocese’s investment advisory committee meets quarterly to review results.
“Now at every meeting we (also) talk about what’s going on with ESG,” said Milway. “That’s now part of the agenda.”
While religious institutions have always been an important part of responsible or ethical investing, the move by the Archdiocese of Toronto is still significant, said Responsible Investment Association CEO Deb Abbey.
“The churches have been leaders in aligning their investments with the mission of their organizations for centuries,” Abbey said in an email.
What’s changed is that responsible investing now represents conservative, mainstream investing.
“This is increasingly the most conservative, ie. the lowest risk approach to investing,” said Abbey. “More and more organizations are embracing responsible investment because it aligns with their duties as trustees and administrators.”
It’s an approach that goes beyond passive monitoring of corporate policies and behaviour, said SHARE executive director Peter Chapman.
“The number of religious institutions working together through SHARE is steadily growing,” Chapman said.
Last April, SHARE brought together 53 religious investors representing $2 billion to call on the Government of Canada to set a national price for carbon emissions.
“We are creating a lively meeting place for many different kinds of investors (foundations, pension funds, mutual funds, trusts) who share a common commitment to shareholder stewardship and incorporating social and environmental considerations into their investment practices,” said Chapman in an email.
Shareholder activism, along with consideration of ESG factors, is now standard practice for institutional investors.
“Whether we want to or not, it’s the way the whole industry is going. It’s the way we have to do this,” Milway said.
The Archdiocese of Toronto has not gone as far as the Canadian Jesuits or the Catherine Donnelly Foundation set up by the Sisters of Service or the United Church of Canada, all of which have decided to pull their investments entirely from greenhouse-gas producing oil, natural gas and coal stocks.
Given the extent to which Canadian stock markets and much of the economy are intertwined with big oil, Milway wonders whether it is really possible to ever disentangle Canadian investments from oil.
Others have been more aggressive in their divestment strategies.
In October, seven Catholic groups based on five continents chose the Feast of St. Francis of Assisi to simultaneously announce their intention to divest from fossil fuels, including Canada’s Jesuits.
For the Jesuits, it wasn’t an abstract exercise in moral theology, but a pressing issue of justice in our time, according to Canadian Jesuit provincial superior Fr. Peter Bisson.
“Climate change is already affecting poor and marginalized communities globally, through drought, rising sea levels, famine and extreme weather. We are called to take a stand,” Bisson said just after the divestment announcement.
Genus Capital Management Inc., a 28-year-old investment management firm with more than $1 billion under management, claims to be “at the forefront of Canada’s Divest-Invest movement.”
Partner and president John-Paul Harrison says there is nothing radical about the trend toward ethical investing, at least not anymore.
“(In the past) people felt we shouldn’t do socially responsible investing because that isn’t smart investing,” he told The Register. “I think some people still believe that. But more and more people believe we can have a portfolio that aligns with our values. That’s a good thing. But also, socially responsible investing is good investing…. It’s totally normal now.”
Milway agreed, noting that investments for the archdiocese “have been good. They beat the benchmark.”
Ethical and socially responsible investing goes far beyond just the issue of climate change. As of March 2016, more than 1,500 institutional investors had signed onto the United Nations Principles for Responsible Investment. Combined they represent over $60 trillion (U.S.) in investments and all have pledged to include environmental, social and governance issues in investment decisions.
The subject hasn’t come up for the Archdiocese of Toronto, but Milway said he’s open to signing onto the UNPRI.
Perhaps no pope has more loudly insisted that “money must serve, not rule!” than Pope Francis.
“In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenceless before the interests of a deified market,” Francis wrote in his 2015 encyclical Laudato Si’.
At Genus Capital, Harrison sees the pressure for ethical investing coming from ordinary people rather than popes.
“Some organizations are taking heat,” he said. “They’ve got all this money as an organization. They’re getting a little bit of return on that money and doing some good with the returns, with the disbursement quotas. Now people are saying, ‘Is there no way to do good with all the money that is sitting there?’ ”
Under consideration
Since 2015, the Archdiocese of Toronto investment managers have incorporated environmental, social and governance (ESG) factors into the archdiocese’s investment strategy. “We should be faithful to the Gospel as we invest,” reads the archdiocese’s instructions to managers. The factors considered include:
• Environment: Minimization or elimination of a company’s impact on pollution, climate change and other potential negative impact; minimization or elimination of environmental liabilities; biodiversity and habitat protection; water scarcity.
• Social: Human rights, community impacts, health and safety of products and processes; child and forced labour, employee relations.
• Governance: Executive compensation, shareholder rights, board independence, risk identification and assessment.