Edward Mason, head of responsible investment at the Church Commissioners which manages £6.7 billion ($9.6 billion) of assets on behalf of the Church of England, is well used to diplomacy and negotiation.

They were essential skills in his previous roles at the UK’s Foreign and Commonwealth Office and are as regularly called upon at the Church Commissioners where a high-profile responsible investment strategy is designed to encourage and enforce Christian values.

They’ve come in particularly handy in the latest gauntlet thrown down by the ethical investor.

The Church Commissioners has co-filed a resolution with New York State Common Retirement Fund, asking the world’s largest publicly traded oil company US giant ExxonMobil to disclose how resilient its business model is to measures to restrict global warming to 2 degrees, as per the Paris agreement on climate change last December.

The resolution will go to Exxon’s AGM at the end of May and has already won “a tremendous and unprecedented show of support” from many of the oil group’s most influential shareholders, including pension funds like the University of California Retirement Plan, CalPERS and Sweden’s AP4.

“Climate change is the key ethical challenge of our day. It has such a huge impact on our planet and people and it falls in part on investors to try and turn the situation around,” says Mason, undaunted by the looming battle.

Exxon has already attempted to have the resolution struck down by the Securities and Exchange Commission, although their request was denied.

“What we need, and are starting to see, are new norms in corporate climate change reporting,” he says in reference to the similar successful shareholder pressure applied to oil groups Shell and BP last year, which led to both companies agreeing to disclose how efforts to lower greenhouse gas emissions will impact their businesses.

The Commissioners’ latest ruckus encapsulates an increasingly bold ethical purpose at the fund, where screens and engagement policies have grown more sophisticated and nuanced, and new resources have allowed it to up the ethical ante.

Mason reports “rapid progress” on corporate reporting and pushing remuneration guidelines that urge “restraint” on short-term bonuses.

Through 2014 the Commissioners voted on 24,302 resolutions at 1,788 company meetings globally.

It only supported 34 per cent of UK remuneration resolutions at company AGMs and held engagement meetings with 27 companies on environmental, social and governance issues in an activism that Mason believes is both informed and fuelled by the church’s global presence on the ground.

“We can do unique things that other investors can’t,” he says.

All the Commissioners’ public equity, property and corporate debt allocations are already subject to investment exclusions on companies involved in weaponry, pornography, tobacco, gambling, non-military firearms, high-interest-rate lending and human embryonic cloning.

Now, a new investment restriction will apply on companies that derive more than 10 per cent of their revenue from coal or oil sands, and the fund is in the process of implementing a new policy on alcohol where it will invest in companies that derive more than 5 per cent of their revenues from alcoholic drinks only if they meet standards for responsible marketing and retailing.

In other developments, the fund now portions 4 per cent of total assets to Generation Investment Management, co-founded by former US vice-president Al Gore, where all investments meet sustainability criteria.

In another milestone, by the end of 2014, 4.5 per cent of the total portfolio qualified for inclusion in the Low Carbon Investment Registry maintained by the Global Investor Coalition on Climate Change.

The fund has also stepped up its monitoring of its public equity mangers to use external data to scrutinise the non-financial characteristics of managers’ investment portfolios.

It’s a rigour that the Church Commissioners can just as ably apply to private markets, insists Mason.

“Private markets are appropriate for us because we can do the strong internal due diligence.”

Since 2014 the fund has hovered around a 45 per cent allocation to equities, of which a quarter is in passive ethically screened strategies; a 15 per cent allocation to alternatives; a 10 per cent allocation to fixed income and cash; and around 30 per cent to property.

Diversified assets include an increased exposure to timberland and private credit strategies. In recent years the fund has acquired timber assets in the USA, Australia and the UK, where it is the largest private sector forestry owner in the country.

The property allocation is all managed internally and comprises rural landholdings and “very high quality” residential, commercial and retail properties.

Property was the star performer last year, returning 27 per cent, of which only 2 per cent came from income and the rest from capital growth, including realised gains on sales.

