Draft report on SRI for St Hugh's

Socially Responsible Investment at St Hugh’s

The current situation:

St Hugh’s JCR and MCR both have policies in favour of socially responsible investment, and have switched their bank accounts to the Co Operative bank.

St Hugh’s college currently has no policy on socially responsible investment, holds a current account with Barclays Bank, and invests its endowment fund with Barclays Global Investors in a tracker fund.

What’s wrong with the current situation?

Barclays bank itself has a history of dubious ethical activities. In 2001, it was Barclays Bank which lent money to Tanzaniain order to purchase an unnecessary military air traffic control system from the UK[1] . (Even the IMF thought that Tanzaniacould do without the debt for a military air traffic control system, considering the state of the country’s health care and education, but Barclays had no such qualms). Although Barclays’ ethical policies have improved since the days when they were the biggest bank in apartheid South Africa, there are still areas of concern.

Particularly relevant to St Hugh’s is the fact that though Barclays has a policy of not investing in Burmese companies, nothing stops the bank from investing in companies from other nations which are happen to be operating in Burma. (Refer to Barclays’ Burmapolicy, in the appendix to this document). In 2002, Aung San Suu Kyi, the leader of the democratic movement in Burma, and alumnus of St Hugh’s, urged the EU to strengthen economic sanctions [against Burma] and consider an investment ban.[2] It is disgraceful that St Hugh’s current investments could be funding companies like Total Oil or Orient Express[3] , which operate in Burmabut would not be excluded by Barclays’ policy, whilst Aung San Suu Kyi is still under house arrest, and the brutal military dictatorship is still in power.

But Burmais not the only area of concern. Barclays invests in major arms companies like BAE[4] , which, for all their claims to be behaving responsibly, continually fuel conflict and deal with oppressive regimes. The most recent known example of such behaviour by BAE comes from 2001, when BAE attempted to sell 66 hawk jets to India, at a time when tensions with Pakistanwere particularly high, and a nuclear conflict was even possible. Not even the exposure of a scandal involving BAE’s attempts to bribe various Indian business tycoons prevented them from trying to complete the sale[5] .

Arms companies like BAE; tobacco companies which market their product irresponsibly in developing countries; oil companies like Exon Mobil who refuse to recognise the link between burning fossil fuels and global warming[6] – all of these are companies found in the FTSE100, in which Barclays is investing money on St Hugh’s behalf.

Socially responsible investment is perfectly legal for charities

There are legal implications to socially responsible investment, as a result of St Hugh’s charitable status. Maximising the return on investments is a legal obligation. But this need not mean that socially responsible investment is impossible, since socially responsible investment need not involve a loss in income, as illustrated later. And according to the Charity Commission:

trustees can accommodate the views of those who consider it [an investment] to be inappropriate on moral grounds, provided that they are satisfied that this would not involve a risk of significant financial detriment.

However, a slight loss in income due to a socially responsible investment policy can also be perfectly legal for a charity. The case of the Bishop of Oxford vs. the Church Commissioners has set a precedent. In this case, it was decided that if trustees were satisfied that investing in a company engaged in a particular type of business would conflict with the very objectives their charity is seeking to achieve, they should not so invest even if this would be likely to result in significant financial detriment. It would be fair to argue that since St Hugh’s is an educational institution, (seeking to attract, among others, international students), it could refuse to invest in companies which support oppressive regimes – regimes in which freedom of thought and speech are compromised – since this is in direct opposition to the aims of an educational institution.

Another statement to come out of the Bishop of Oxford case was that holdings of particular investments might hamper a charity’s work either by making potential recipients of aid unwilling to be helped because of the source of the charity’s money, or by alienating some of those who support the charity financially, and that given this, the trustees will need to balance the difficulties they would encounter. This too might be worth considering, since a lot of St Hugh’s income comes from the donations of alumni. It may be that the current student population would be more likely to donate funds after they graduate if they can be sure that the money will be invested in an ethical way.

Socially responsible investment is financially viable

Would it be to the financial detriment of St Hugh’s to exclude certain companies from its investments? There’s no reason to assume so. True, companies which abuse human rights or irreparably damage the environment are making a profit…at the moment. But excluding them does not need to lead to a down turn in St Hugh’s income, and is likely to be a wise strategy in the long run.

As the time goes on, it is going to become less and less acceptable for companies to behave in a socially irresponsible way. In 1998 Nike’s shares fell by 20% after the exposure of its appalling labour standards[7] . Companies which already have excellent ethical standards, on the other hand, will be at an advantage. Sales of fair-trade coffee in the UKare booming: in 2003, consumers purchased 2083 tonnes of fair trade coffee from shops and supermarkets - 42 per cent more than in 2002[8] . It makes perfect financial sense to invest in companies with stringent ethical standards right now.

The most valid concern about the financial implications of ethical investment is not the actual return on the investment, but the potentially higher administration costs of ethically screened funds. It may well be possible to overcome this problem if St Hugh’s were to negotiate directly with fund providers, to perhaps reduce the administration costs slightly for the publicity of having a prestigious Oxfordcollege investing with them. A list of companies providing ethical managed funds can be found in the appendix to this document.

Suggested courses of action

A first step away from St Hugh’s close relationship with Barclays could be to close the college’s current account with them and open one with the Co Operative Bank. The Co Op offers a range of products which might be suitable, details of which can be found on www.co-operativebank.co.uk .

St Hugh’s finance committee could mandate a member of the committee to look into the possibilities of investing with a managed ethical fund such as those listed in the appendix.

If St Hugh’s is considering the possibility of investing with the University Trust Fund Pool, it could make it a condition of St Hugh’s entry into the pool that the fund managers adopt a socially responsible investment policy: particularly – given St Hugh’s history – a policy which excludes companies that have dealings with oppressive regimes.

[1] http://www.guardian.co.uk/tanzania/story/0,11441,623358,00.html

[2] http://www.burmaproject.org/burmanewsupdate/index151.html

[3] http://www.burmacampaign.org.uk/

[4] http://ir.baesystems.com/bae/news_presentations/reg_announc/rnsitem?id=1075897416nRNSD0077V&t=printer

[5] http://www.corporatewatch.org.uk/profiles/bae/bae1.htm

[6] http://www.stopesso.com

[7] http://www.clrlabor.org/alerts/1998/nikeupdateaugust.html

[8] http://www.oxfam.org.uk/what_we_do/fairtrade/progreso.htm

Posted on 08/11/04 by bridget