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Changes ahead for United Methodist pension investments

HEATHER HAHN
United Methodist News Service

Being good to the planet and its people ultimately will be good for United Methodist workers’ bottom line. That’s the principle behind two changes to the investment policy of the United Methodist Board of Pension and Health Benefits.

In November, the board’s directors voted to exclude certain investments in coal and avoid investing in companies meeting certain thresholds that operate in countries with “a prolonged and systematic pattern of human rights violations.” These changes are just starting to take effect.

The changes — part of an investment policy called the management of excessive sustainability risk — come with an eye toward both church values and the long-term financial returns of United Methodist beneficiaries, say board staff.

“What this means is that we feel that the companies that we identify (for possible exclusion) have policies and practices that are not sustainable and will ultimately result in losses in value for the companies,” said Dave Zellner, the board’s chief investment officer.

For example, Zellner and other board staff foresee only diminishing returns from companies that extract the thermal coal used to generate electricity. With the increased international focus on climate change and the attendant regulation, coal — the most carbon-intensive fuel — is losing steam as people turn to other energy sources.

Human rights violations pose a similar problem for investors, board staff say. A country that abuses its people isn’t just immoral — it’s bad for business.

The pension board manages retirement plans for more than 91,000 participants, including United Methodist clergy and lay employees. Through its Wespath Investment Management division, the board also manages the assets of United Methodist-affiliated endowments, foundations and other institutions.

Altogether, the board oversees $21 billion in assets, including the largest church pension fund in the United States.

What the new guidelines do

The board still does not know how many of its current investments the new criteria will affect.

Kirsty Jenkinson, the board’s managing director of sustainable investment strategies, said the board is working with the research firm Sustainalytics to determine which companies it will exclude from its funds.

Specifically, the new coal guideline may result in the board excluding:

Any company deriving at least 50 percent of revenues from the extraction and/or mining of thermal coal.
Electric utilities deriving at least 75 percent of overall fuel mix from coal. The exception is a company that has demonstrated its intent to transition from coal to getting at least 10 percent of its energy from renewable sources.

In developing countries, the guideline will factor in the importance of access to energy in economic development.

The new human rights guidelines may exclude any company that provides significant financial services to or derives more than 10 percent of its revenues or raw materials from:

Countries demonstrating a prolonged and systematic pattern of human rights violations.

Conflict-affected areas where significant human rights violations have been widely documented or significant breaches of international law have occurred.

The board especially will scrutinize companies that operate in nations with the worst ranking in Freedom House’s annual “Freedom in the World” report. In its 2014 report, the worst rankings went to the Central African Republic, Equatorial Guinea, Eritrea, North Korea, Saudi Arabia, Somalia, Sudan, Syria, Turkmenistan and Uzbekistan.

“We’re not planning to specifically release the (names of) companies that will be excluded from our portfolio,” Jenkinson said. “Successful engagement relies on a level of trust between ourselves and the companies we engage. Naming companies that we determine represent excessive sustainable investment risk would likely impair this trust and thus our ability to positively influence change.”

Instead, the board will continue to publicize the companies where it has investments. Lists of the board’s holdings are updated quarterly on its website.

Zellner added that the board’s new rules are highly unlikely to lead to the exclusion of Motorola, Hewlett-Packard or Caterpillar. Those companies have been the targets of widespread divestment campaigns because the Israeli military uses their products in the occupied Palestinian territories. General Conference, the denomination’s top lawmaking body, in 2012 voted against a proposal to divest from the three companies.

Some companies may be excluded because of their connection to the settlements, Zellner said.

“But those three companies would not meet the criteria that would exclude them,” he added.

To exclude or not to exclude?

The pension board increasingly faces pressure to exclude other kinds of businesses as well. The Fossil Free UMC movement is urging that coal, petroleum and natural gas be added to the denomination’s investment exclusions.

The Baltimore-Washington, California-Nevada, Pacific Northwest, and Virginia conferences have approved resolutions to study the issue. The movement cites the Book of Discipline, which speaks of the dangers greenhouse gases pose to the overall climate and the economically vulnerable. The church’s Social Principles urge world governments and United Methodists to work toward the reduction of such emissions.

The Rev. Jenny Phillips is the coordinator of the Fossil Free Movement and minister for environmental stewardship and advocacy in the Pacific Northwest Conference.

“The task at hand isn’t like asking Nike to stop making shoes in sweatshops,” she told the board in November. “It’s like asking Nike to stop making shoes.”

But Zellner and others at the pension board are quick to point out the board can have more influence in encouraging sustainable corporate decisions if it has a seat at the table.

The Rev. Ed Tomlinson, a board director and pastor in the North Georgia Conference, puts it this way. If a parishioner decides to leave his congregation for good, “I am not going to listen to their opinions any further.” The church will likewise be ignored if it abandons some investments altogether, he said.

The pension board’s engagement has had some success in the fossil-fuel industry. The board recently led an investor coalition to get ConocoPhillips to set a public goal for decreasing greenhouse gas emissions. The company is aiming for a 3 to 5 percent reduction in emissions this year, said Anita Green, the board’s manager of sustainable investment strategies.

Even with the current volatility in the oil and gas markets, neither fossil fuel is going away anytime soon. The board has a fiduciary duty to its beneficiaries to stay involved, board staff say. It also helps that some oil and gas companies are working to develop more renewable sources of energy.

Timothy Smith, a pension board member, works as a senior vice president of Walden Asset Management where he spends a great deal of his time advocating on environmental issues. He said it’s a “moral mirage” to think that if the denomination abandoned all fossil fuel investments it would directly affect global energy consumption.

At the same time, he said divesting from coal can make a substantial difference in an investment portfolio’s climate picture. When Stanford University decided to purge its coal stocks last year, it discovered that the move would cut the carbon footprint of its investment portfolio by half.

Determining when it’s best to remain engaged and when it’s best simply to walk away will remain a challenge for the pension board and other church-related investors. But staff are hopeful the new guidelines will help.

“There is so much that goes on behind the scenes that the average United Methodist member or pastor has no idea,” said Missouri Area Bishop Robert Schnase, vice chair of the pension board. He joined the board in 2012, and as a clergy member, he is also a beneficiary of its investments.

“I’ve known all along that they make good decisions related to their fiduciary responsibilities. But the new door that has been opened for me is seeing how conscientious they are in working with companies around environmental, social and governance issues.”

Last Updated on February 2, 2024

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