JUDGE

Catholics are Leading the Way: Choosing Divestment

More than 300 Catholic institutions worldwide have pledged to cease investment in coal, oil or gas.  

Catholic commitments lead the divestment movement, representing a third of divestment announcements from all faith traditions. The Canadian stock market is overweight energy stocks, and politicians and the media present an economy that is so intertwined with an energy sector dependent on fossil fuels, that it would be almost impossible to shift to an eco-economy.  

However, it is not ability that is lacking, it is imaginative vision for a carbon free future. By choosing divestment, your financial decisions can play a role in changing the narrative surrounding the economy in this country. There is no one size fits all investment policy, so this section will help you to customize a policy that’s right for you. 

Choosing Divestment

Many Catholics organizations are already shaping the vision of a new, clean Canadian economy, and are using their financial assets to drive the transition. The Catherine Donnelly Foundation, the Jesuits of Canada, Scarboro Missions, and the Sisters of Institute Notre-Dame de Bon Conseil Montreal are some of the Canadian Catholic organizations who began their divestment journeys as early as 2014. Our step-by-step guide for discernment will help to get you started on your own divestment journey.

The Process of Discernment 

Once your community or organization has begun contemplating divestment, your discernment process has begun. Below you will find a series of questions borrowed from Trócaire, Maynooth Ireland. These questions helped guide the National Bishop’s Conferences in Ireland and Scotland to come to a decision about divestment.

We suggest organizing a series of 5 Divestment Discernment Gatherings in your organization to work through the questions in each stage.

Step 1 Joining the Dots: Your Mission, Climate Change and Finances

Your first task will be to look inward at your own organization in order to examine how your values define you, your work, and those who work with you. In Laudato Si’, Pope Francis asks us all to align our thoughts and efforts with care of creation and of each other. This step will help you to look at how your current investments flow from who you are to what you are called to do.

Step 1 – Questions for religious leaders in Examining Climate Change and Your Organization:

1. What values and beliefs are important to our organization?
2. What values and beliefs are important to our beneficiaries and other close stakeholders?
3. What issues do we address through our ministries and congregations?
4. Is there a link between action on climate change and our values and beliefs?
5. Is climate change related to the issues we address through our ministries?
6. What do we know, believe and agree on about the investment risks associated with climate change?
7. Are those beliefs reflected in our current investment strategy and risk assessment approach?
8. What do we want to achieve from a divestment or decarbonization policy in relation to our current investment strategy and risk assessment approach?

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Get On the Same Page

Be sure that the members of your gatherings have at least a basic understanding of climate change and its impact on human life and the rest of creation. You can show videos and information from the resources of this toolkit at your sessions, or ask attendees to review the SEE section of this toolkit before your first session.

Step 2 Commit: Create a Solid Policy

Your next task will be to review your existing investment strategy in light of support for a healthy global climate. You will determine the vision of the future you want your strategy to support and amend your policy to satisfy that goal. You may wish to consult with a qualified financial advisor during this stage.

Visit the Financial Resources of the Toolkit Resources for a list of organizations and articles to inform your discussions in this step.

Step 2 – Questions for religious leaders to consider in writing your policy:

1. Reflecting on questions 1 to 5 in Step 1, how does a decarbonization strategy, including fossil fuel divestment, reinforce or strengthen our organization’s values and beliefs, grant-making and mission?
2. Reflecting on questions 6 to 8 in Step 1, how does this strategy strengthen or reinforce our current investment strategy and risk assessment approach?
3. Are there any other outcomes we might achieve through such a strategy?
4. How will we assess our progress and achievements?
5. Who needs to be consulted about, or asked to contribute to the policy?
6. To which asset classes will we apply the policy? For example, equities, international equities, property, fixed interest, alternatives, infrastructure, sovereign and corporate debt?
7. What methodologies will we use? For example:
   • complete or partial divestment
   • positive investment in low carbon assets across one or various asset classes
   • hedging
   • reducing our carbon footprint across the whole portfolio
   • specific sector or company weightings
   • using carbon indices
   • engaging investee companies about their transition to a net zero carbon economy?
8. Which sectors do we include in this strategy? For example, all sectors, only high carbon sectors (for divestment), only very low carbon sectors (for investment) approach?
9. How is the risk of climate change accounted for in our new policy?
10. Which services or suppliers do we engage? For example, index provider, asset consultant, wealth adviser, fund manager, carbon footprint consultant, inhouse analyst?

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Understand The Role of an Investment Policy

Your investment policy should communicate your understanding of investment risk and outline which sectors you wish to avoid or support. It will act as a guide for your finance managers when choosing investments.

Step 3 Action: Implement the Policy

During this step you will address your organization’s financial strategy and legal needs. You should look at whether there are any existing governing documents or legal requirements that need to be referenced in your policy. You should also consider whether any currently held agreements require amendment. While you work on this, committee members can begin contemplating a communications strategy around the dissemination of the policy.

