Should charities only hold ethical investments?

Edinburgh uni fossil investment protestweb

In 2015, students protested against Edinburgh University invesments in fossil fuel companies. The university has since announced its disinvestment from these funds.

Julie Hutchison was at an Edinburgh International Science Festival event on the pros and cons of divesting from companies on ethical grounds

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20th April 2016 by TFN Guest 0 Comments

Within the Scottish charity sector, a number of large Scottish universities and religious organisations are looking at the impact of climate change from various perspectives. The Church of Scotland recently hosted a debate on fuel poverty and climate change while both the University of Glasgow and University of Edinburgh have made public statements about the timeline of some aspects of the transition of their investments out of fossil fuels (known as disinvesting or divestment). 

It was therefore timely that the recent Edinburgh International Science Festival hosted a divestment debate in the setting of the National Museum of Scotland. 

Julie Hutchison

Julie Hutchison

Divestment may not be effective as a means of addressing climate change because selling your shareholding would simply mean a new owner now has those shares

The speakers came from various different fields. Dave Gorman is director of social responsibility and sustainability at the University of Edinburgh, Kirsty Haigh of Jubilee Scotland has been active in the student network which campaigns on a range of poverty and environmental issues, and Professor Timothy Devinney is a management scholar and currently innovation leadership chair in International Business at Leeds University Business School.

So what did they have to say about divestment?

The argument set out in favour of partial or full divestment from fossil fuels rested on a number of points. Firstly, the concept of stranded assets came up as a driver of change. This concept, based on the financial risk of owning a mispriced asset, was referred to by the governor of the Bank of England in his speech on climate change risk last year. A second argument was put forward about divestment as a means of changing the discourse, and as a tool to talk about change. 

Divestment could also be seen as symbolic, as a means of inspiring or motivating certain behaviour. It could also free up money which could then be re-invested in ways which support the transition to a lower carbon economy. It was felt engagement wasn’t enough (ie. owning shares and using meetings and voting power to influence change). Finally, as questions from the floor showed there could be a sense of a moral obligation in favour of divestment, driven by concerns about impacts on human health and the survival of habitats. If it was moral to divest from armaments, couldn’t it also be said to be moral to divest from fossil fuels? 

The counterpoint to the pro-disvestment arguement is that it doesn't always work. Divestment may not be effective as a means of addressing climate change because selling your shareholding would simply mean a new owner now has those shares: the company would notice no difference. The shares are already in circulation and it’s just a question of who owns them. If you hold onto them, at least you can vote at meetings and engage with the management of the company, as a shareholder with certain rights. 

As this argument goes, it’s better to be active on the inside of the system and be in the game, rather than shouting from outside. There were split views on the panel about whether past boycotts (eg. in the 1980s in the context of apartheid in South Africa) had been effective in accelerating change. One example was given of where engagement was said to have worked, in the context of a specific type of armaments production which a company then ceased. In essence, this side of the debate focused on the idea that it won’t make a material difference to a company whether you hold its shares or sell them to a new owner. 

One point on which the panel did agree was that climate change was a clear and present danger. Views then diverged on how best to address those risks in terms of taking action (or not) via the investments you own. As the example of the University of Edinburgh showed, one possible route is to take a more nuanced and multi-faceted approach, mixing targeted divestment with engagement, using learning and funding research to support how to mitigate climate change, as well as practical actions in terms of emission reductions across the university estate. 

While not every charity in Scotland has an investment portfolio, the concept of climate change resilience is however relevant for all charities, in terms of strategic forward planning and good governance. 

Julie Hutchison is the Charities Specialist at Standard Life Wealth. Tweet @JulieKHutchison