The endowment fund: to divest or not to divest
As Imperial publishes the results of its endowment fund, Shaul Rosten argues that Divest has a long way to go and needs a new way to do it.
Divest Imperial is a movement urging the University to divest its endowment investments in fossil fuel-related companies, an approach similar to that taken by many large pension funds in recent years. This week the Felix team has procured data from Imperial, giving a rough breakdown of the investment areas of the endowment funds, which totalled over £266m in 2017.
Although direct fossil fuel investments comprised only 1.7% of the total portfolio, supporters of the Divest Imperial movement will be disheartened by the fact that this figure remains almost steady from 2016, being reduced by a mere £400,593; this feels more like a tailwind of some poor investments, rather than an active divestment strategy. In addition, the University only explicitly stated their direct holdings in various sectors, with over 50% of the fund included in various investment portfolios. Upon closer examination of the precise contents of the various funds by the Felix team, it was determined that, through these investment funds, an equivalent of £3.5m was invested in tobacco companies, and an additional £2.8m in fossil fuel companies, on top of the direct fossil fuel holdings the University explicitly stated.
Their reasonable demands for transparency aside, however, the Divest Imperial movement seems, to my mind, a slightly flawed approach to ensuring that the University upholds its moral standards in a world of serious climate concerns. For the first part, is divestment of fossil fuel holdings – which, at £8.8m (including oilfield services), are hardly noteworthy from the corporation’s point of view – actually going to have the slightest impact? There are plenty of wealthy climate change sceptics, and sceptical organisations, who would happily purchase these shares and buoy the industry, with or without Imperial’s help. That is not to say that because some people are willing to do bad things, so should we; rather, I would hope that instead it makes the Divest Imperial movement think more carefully about the most effective way of deploying the capital Imperial has at its disposal. As a shareholder (dependent on the class of shares it owns), Imperial has a seat at the table, and this has been increasingly used by investment vehicles to demand greater Environmental, Social and Governance (ESG) awareness and performance from their portfolio companies. Imperial could leverage this exposure to the industry, and partner with similar minded shareholders, to demand from its portfolio companies greater R&D into renewables, and a weaning off of environmentally damaging fossil fuel projects. This would actually engage the companies that are doing the damage, and proactively champion the causes of conservation and environmental protection, rather than simply walking out of the room whilst they do it.
“Reasonable demands for transparency aside, divestment seems to be a flawed approach”
This jumps straight onto the second issue that Divest Imperial have not addressed: that some of the major fossil fuel corporations are some of the biggest investors into renewable technologies in the world, and the capital Imperial have placed into them allows the University to put their money where their mouth is, betting on companies such as Royal Dutch Shell, who have plans to increase their annual renewables R&D spending to $1Bn+, and who have made bold pledges to tackle global carbon pollution. Whilst the data provided by Imperial in no way makes it clear that this is their approach to fossil fuel investment, Divest Imperial must consider these possibilities before demanding a blanket divestment, which may achieve little toward their overall moral aims.
There is a third and final point also yet to be considered by Divest Imperial. Yes, the fossil fuel industry is a generally damaging one for the environment, but, as pointed out above, Imperial’s divestment from that industry will not deter them from continuing their nefarious practices. However, what it might do is hamper the returns of the Imperial portfolio, as academic studies have previously posited. If Imperial holds these investments, however, and sees the financial benefit of doing so, it can use this capital to invest in the various cutting edge renewable technologies that flow freely from the academic work it undertakes. That way, at least some of the profits from fossil fuels will be being put to good use, instead of ending up in the pockets of those to whom climate issues are not a great concern.
Overall, I think that Divest Imperial make an important point: that, as a public body that should be an example to wider society, it is important that Imperial – and other Universities with large investment trusts – embrace an attitude of ownership and transparency, setting out clearly and regularly their investment philosophies, holdings, and impacts. However, the simple cry for divestment is perhaps not the most constructive way forward. Divest Imperial, although sound in principle, must consider the nuances of the argument, to forge a constructive plan to enable Imperial to use its financial position to best tackle global challenges, in a maximally effective way.