Step 3 – Questions for religious leaders to consider in developing an implementation plan:

1. When do we sign off on the policy?
2. What are our key performance indicators for the strategy – financial performance, carbon reduction, other KPIs?
3. What resources do we need to implement the strategy successfully?
4. What is our timeframe?
5. Are there any governing documents or legal and reporting requirements we need to make reference to the policy?
6. How do we appoint managers, advisers and services, if necessary?
7. Do we need to issue amendments to our existing Investment Management Agreements and communicate this to appointed investment managers or in-house investment staff?
8. Do we create a wider communications strategy to announce the policy?

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Consider Your Timing

When implementing a new policy, check for timeline restrictions on your current investments. This will help guide you to the soonest time period in which you can fully implement your new policy.

Step 4 Report and Review

In this phase you will examine the best approach for reporting on your policy. Consider what you want to report on, for example, financial performance, human resource implications, and carbon reductions achieved. You’ll also want to examine how your policy strengthens or reinforces your values, financial donation intentions, and the goals of your strategy. During this stage, take some time to decide what you want to report on internally to your members, and what information you would like to share externally.

Step 4 – Questions for religious leaders to consider for monitoring, reviewing and reporting your policy:

1. What approach do we use for our reporting – basic disclosure, narrative reporting, storytelling?
2. What do we report on? For example, financial performance and carbon reduction achieved? How the policy has strengthened or reinforced our values, beliefs, grant-making, mission and strategy?
3. When and how often do we review our investment methodology to determine if it is still effective?
4. When and how often do we evaluate the performance of participating fund managers, asset consultants, advisers and research providers?
5. What costs are we allocating for the strategy and for resources?
6. How do we communicate the results and who is the intended audience?

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Don't Forget to Set a Date

Make sure that you plan to periodically review your investment methodology and conduct a performance evaluation of your investments. On this date, update your ongoing communications to reflect any changes or new information regarding your investment strategy.

Step 5 Accelerating Change – Making your Decision Public

While the ethical integrity of your decision to divest from fossil fuel has intrinsic value, much of the beneficial impact is found in the prophetic message such a decision sends to society. These financial decisions involved significant moral reflection and were made with the intention of strengthening action in favour of the common good. By making your decision to divest public, you add momentum to the change created by the divestment movement.

Part of Scarboro Missions implementation process was to write a letter directly to the companies they were divesting from, explaining the rationale behind their decision. They then made that letter public on their website.

Visit the Pledge your Intentions section in ACT.

Questions for religious leaders to consider when making your decision public:

1. How can we use our decision to divest and decarbonize to support the bigger change in society to tackle climate change?
2. How much information do we want to make public?
3. Are there legal or confidentiality considerations we must consider?
4. Who are our allies locally and globally in publicizing our decision? Can we join with them?
5. Is there a publicity hook we can use to decide on when to make our decision public?
6. How will we deal with any questions from the public or requests for further information from the media?

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Did You Know?

The Laudato Si’ Movement’s divestment commitment includes an option to declare your intention to divest without disclosing the size of your portfolio publicly. Instead, the dollars you shift away from fossil fuels will be announced only in the context of total divestments in the next cohort of divesting organizations.

Answering Some Hard Questions About Fossil Fuels

Who's Doing What – From Bishops to Universities  

Did you know...Religious communities?

As some religious communities contemplate the end of their traditional place in society they must look towards the care of their remaining elderly members and consider how to preserve their charism through legacy investment planning. Many faith organizations strongly support care for creation and invest their time and money into the land under their care. For example:

• The Ursuline Sisters of Chatham built their Villa Angela home as a visible testimony to their ongoing commitment to ecological sustainability. They were awarded Gold Status in their LEED certification for incorporation of the best features of environmental design in the construction process.
• The Federation of the Sisters of St. Joseph in Canada have become a certified Blue Community and have invested in a staff animator to teach others of their commitment to protecting the sacred gift of water.
• The Jesuit community in Guelph has committed to creating an Ignatius Old Growth Forest over the next 500 years.

One River, Two Futures: Reflections on Water
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Screening for Ethical Investments

Investments support us and our work, so we must choose wisely. Investment managers within your organization, and the professionals with whom you consult, have a responsibility to assemble and manage a safe, profitable portfolio. Professional investment managers can help you to achieve a comfortable balance between risk and returns, without compromising your values. 

Analysis of Risk 

Professionals have common methods for analyzing a company’s financial risk. You may be familiar with fundamental and technical analysis. While fundamental analysis assesses a stock’s ‘fair market’ value by evaluating a company’s assets and earnings, technical analysis measures securities through statistical patterns and historical performance data. Many companies offer easy access to these financial risk indices to their clients. However, when divesting, it can be helpful to look beyond current stock performance with an understanding that saving our common home will reduce the risk that climate change poses for companies. As it may take some time for these risks to become apparent through traditional stock screeners, we suggest adding ESGs, Indigenous inclusion, and Integrity of Return when assessing your re-investment options.  

