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The College’s Statement of Investment Responsibility

In respect of the management of the College’s investments, there is a primary fiduciary responsibility of the College to maximise the return on resources, consonant with the risks assumed under an established investment policy.  However, the SIR also recognises that there are circumstances, described in Charity Commission guidance and founded in judicial decisions, when trustees may balance against their primary responsibility considerations of the ethical nature of investments.  The College’s Governing Body is responsible for reviewing the University’s policy on investment responsibility at least once a year.

It is clear that charities should not invest in illegal or other types of business activity that create an evident conflict with their aims.  Moreover, certain charities with narrowly defined objectives may have scope to make mixed motive investments that are not selected solely on the basis of optimal financial return if they serve the wider charitable purposes of the institution.  However, we note that the notion of exercising an ethical choice between investments of equivalent potential long-term value warrants considerable caution.  While there may exceptionally be issues that justifiably command an overwhelming consensus, the College has a diverse set of stakeholders and it would be difficult for all of these to reach full agreement on the meaning of the term ‘ethical investment’.  It should not be the role of the College to prefer one moral position over another as it exercises its investment function.

As is the case with many other charitably institutions, the College holds most of its investment portfolio indirectly.  The overwhelming majority of investments (outside individual property assets) are managed on a discretionary basis by external investment managers selected and monitored by the College’s Investment committee with the oversight of the Governing Body.  In this context, the direct exclusion of individual investments that are otherwise legal is considered to be neither an appropriate ethical, nor indeed a practical, policy.  Indeed a tokenistic approach may be counterproductive, as there is no guarantee that a desired outcome could be achieved merely by selling a particular share or other investment.  Instead, the College intends where possible to pursue a constructive process of engagement and, given the Committee’s investment model, reliance will be placed on working with its selected investment managers.

Climate change is the deepest environmental problem of our times.  Careful consideration of both its scientific nature and the development of global agreements and associated policies to mitigate its impace should lead to a better understanding of the financial risks embedded in certain business models and facing individual companies.  Policy disincentives (e.g. an increase in carbon taxation) and regulatory changes are likely to impact meaningfully on the economic returns of the least energy efficient and the most polluting industries, and these developments will affect the environmental and financial sustainability of both energy producing and consuming companies.  Nevertheless, our economic wellbeing will depend on the combustion of fossil fuels for many years to come, as the world makes the transition to a lower carbon future.  Hence, certain energy businesses will continue to form an essential part of the economy and by implication its investment mix.  The more enlightened operators in this area are likely to have better long-term success as businesses if they anticipate policy and regulatory changes, seek to invest in research and to diversify away from the most environmentally damaging activities.

Consideration of these issues has led the College to be wary of exposure to companies that extract the most polluting fossil fuels.  For example, the College has no holdings in tar sands companies, or thermal coal companies.

While recognising that in this area inherent uncertainty, rather than calculable risk, is an analytical challenge, the College expects its appointed investment managers to incorporate an assessment of climate change risks into their investment processes.  There is a wider setting for this analysis, as thoughtful, long-term investment decisions should naturally reflect consideration of similar risks e.g. unsustainable business models, technical obsolescence, future regulatory burden, jurisdictional risk (including a weak rule of law), excessive leverage and/or financial engineering and poor corporate governance.

As a natural component of their work, the Investment committee will continue to question external managers on how they have interpreted these risks and reflected broader ESG considerations into their processes.  Where feasible and appropriate, the College will also consider exercising its voting rights as a shareholder to reflect these considerations.

Simon Summers