This all adds up to the fund easily outperforming its investment objective to generate an annual return of inflation plus 5 per cent over the long term – proof, if any was needed, that “you can be ethical and provide strong returns,” Mason says.

Mason became head of responsible investment in 2014 after five years as secretary to the Church of England’s Ethical Investment Advisory Group, and is the first to hold the newly created position.

Now responsible for implementation of the advisory group’s recommendations, he’s set to push the church’s brand of responsible investment on a whole lot more, live issues.

“Responsible investment is never finished,” he says.

The financial system is an integral part of modern societies.

Financial services – banking, savings, investment and insurance – play a critical role in supporting and enabling economic growth and development.

The system enables individuals, organisations and governments to borrow and store their income for future use; it enables custodians or trustees to protect and build financial value; and it allows governments to support the wellbeing of their citizens.

But despite these important contributions, the system does not function as effectively as it should.

It can fail to deliver on the needs of the societies in which it operates, it can undermine sustainable development and it can damage the health of the natural environment.

As was seen in the wake of the global financial crisis, the lack of stability and resilience of the sector can have major negative impacts on the global economy as a whole.

From the perspective of institutional investors, these impacts can arise as a result of the nature of the relationship between investors and companies or practices in the delegated investment chain and because of the structure and operation of markets as well as externalities in the economy.

These may take the form of principal-agent problems, over-reliance on short-term return-seeking behavior, or a lack of attention to the environmental, social and governance consequences of investment decisions.

While actors in the financial system can work to enhance its sustainability, through strengthening corporate disclosures and risk management processes, and by encouraging the better oversight of markets, in reality, the opposite happens, with financial actors – through their actions both individually and in aggregate – weakening the system and in turn, undermining their ability to fulfil their own roles.

As part of the development of the next generation vision for responsible investment, the PRI will soon release a draft 10-year responsible investment blueprint for an extended period of consultation.

The draft blueprint will address the accountability of signatories to their responsible investment commitments, recognition of differences in the depth and quality of responsible investment practices, the role of the sustainable development goals in investment activities, and most importantly, how signatories can contribute to a sustainable global financial system.

The draft blueprint will ask “What is a sustainable financial system?” and propose a statement of purpose for the system.

It will also propose desirable characteristics of the system, drivers of change that will affect the development of the system, and causes of risk as well as opportunities within the system.

In doing so, the blueprint will build on the work of others.

The financial system has been studied extensively since the financial crisis of 2008 and the PRI will seek to learn from the work of leading investors, academics, policymakers and leading international economic institutions.

We will consider the system as a whole, but focus on the part of the system that investors can influence.

In short, we will work in areas where the PRI and its signatories are well-positioned for action.

This is work for which the PRI has been preparing for some time.

The PRI has built up competencies in policy reform and practice change over the past few years.

In 2013, our case for greater involvement in public policy was broadly supported by signatories.

In 2014, we commenced our work on fiduciary duty and are now implementing policy programs in eight countries.

We also recently released our analysis of the role of asset owners in setting investment beliefs, investment strategies and responsible mandates to influence the operation of the delegated investment chain.

But the priorities for this work are to be set by the PRI signatories.

In the coming months, signatories will be asked to provide feedback in writing and through one of 20 signatory workshops around the world.

We will also engage financial system experts and stakeholders in our work to support a sustainable financial system.

This discussion will culminate at “PRI in Person” in Singapore in September, with a discussion of the feedback received by that stage.

The proposed ten-year responsible investment blueprint will be published in early 2017 and will include the projects and proposed interventions investors should pursue to promote a sustainable financial system.

Our express aim is to seek five to 10 projects or points of intervention for action over the next decade, but we will also have built a framework that the PRI can use to review and prioritise its work in order to promote a sustainable system in future.

It is our hope that by conducting this work, we as investors – a critical part of the financial system – will be better equipped to contribute to the resilience of the financial system and, in turn, better deliver on the needs of society, support sustainable economic development and the health of the natural environment.

