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IPE special report May 2018

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A Christian institutional investor

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  • A Christian institutional investor
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A year ago the Church of Sweden implemented a new investment policy which includes a more sophisticated, layered approach to its ethical investing. Brendan Maton spoke with CIO Anders Thorendal (pictured right)

Svenska Kyrkan, the Church of Sweden, is a very popular institution. In a country with just nine million inhabitants, the Church claims more than seven million as members.

As one might expect of a well-rooted, nationwide organisation, the Church needs more than just spiritual resources, and these include a SEK4.5bn (€450m) general fund and a SEK7.7bn (€770m) pension fund.

What might be surprising, however, is to hear the Church's treasurer, Anders Thorendal, say that it recognises the rights of states to defend themselves and, consequently, the need for a weapons industry.

Numerous Biblical sayings spring to mind as possible responses, such as: "Blessed are the peacemakers for they shall be called the sons of God."

But Thorendal seems prepared to interpret peacemakers in the context of a ‘just war'. He believes that what matters more is not the manufacture of weapons but who ends up using them and how.

"Who is the recipient of the sales of arms?" he asks. This kind of question is one that now has to be answered by the managers of Svenska Kyrkan's three major funds, notably Sustainable Asset Management (SAM), RCM and Generation Investment Management, chaired by former US vice president, Al Gore.

All three managers are responsible for global equities, and the Church also has an internal distribution network which encourages parishes and other units to invest ethically. SAM is the first global equity manager to be set up in these funds, operated under SEB's Ethos brand.

If Swedish Lutherans will invest more in foreign companies in the future, it is hardly a longstanding tradition. Before 2000, the Swedish State and Church were joined as one, and mandates for foreign asset managers were unheard of. A wide-ranging public agency, Kammarkollegiet, still remains responsible for much of the investment.

In its short, eight-year independence, the pension fund has held less than 2% directly in equities - run by local manager Carnegie Asset Management. The rest of its target 35% equity exposure has come from derivatives. This indirect exposure is being reduced as the ethical mandates grow, and it is worth noting that the various Church funds like to work together because they make cost-savings on the mandates.

This appeal is secondary, however, to the fundamental revision of the Church's ethical policy on investments, which started in 2006, and which applies to all its equity holdings.

Thorendal's views on arms manufacturers is not off-the-cuff but the consquence of a lot of thinking and analysis on how to invest in line with the Church's beliefs. Drawn from Biblical exegesis, two starting points were decided: the principle of human dignity and the concept of stewardship.

Respect for human dignity has both positive and negative duties. The latter involve avoiding, and seeking to avoid, exploitation. The former are perhaps more interesting because they ask for active measures to promote the well-being of others. Financing the livelihood of others is one such measure that plays well to capitalism.

‘Stewardship' the Church interprets as having a received task. In terms of investing, the task is to take care of others and the world we live in. As such, the financial assets of the Church enable this task to be done. They are gifts from God. There is a strong onus on sustainability because if stewardship is performed well, then one invests with a mind to leave the world a better place for one's efforts; a spiritual form of intra-generational solidarity.

The principle of dignity and the concept of stewardship recognise the active responsibility of Christian investors. The policies founded on these twin foundations replaced a form of ethical investing that was essentially negative screening.

Negative screening, which forbids investment in the likes of armaments manufacturers and businesses earning profits from retail gambling, is often described as the original socially responsible investing (SRI). The policy does not entertain the commercial viability or attractiveness of companies that engage in the forbidden activities - which is not a fixed list per se but varies in line with the asset owner's ethics. Those sectors are simply removed, or screened out of the eligible investment universe at first hand.

Negative screening is not Neanderthal and it has not been entirely usurped by other approaches to SRI. This autumn, several major European investors, including Sweden's national buffer funds decided to screen out manufacturers of landmines. The blacklist included the likes of Lockheed-Martin of the US, for whom landmine-related commerce is a small part of its overall revenues although it is the world's largest weapons manufacturer.

Lockheed-Martin had never been a Church investment, so it was not in the public forefront of the anti-landmine ban. However, it faced a more general dilemma of how to be more active in its role in the world. Negative screening was tantamount to ignoring problems rather than addressing them, with a fixation on simple metrics rather than a more holistic consideration of a business and its operating environment.

Of course, one could argue that there is no inherent contradiction between negative screening and active selection, as is the case with landmines. The Church funds have also kept in place a ban on all producers of pornography, as well as keeping a watchful eye on distributors of such imagery.

But the new policy generally engenders further layers of effort; notably evaluating which stocks make best use of capital. Of course, there are the standard financial measurements of this effort, but also extra-financial considerations such as how investee companies treat natural capital, such as the earth's resources; and social capital, such as suppliers and the local population.

A number of organisations work with the Church of Sweden to scrutinise its holdings. These began with the likes of FairTrade and the Church Central Offices' own department of training, research and culture. But for the new policy, others with greater experience in asset management were introduced, including GES and Ethix SRI Advisors.

"The Church of Sweden's policy for responsible investment implies a focus on positive criteria," says Ulrika Hasselgren of Ethix SRI Advisors. "It is about the ability to identify good companies that will both contribute to sustainable global development and provide a good dividend."

This helps explains why Thorendal is more concerned as to who receives armaments rather than who makes them.

The preparatory papers for the new policy say that the Christian Church has accepted the use of just military force since the fourth century AD; and also the presence of many practising Christians in the armed forces. At the same time it notes Jesus's exhortation ‘to turn the other cheek'.

The new policy is most aware of the moral dilemmas and Thorendal confesses that it is not universally accepted. He is at pains to clarify that the kind of aggression he is talking about would be the necessary defence of democracy. "I accept that this is controversial subject and we will of course have to listen to our members and how they view it," he says.

As with any organisation that has both wealth and a conscience in the modern world, the Church faces dilemmas. But Thorendal sees avenues of optimism. The Church is evangelical and has established missions in Africa. There are parishioner funds, rather than the pension or general fund, invested in microfinance companies such as Netherlands-based Oiko Credit, which has a religious provenance.

"We can see which companies are suitable because they are helping development in Africa, for example," says Thorendal.

As with its work in Africa - where there seems to be a shared purpose between investments and evangelism, even though the two efforts are conducted completely separately - he sees an opportunity for the funds to invest in alternative energy. This is part of SAM's remit.

The reformulated investment policy is now a year old - although its investment target is still to grow capital by 4% more than inflation over the medium term.

The boards of the fund and the Church are learning. The obligation to pensioners is legally binding and clearly not everyone is happy with the alteration to the ethical policy, but there remains a desire to do good as a Christian institutional investor.

As treasurer and CIO for the Church of Sweden from 2005, Thorendal's responsibilities include the Church of Sweden's asset management, treasury and cash management operations. He was previously head of operations and administration of Ericsson Treasury Services, the internal bank of the Swedish international telecom group. Thorendal has 10 years of experience in qualified treasury positions in the international groups of Ericsson, Tetra Laval and Perstorp and spent over seven years in London and Brussels as senior consultant on various international assignments in the areas of treasury management and working capital management. He was educated at the University of Uppsala.

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