Why the Archbishop is wrong over pension investing in Wonga

I think that the Archbishop of Canterbury is a decent, honourable man and I certainly support his campaign for the Church of England to help credit unions compete and drive Wonga out of the payday loan business.

It was obviously embarrassing for him to find out a day after the launch of his campaign that his £5.5 billion Church pension fund had a small investment in Wonga but I think he was wrong to call for its disinvestment.  Wonga has a despicable business model based on ripping off its vulnerable customer base but hey, "welcome to capitalism", this is what happens when you get poor corporate governance of a company coupled with wholly inadequate state regulation.

Engagement by responsible investors with the companies they own is key. If the Church of England pension fund just sells up and leaves every company it has a problem with then this will just undermine other responsible owners who may be trying to change it for the better.

According to this BBC report the Church Pension fund can already invest in companies that benefit from "3% of their income from pornography, 10% from military products and services, or 25% from other industries such as gambling, alcohol and high interest rate lenders". 

What the Church pension fund should be doing (and to be fair it does good work on this already) is working with other responsible investors in trying to challenge and change their business practices.

Engagement does have its limits. Last Wednesday evening I went to a social event run by the pension website Mallowstreet. I had a discussion with people present who support engagement but believe that fund managers should be allowed to invest in any publicly quoted company that complies with the law. I disagree. There must be the exception that proves the rule. What do you do with a company or market that engagement has just totally failed? Engagement must have some bite and as a last resort - disinvestment must be a final option. I think of South Africa in the 1980's and the worldwide Tobacco industry now.