Nathan Fabian is director of policy and research at PRI

Being a responsible investor is an integral part of fiduciary responsibility, according to Erik van Houwelingen, chair of the investment committee at the giant Dutch fund, ABP.

Speaking as part of a panel at the Fiduciary Investors Symposium at Cambridge University, he said ESG has been a part of the fund’s history, and the way it invests for a long time. But in 2014, with emerging trends globally and issues such as the treatment of workers in textile companies, the board met to examine ESG in a more fundamental way.

“We as a board looked at the way to go forward, and we went through an investigation to see if ESG investing was a by-product or truly at the heart of everything.

“At the end of 2014 we did a revision project of the ESG policy, it took us 18 months to conclude, and as a result we view responsible investing, not ESG, as a fundamental part of our fiduciary responsibility,” he said. “There is a debate in the US and UK whether it is a fiduciary responsibility. We have decided being a responsible investor is an integral part of fiduciary responsibility.”

He said there was a plethora of academic research investigating the correlation between ESG and risk profile, and the fund also did their own work, looking back and forward.

“We arrived at the conclusion, and decision, and belief, that going forward responsible investing is a part of every investment decision we make at APG and ABP. Taking that to our participants has been very challenging.”

Van Houwelingen said the call centre has been flooded with participants in disbelief saying they don’t believe that ESG and risk/return go together.

“There is work to be done and it means we need to increase engagement with plan participants to make sure they come with us on the journey.”

The €373 billion ($424 billion) fund has a specific policy on climate which outlines that by 2020 the fund will strive for a 25 per cent reduction in the carbon footprint of its liquid equities portfolios, which is about a €100 billion ($113 billion) portfolio.

The fund also has a target to double sustainable investments from €20 to €58 billion by 2020. It currently has €5 billion in renewable energy.

“We think it is more important to have clear targets to be striving for, and it’s not necessarily about the numbers.”

Meanwhile Mark Mansley, chief investment officer of the Environment Agency Pension Fund (EAPF), who sat on the panel with van Houwelingen, said the fund developed a formal climate policy in the lead up to COP21.

“We found you could reduce your climate risk with little impact on financial risk. We set a simple and high-level policy, to be part of the solution not the problem,” he said.

It focused on three areas: decarbonising the portfolio, which included reducing the exposure to oil and gas by 50 per cent and coal by 90 per cent; setting a goal of engaging with companies about what they are doing; and a positive investment target of 15 per cent.

“We are quite comfortable to go this far, probably beyond the rest of the investing community. The opportunities have to make sense financially, there has to be a sufficient risk/return, but there are lots of good opportunities in clean energy, and real estate for example.”

“Our members are not unfamiliar with climate change given it is the Environmental Agency. But as an investor we have always had to look at climate change from an investment point of view, and we have been doing it for about a decade now.”

Mansley highlighted the Aiming for A project which is asking key fossil fuel companies to meet standards.

EAPF has also been active putting forward shareholder resolutions for transparency on climate change risks and opportunities to companies’ businesses, and has had success with the BP, Shell and Statoil.

“We are starting to see some real change there; now we are asking did we aim too low?”

Mansley called on investors to encourage policy action on climate change, and the EAPF has joined with other investors calling for a price on carbon.

The price on carbon should be $100 per tonne of carbon dioxide emitted, according to Professor Chris Hope, reader in policy modelling at Cambridge University’s Judge Business School, who presented to delegates at the Fiduciary Investors Symposium at Cambridge University.

The impact of such a price is that the hidden economic costs exceed the after-tax profits for companies between 2008 and 2012, he says. Further, for coal companies, the hidden economic costs don’t just exceed their profits – it exceeds their revenues.

“We have to do something to raise the costs of climate change; regulation will have a bigger cost than a tax,” he said.

“So we should charge $100 per tonne on emissions that go into the atmosphere – if we were to do that in the UK we would end up with revenue of about £50 billion per year. This won’t destroy the economy, it would stimulate the economy.”

