LONDON’S GLOBAL UNIVERSITY
-CONFIDENTIAL TO THE COMMITTEE-
ETHICAL INVESTMENT REVIEW COMMITTEE
Monday 29 April 2013
MINUTES
PRESENT:
Mr Mark Knight (Chair)
Ms Natasha Gorodnitski
Professor Mark Lancaster
Professor Nick Tyler
In attendance: Mr Jason Clarke (Secretary)
Key to abbreviations
EIRC
Ethical Investment Review Committee
EIWG
Ethical Investment Working Group
IC
Investments Committee
1
WELCOME BY THE CHAIR
Noted:
1.1
The Chair, in welcoming members to the meeting, noted that this was the first meeting of
EIRC since May 2009 as no requests from members of the UCL community that a UCL
investment in a particular stock be reviewed had been received since that time and no
other issues had arisen which had necessitated calling a meeting of the Committee.
2
TERMS OF REFERENCE, CONSTITUTION AND 2012-13 MEMBERSHIP
Noted:
2.1
The terms of reference, constitution and 2012-13 membership of the Committee
at EIRC 1-1 (12-13).
3
MINUTES OF THE MEETING HELD ON 11 MAY 2009 [EIRC Min. 5-6, 11.05.09]
Approved:
3.1
The Minutes of the last meeting of EIRC which was held on 11 May 2009.
Ethical Investment Review Committee – Minutes – 29 April 2013
- Confidential to the Committee-
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MATTERS ARISING FROM THE MINUTES
4A
Cobham plc [EIRC Min.6, 11.05.09]
Noted:
4A.1
A briefing note by the EIRC Secretary at EIRC 1-2 (12-13) on the outcome of the committee
deliberations relating to the above.
5
BRIEFING NOTE ON THE ESTABLISHMENT OF EIRC AND ITS ROLE
Noted:
5.1
A briefing note by the EIRC Secretary at EIRC 1-3 (12-13) summarising the background to
the establishment of the Committee and its role.
6
ETHICAL IMPLICATIONS OF INVESTMENT IN GENERAL FUNDS AS OPPOSED TO
PARTICULAR STOCKS
Noted:
6.1
The Chair noted that the meeting had been called in order to discuss a specific issue ie to
consider whether there would be any potential ethical implications of UCL investing in a
general fund as opposed to investing in particular stocks. A briefing note by the EIRC
Secretary setting out the background to this issue was EIRC 1-4 (12-13) and was
introduced by the EIRC Secretary.
Reported:
6.2
UCL currently invests its funds in a ‘segregated fund’, where the fund managers manage
the fund exclusively for UCL as the investor, thus enabling UCL to exert control over the
stock selection. Investments Committee had recently been discussing whether UCL should
move towards investing its funds via a ‘managed fund’ rather than a segregated fund. In
this type of fund, an investor’s money is pooled together with that of other investors to
create a single, strong fund that provides significant investor benefits, including an instant
increase in buying strength. From a financial perspective (which is IC’s primary concern),
there would be advantages in UCL moving from a segregated fund to a managed fund.
However, such a move would mean that UCL would have less say in the stock selection
made by the Fund Manager, resulting in a loss of autonomy for UCL.
6.3
Another consideration which IC had identified was whether such a move would have any
implications for the statement of ethical considerations contained in the current UCL
Investment Policy. Following discussions between the Treasurer, as Chair of IC, the Chair
of EIRC and other officers, it had been agreed that a meeting of EIRC should be convened
to see whether the Committee had a view on this matter which it would wish to
communicate to IC to inform the latter’s deliberations.