Responsibility 

When reinvesting your divested funds, you have an opportunity to align your investments with your values. Responsible money managers will assess new investments for risk, social responsibility and for profitability. Since many socially responsible companies are succeeding financially, you can profit while making a positive impact. 

Diverse Management Standards

Standards of responsibility are not the same for all financial managers. Financial broker-dealers must meet a suitability standard, while still meeting the needs of their own organization. This may be sufficient for many clients, but it is not the most stringent standard. Registered investment advisors, on the other hand, have a legal responsibility to provide the highest standard of care. Registered investment advisors have fiduciary duty to clients. A fiduciary agrees to act solely in another’s best interest. This person has a legal responsibility to provide the highest standard of care.  

Management standards affect how the board of directors runs a company and how the manager of a fund makes decisions. In the past, fiduciary duty has been interpreted as a direction to make the highest possible financial returns regardless of other considerations. Now however, clients’ interests extend beyond financial concerns to include matching their financial portfolios to their values. Individuals and organizations can direct their fund managers to make decisions based on their moral values as well as their financial interests. 

Responsible Re-investment and Ethical Funds

Catholics have long been involved in socially responsible investing (SRI). Many organizations regularly screen their investments to avoid supporting businesses that may cause harm or act contrarily to their values. For example, many organizations exclude from their portfolios, tobacco, some pharmaceuticals, and munitions. More recently, as climate change has become an important issue, organizations have begun excluding fossil fuel companies from their investments. As these types of investments make up a large portion of the Canadian stock exchange, ethical investors must utilize various strategies for finding suitable replacement investments. 

ESG Assessment 

A socially conscious investor can use a special set of criteria to screen potential investments. Examination of Environmental, Social, and Governance (ESG) performance reveals various criteria around corporate behavior that can ensure a company is aligned with an investor’s values. 

• Environmental: Assesses whether a company performs as a steward of nature.
• Social: Looks at how a company manages relationships. This includes how they interact with their employees, suppliers, customers, and neighbors.
• Governance: Examines a company’s internal actions regarding shareholders, executives, controls, and audits.

These criteria have become a popular way for investors to evaluate companies and offer an alternative to the more standard financial assessments. In the past, investors accepted that their returns may be smaller because of attention to ESG ratings. Today however, ESG funds often perform at least as well as other funds, and oftentimes, even better.

Check with your financial advisor to see if they provide access to ESG information. They may do research in-house, or access a reliable ESG service provider. Agencies, such as Sustainalytics, SHARE, and Regroupement pour responsabilité sociales des entreprises, (RRSE) provide ESG data analysis and assessment services to help identify both ESG performance and financial risk.  

Reconciliation and Investment 

After a long history of doing wrong to Indigenous Peoples in Canada, it is time redress those wrongs. There are calls to implement Indigenous understandings and representation in Canadian business practices. We now have opportunities, and are compelled, to use the power of investment to support reconciliation.

Impetus for including Indigenous knowledge, participation, and leadership in Canadian business practice has been provided by both the Truth and Reconciliation Commission (TRC) and the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). To help investors understand and support reconciliation, the Reconciliation and Responsible Investment Initiative (RRII) has published a guide for investing, Advancing Reconciliation in Canada: A Guide for Investors. Responding to the TRC Call to Action #92, RRII defines its mandate to achieve Economic Reconciliation as providing avenues “to create meaningful partnerships and mutually beneficial opportunities based on a holistic, values-driven approach to attaining community economic prosperity.”

RAVEN Indigenous Capital Partners are forerunners in adding Indigenous interests to ESG assessments. According to the Indigenous Sustainable Investment report, “The partners at Raven place a strong emphasis on relationship building throughout their investment and community building approach. This leads to strong and long-lasting partnerships.”

Look for Indigenous inclusive assessment standards to appear in the future. New Indigenous ESG standards, developed from Indigenous Peoples’ perspective, would include their interests and their rights while providing the investment community with specific criteria for Indigenous-inclusive ESG compliance in Canada. This has been referred to as putting the I in ESGs. 

Integrity of Return  

The Catherine Donnelly Foundation (CDF) uses the term Integrity of Return to assess the alignment of a fund with their values. This describes investment in companies whose core business is directly linked to a desired impact.

Integrity of Return can help an investor avoid investing in a company that has mixed activities. That is, some in alignment with their desired impacts, some not in alignment. Consider a case where an investor wants to lower carbon emissions. An investment in a new fuel-efficient oil refinery will reduce emissions from oil production. However, lowering emissions is not the company’s core revenue generation. The core business is still oil production. In this case, because the investor would be enabling fossil fuel production, the business activities they are supporting are contrary to their desired impact. This is not Integrity of Return. Profits from this company are achieved partly by transgressing the investor’s values.

The CDF advises that investors choose companies whose core revenue-generating activities align with their values and desired impacts. When the revenue-generating activities are the same as the impact generating activities, profit and impact go hand in hand.