If the UK government were to raise this new tax revenue they could make changes in other areas – for example, decrease the rate of income tax from 20 to 15 per cent (£20 billion), reduce VAT from 20 to 16 per cent (£20 billion), protect the poor and elderly from energy price increases (£5 billion), support research and development, information campaigns (£5 billion).

However, Hope, who was the lead author on the UK’s Third Assessment Report of the Intergovernmental Panel on Climate Change, warned that revenue raised from a carbon tax should not be put it into subsidies for green investments.

“Governments are very bad at picking those winners; they should put it back into general revenues.”

Hope was also the specialist advisor to the House of Lords Select Committee on Economic Affairs Inquiry into aspects of the economics of climate change, and an advisor on the PAGE model to the Stern review on the Economics of Climate Change.

He uses an integrated assessment model for climate change policy that integrates science with economics and talks about the effects for policy makers and investors. It gives a mean estimate of the social cost of CO2.

It builds in some views of the future relating to demographics, emissions, atmospheric considerations, radiation and global climate, regional climate, direct impacts on ecosystem crops, then social and economic impacts.

The model Hope provided to the Stern review and US EAPA is called the PAGE model and divides the world into eight regions; uses 10 analysis years up to 2200; four impact sectors including sea level, economic, non-economic and discontinuity; looks at two policies and their differences; includes 112 uncertain inputs; and does 100,000 runs to calculate distributions of outputs.

“The net present value of global impacts of a business-as-usual scenario has a mean value of $400 trillion of net present value of impacts. This is why Stern says climate is the biggest market failure the world has ever seen,” he said.

“It is quite hard for investors or governments to do something with that number because it’s so large. It is better to identify what the extra impact is if you put one more tonne of this gas into the atmosphere, or the benefit if you don’t put one more tonne into the atmosphere.”

The session was chaired by Fiona Reynolds, managing director of the Principles for Responsible Investment (PRI), which has called on governments to take the COP21 seriously and has called for a price on carbon. The PRI investor statement on climate change is signed by 204 investors with $20 trillion.

In a discussion on long-term investing that framed the themes for the conference, managing director of strategy at PGGM, Jaap van Dam, urged investors to think differently about how they invest, introducing the notion that investors shouldn’t focus on the returns to individual members but the societal benefits of long-term behaviour.

Van Dam reminded the audience that the purpose of a pension fund is to turn savings into wealth, not to harvest the market return or create alpha.

“Because of our scale and knowledge, and our position in the long financial chain from the actual saver of capital to the user of capital, we can and should do things differently,” he said.

In particular he said there is a fundamental notion to connect investing with the real world, and that investors have greatly understated stewardship.

Van Dam also spoke about the OECD’s notion of productive capital, which supports infrastructure development, investment in the green economy and sustainable growth. This, he said, introduces the environment and the benefits for society at large when investing with a long horizon.

“I feel that if we do not seriously address both issues, putting our capital to work where it is needed to generate long-term wealth, then we stand to lose our license to operate in the long term.”

He said the OECD outlined the importance of long-term investing because patient capital allows investors to access illiquidity premia, lowers turnover, encourages less pro-cyclical investment strategies and therefore higher net investment rate of returns and greater stability; and, further, that engaged capital encourages active voting policies, leading to better corporate governance.

“So, logically, the OECD is not per se focusing on the returns for the individual investor, but more on the societal benefits of long-term investor behaviour.”

The theme of long-term investments and connecting with the real world was carried into the panel discussion chaired by Stephen Kotkin, John P Birkelund ‘52 Professor in History and International Affairs at Princeton University.

Investors – Roger Gray, the chief investment officer of USS, and Christian Seymour, head of Europe for IFM – sat alongside Raffaele Della Croce, lead manager on the long-term investing project at the OECD, and Sharan Burrow, general secretary at the International Trade Union Confederation (ITUC).

Delegates were reminded that they are stewards of other people’s money, and investing should be focused on creating long-term value for members and stakeholders.

