Edward Mason is Head of Responsible Investment at the Church Commissioners for England. Here he reflects on the principles of good banking and the Commissioners investment in challenger bank, Williams & Glynn.
As managers of the Church of England’s £6.7 billion endowment, the Church Commissioners are widely invested in, and engaged with, the financial services sector.
Out of our current top 10 listed equity holdings, two are UK banks. And one of our most exciting private investments is a challenger bank, Williams & Glyn.
Given these significant investments, and the ethical failures exposed by the financial crisis, we have thought hard about how mainstream banks can provide fairer finance. We have drawn up ‘good banking’ principles around public purpose, treatment of customers, financial education, community contribution, pay and rewards, and transparency.
We actively advocate these principles to the banks we invest in. We are working hard on their implementation with Williams & Glyn.
A good private sector bank is, clearly, not a philanthropic institution. It must be a profitable bank, generating returns for its investors and providing financially rewarding jobs for its staff. A good bank is both a financial and an ethical success. Ethics and performance are intrinsically linked.
At the heart of our good bank principles is public purpose.
We believe that all businesses that wish to endure need a public purpose, and that the better they serve that purpose, the better they are likely to perform financially, in a sustainable way.
We believe that a clear public service objective provides the motivation and rationale to inspire employees to positive, ethical behaviour, and that it directs employees’ engagement to the service of customers.
One of the UK’s leading economists Professor John Kay makes this point well. “Business is about making a profit,” he remarked at a conference I attended, “but profit is no more the purpose of business than breathing is the purpose of living”. Profit is what happens in a healthy business.
A good bank articulates a public purpose, marshalls its resources around it, and lives it out it in a commercially astute way.
A good bank treats its customers well. This is of course a regulatory requirement, but we do not mean ticking compliance boxes. We mean a bank that is truly about its customers. A representative of the financial services industry that truly serves.
A good bank provides financial education not only for its customers, but also in schools, and helps its customers with their financial management throughout their lives.
A good bank contributes to the local communities where it operates. It nurtures small businesses and supports community institutions like credit unions.
A good bank rewards its top executives the right way. Its remuneration schemes prioritise long-term over short-term performance and reward executives against ethical, social and environmental metrics, not just financial metrics.
And finally a good bank is transparent. It discloses how it lives out good banking principles and it welcomes scrutiny of its contribution to fairer banking.
As we fulfil our objectives to support the work and mission of the Church of England, we are beginning to seeing the impact that our active and engaged investment approach can have on banks in the high street.