Discussion:
6.4
EIRC noted that Paragraph 1 of the statement of ethical considerations in the Investment
Policy refers to investing/not investing in "any particular business". The Committee
considered, therefore, whether it could be argued that investing in a broad, general,
managed fund which, in turn, had an investment in a particular stock which UCL had
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Ethical Investment Review Committee – Minutes – 29 April 2013
- Confidential to the Committee-
previously decided was unethical (for example a tobacco stock) would be in keeping with
the terms of this statement, as it would be the fund that would be regarded as the ‘particular
business’ in this context rather than the tobacco stock. The Committee’s view was that in
this scenario, it would be the tobacco stock that should be regarded as the ‘particular
business’ in which UCL was investing; the general fund would simply be the vehicle by
which that investment was made. The fact that UCL was not investing directly in a tobacco
stock but was placing its funds in a managed fund which itself then invested in a tobacco
stock would not be in keeping with either the letter or the spirit of Paragraph 1 of the
statement of ethical considerations in the Investment Policy. Also, in this scenario, UCL
would, in the Committee’s view, be losing a significant degree of control over where its
funds are invested. The fact that the funds had been invested in a tobacco stock by the
fund a manager without UCL’s explicit knowledge or approval would not, in the Committee’s
view, absolve UCL of responsibility for ensuring that its funds are not invested in stocks
which UCL has previously judged to be unethical.
6.5
The Committee considered whether, if UCL were to move its funds into a managed fund, a
de minimis approach could be adopted towards stocks which UCL has previously regarded
as undesirable on ethical grounds. The Committee noted that in its 2008 report to Council,
the Ethical Investment Working Group had noted that partial disposal of a stock (and hence
partial retention of a stock) could, in principle, be an appropriate course of action ie that a
modest holding in a particular stock might be ethically palatable whereas a substantial
holding would not be (although the EIWG had also observed that once a stock has been
deemed unethical, could it be deemed any less unethical by virtue of the holding in that
stock being reduced but retained). Members of EIRC agreed that if investing in a particular
stock is deemed unethical, then any level of investment in that stock must be regarded as
unacceptable and consequently a de minimis approach would not be viable or defensible.
6.6
Given that UCL has made a commitment to be responsive to ethical concerns which are
raised by the UCL community, the Committee also discussed whether there was a need for
it to form or express any particular view or to take any action if UCL were to move from a
segregated fund to a managed fund, provided that information on UCL’s investments is still
available and that members of UCL still have the ability to raise ethical concerns about
those investments with EIRC. The Committee noted that if UCL were to invest in a general
fund rather than in individual stocks then it might be more difficult for members of the UCL
community to raise concerns on ethical grounds relating to particular investments, as they
are currently entitled to do under the Investment Policy. The Committee again used the
example of tobacco for the purposes of the discussion. The Committee noted that the
reputational damage that could be caused to UCL were it to transpire that its funds had
been invested in a tobacco stock which it had previously determined to be unethical, and
the possible implications of this in terms of external funding, would be significant. In those
circumstances, the fact that the investment decision had been made by the manager of the
managed fund and not by UCL itself would not be seen as a justifiable or plausible
explanation. The potential costs incurred by UCL in terms of reputational damage, loss of
support among alumni, donors, research funders etc would, in the Committee’s view, far
outweigh any financial or administrative advantages that would be gained by UCL from
moving from a segregated fund to a managed fund.
6.7
As an organisation which endeavours to act in an ethically responsible manner, which has
an explicit statement of ethical considerations built into its Investment Policy, and which,
under the terms of that statement, had made a commitment to be responsive to the
concerns of the UCL community, UCL should, in the Committee’s view, invest its funds in
such a way that it retains the maximum possible control over how and where its funds are
invested.
6.8
The Committee concluded that, for all of the reasons given above, its advice to the IC
should be that UCL should not move to investing its funds via a managed fund, but should
continue to do so via a segregated fund.
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Ethical Investment Review Committee – Minutes – 29 April 2013
- Confidential to the Committee-
6.9
It was agreed that the EIRC officers would communicate the Committee’s views to the IC
officers in order to inform the IC’s deliberations on this matter.
RESOLVED:
6.10
That the EIRC officers advise the IC officers that, in the view of the EIRC and for the
reasons outlined in Minutes 6.4 to 6.7 above, UCL should not move to investing its funds
via a managed fund, but should continue to do so via a segregated fund.
JDC
July 2013
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