In particular, Burrow urged investors to do more, and said that workers are demanding investments be directed towards patient, responsible investments.

“Long-term investment principles simply make sense. For workers, as the asset owners of pension funds, the time horizon to realise secure retirement incomes is not linked to short-term investment,” she said.

“Institutional investors, governments and financial regulators all have significant roles but asset owners – workers – demand serious change for pension fund outlays.”

Burrow said the principles of long-term investment are obvious and the ITUC has supported the development of the OECD framework and the G20 adoption. She said:

Patient capital is the antidote to speculative vulnerability and vital to the infrastructure build necessary to generate jobs and growth along with the industrial transformation vital for climate action.

Engagement is critical to monitor company commitments. Our demand for every company to have a plan for decarbonisation and jobs requires direct monitoring as does the management of other risks including the corporate governance required to avoid corruption or excessive leverage.

Productive capital requires the commitment to fund sustainable infrastructure including clean energy and carbon-neutral urban build and transport.

And we demand responsible capital that meets the test of the UN business and human rights principles. Human rights and workers’ rights are not negotiable.

“There is an urgent need for investors to more rapidly change their practice – align incentives with long-term investments, and where not large enough for direct and prolonged engagement create pooled funds to enable such. Without long-term investments and jobs – secure jobs with decent wages – the very sustainability of pension funds and potentially mutuals is also at risk,” she said.

“2016 is shaping up to be the most vulnerable year for the global economy since 2008,” Burrow said. “With more than $65 trillion invested in the global economy, the major institutional investors in OECD economies, including our pension funds, have to look to themselves for whole swathes of instability created by short-termism, unquestioning agency dependence and inadequate corporate governance oversight of the companies in which they invest.”

“Tragically, not enough has changed, with today’s average holding of shares around five months compared to more than five years in the 1980s.”

Last month conexust1f.flywheelstaging.com hosted the Fiduciary Investors Symposium on campus at King’s College, Cambridge University. The university, one of the oldest in the world at more than 800 years old, has produced people, ideas and achievements that continue to transform and benefit the world – including the establishment of the fundamentals of physics and the discovery of the structure of DNA.

It was a perfect environment for a conference that has established a reputation for challenging asset owners and managers to think differently, with an overarching mission of transforming institutional investment decision making. For three days we hosted 115 people from 15 countries debating investment strategy, opportunities and best practice, in particular the challenges of thinking and acting long term. With more than $5 trillion of asset owner money in the room, it provides a good guide to the mood of global investors.

Long-horizon investing has been a focus of many large pension funds for many years now, with a focus on the appropriate investment vehicles, risk appetites and supply chains. What, pleasingly, is clearly emerging now is that pension fund design, purpose and behaviours need to change to achieve the desires of long-horizon investing.

The business of managing pension assets should not be about alpha, or really about money management at all. The pension fund industry – and pension funds individually – are tasked with providing members with a retirement income; and as Keith Ambachtsheer says, they are tasked with turning savings into wealth.

This means what they do, and how they act, should have “everything to do with the real world”, according to Jaap van Dam, head of strategy at PGGM.

This became even more evident at the Fiduciary Investors Symposium, as investors seemed less interested in conversations around smart beta, factors and quantitative investing, and more focused on impact investing, stewardship, behavioural biases and governance.

The fundamental notion of a connection with the real world is important in this industry. Whether it’s in deciding investment strategies – with an emerging tilt away from traditional financial tools towards forward-looking, all-encompassing risk tools and less tolerance for smart beta versus a fundamental macroeconomic view – or looking at the societal benefits of long-term investor behaviours, including the environment and public needs such as affordable housing.

The pension industry should not be viewed as part of the money management industry and should not replicate the way it invests in and rewards staff – there is nothing long-term, or societally beneficial, about the behaviours of quantitatively driven hedge funds, for example.

Pension funds need to understand their mission, and work responsibly to be patient and engaged owners of capital.