ESG

Why the National Trust is not so bad

Blickling Hall, Norfolk - where a water-source heat pump has been installed in the lake to replace the existing oil-fired system

Blickling Hall, Norfolk - where a water-source heat pump has been installed in the lake to replace the existing oil-fired system

The National Trust is the latest charity to become embroiled in an ethical debate around investing. It is one of a number of not-for-profit organisations to fall into the public spotlight due to a perceived conflict between the charity’s mission and its investment policy.

This case revolves an investigation by the Guardian newspaper that highlighted the charity invested “tens of millions of pounds in oil, gas and mining firms – despite the conservation charity pledging to cut down its own use of fossil fuels and warning about the impact of climate change”.

The Green Party has added to the fossil fuel fire with their co-leader Caroline Lucas Tweeting, “It’s disappointing to see @nationaltrust so dedicated to protecting our natural heritage undermining its good work with significant support for dirty fossil fuels.”

Is the National Trust so bad? After all, as a member of the Climate Change Coalition the charity stated that climate change poses the single biggest threat to the sites they look after. They are actively adapting, managing coastal change and the impacts of severe weather. The National Trust has pledged to reduce its energy use by 20% by 2020 with 50% coming from renewable sources. Furthermore, it will be spending an additional £300m over the next ten years to clear a backlog of conservation work.

Of the £1.3 billion the charity has in reserves, it invests £166.7 million in the CAF UK Equitrack Fund. This is a tracking fund that aims to replicate the performance of the FTSE All Share index. As a result, the fund invests into BP, Royal Dutch Shell, Rio Tinto, etc, but the Trust’s exposure to these companies is less than 2% of the total investments. Legal & General, who manages the fund on behalf of CAF has a very strong record in corporate governance and responsible investment.

The conundrum does highlight the level of detail that might be employed to match a negative screen. In this case excluding mining, oil and gas producers is easy, but should this also include Weir (world's leading engineering business that is involved in mining and aggregates) or Marshalls (who operate their own quarries for the manufacture of natural paving stones)? There will be many active fund managers who will argue that they have the resources to screen these issues from a portfolio, but this adds to the time and cost of managing investments. There has to be a level of proportionality in making Ethical, Social and Governance (ESG) judgements.

National Trust has responded to the criticism, stating they adopt a policy of not investing directly in companies which derive more than 10% of their turnover from the extraction of thermal coal or oil from oil sands. They also engage with companies to improve their environmental performance and see their role as one of actively influencing behaviour and driving environmental improvements.

The charity has adopted a proportionate stance to ESG investing, knowing that it is very difficult to totally exclude certain issues that might be at odds with its mission. The charity has opted for a charity tracking fund to reduce its overall cost of investment and the Trust actively engages with companies to influence behaviour, while investing directly in renewable energy projects on its estate.

The National Trust is a high-profile charity that often attracts criticism. This case highlights the fundamental difficulty for a charity investing with clear ESG perspectives. There are often grey areas and trustees need to be proportionate in managing investments and reputation.

The huff and puff of ESG investing

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As a follow-up to our recent blog on ESG investing we note that the government in Canada has announced the legalisation of cannabis for all uses. Meanwhile in the UK the drug is still illegal, but specialist clinicians will be able to legally prescribe cannabis-derived medicinal products to patients with exceptional clinical need. So how does this sit within the investment debate over Ethical, Social and Governance investing?

The leading Canadian company to get onboard the marijuana puff is called Canopy Growth Corporation. It is the first Canadian cannabis grower to debut on the New York Stock Exchange with a valuation of more than US$10 billion. Putting this into perspective, Canopy is now worth more than Canadian company Bombardier, one of the largest global aerospace businesses and manufacturers of many trains in the UK. Like ‘dotcom’ and ‘bitcon’ before, is cannabis the next tulip bubble and how should charities approach this possible investment?

Ethically, there has been significant clinical evidence to support the legalisation of cannabis as a treatment of many medical and psychotic problems. Socially, despite the health benefits, marijuana is illegal in the UK and many other countries. Campaigners highlight its link to violent behaviour and serious mental health problems. As far as governance is concerned, charities may be split as to the merits of having exposure to cannabis production in their portfolios depending on whether it is for recreational or medicinal use. But surely it would be difficult for charities to advocate putting pressure on the UK government to follow the example set in Canada?

While cannabis may boost financial returns in a global portfolio, is a useful example as to why charities find ESG investing both confusing and difficult.