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Appendix 3 - Ethical Investment Report From Baliol


Appendix 1 (due for renewal AGM 2004)

Ethical Investment means having a regard to one’s principles when acting as an investor. In this paper I indicate a way forward in applying this concept. I present some principles for the college to affirm, and then to consider how it can play a part in their furtherance. Ethical Investment is morally sound. Yet responsibility need not be inimical to the interests of the members.

Ethical Investment

Ethical Investment aims to support sustainable business practise. This relates to a number of issues, including how firms manage their environmental resources; have regard to important stakeholders like employees, customers and shareholders; and interact with wider society.

It is increasingly becoming clear that corporate sustainability goes hand in hand with shareholders’ longer run interests. The UKthink tank SustainAbility cites a Universityof Pittsburgh Business School Review, of studies done from 1971 to 1997. “Of those undertaken in the 90s, when the data and methodologies were most advanced, the review found that 10 out of 12 studies reported a positive relationship between CSR (Corporate Social Responsibility) and financial performance, one study found a negative relationship and one found no effect”.[1]

Sustainable Business is important for shareholders, because companies’ activities can create frictions with their stakeholders, namely customers, employees, and the wider public.[2] Unsustainable business practise can build up a risk of tensions with global stakeholders that will manifest further into the future. When those tensions do manifest, the speed at which information is disseminated, means that affected parties (say employees and customers) can readily communicate with each other. Such tensions are often very damaging.[3] In the words of one paper: “As a result, for global companies, hardly any decision is purely local any more.”[4]

When companies anticipate the reaction of stakeholders, this often reveals new business opportunities. For example, companies that can point to a long record of responsible behaviour, can make an extra effort to do this, when their industries become affected by controversy. Businesses that foster good relations with their companies through environmental responsibility are less vulnerable, when the regulatory situation becomes more bracing.

Given this backdrop, the role of Ethical Investment is as follows. Ethical Investment can spur companies to make changes that will not significantly effect current performance, but which they choose not to make. Ethical Investment also helps to facilitate business changes that could be difficult within the current framework of some common forms of investor behaviour. Where the risks of companies’ policies stretch beyond a certain point into the future, it is particularly the ethical investors that will have the foresight to permit changes for the better.[5]

Balliol College can contribute to both of the above things. It can promote change that is compatible with longer run success. But by leading by example, it can also support the trend towards Ethical Investment more generally. This would help permit companies to make a more radical switch towards Sustainable Business that would be in the interests of the whole of society. Thus by moving towards Ethical Investment Balliol would truly be acting in the interests of its members who are, after all, part of that wider society.

Three Principles

The college has a wide range of options, comprising both the use of its rights as a shareholder[6] and adjusting its portfolio, which it could use if it so chose. The College plainly cannot do all it can legally to discharge its duties, until it has clarified what its duties are.

Below I outline three starting principles that provide a good basis for discussion. The affirmation of these principles could be accompanied by the setting up of an Ethical Investment Committee. This committee could be charged with examining whether Balliol’s shareholdings have any relevance to those principles; and to develop plans of action to be recommended to college.

“Companies should ensure that their activities and their supply chains do not facilitate coerced labour”

‘Coerced’ labour may or may not include prison labour.

“Arms companies should only supply those states that meet certain minimum standards of human rights practise”

There does of course need to be a readily agreed standard of definition. This could be the Universal Declaration of Human Rights.[7]

“Companies should make reports, in a manner useful and meaningful to their shareholders, on their environmental performance and procedures”

Since universally accepted norms for environmental reporting are currently under development, Balliol could aim to support this trend by ensuring that all companies have moved towards giving some substantial information, and encourage them to take part in initiatives to widen and standardise the reporting.[8]

It seems there is a great deal of scope for greater transparency, upon which all prudent investment decisions depend. In a study conducted by the World Resources Institute, a selection of thirteen USpaper companies freely consented to take part in an assessment of the regulatory and legal risks of their activities (provided it was not made public which companies had which results). It was found that “few of the companies disclosed any details about the financial risks or potential impact arising from their exposure to ‘known environmental uncertainties’”. There was no attempt anywhere to give quantitative indications.[9]


I make the following recommendations:

1.)That College affirm the principles above as the basis for the action.

2.)That an Ethical Investment Committee is set up with the ability to examine Balliol’s shareholdings in the light of these.

3.)That the Ethical Investment Committee should bring together Fellows, the Senior Bursar, and representation from the Investment Committee; and representatives of the JCR and MCR as appropriate; and be enabled to seek outside advice where necessary.

Espen Collins
JCR Charities and Environment Officer
3 May 2001

[1] Source: online resource www.sustainability.co.uk

[2] For example, see Putting the P Back in PLC Will Hutton, The Industrial Society 2001

[3] A prime example here is the catastrophic effect on the American tobacco industry when states sued, after it became public that the companies had misled consumers.

[4] Sustainability and the Accountable Corporation: Society’s Rising Expectation of Business Allen L White, Vice president Tellus Institute, Boston; also Vice Chair of steering committee of Global Reporting Initiative.

[5] The degree of corporate changes that are permissible depend on the strategies of investors. Some investors look to the flow of future company profits; others undoubtedly speculate on current share price performance. Where the latter is form is prevalent, modest business change may still be possible. Ethical Investment is one of the more long-termist approaches to investment. This facilitates bigger changes that fosters long run success. Those investors who already take a long-termist view then, should not find there is a big change in their financial performance if they incorporate ethical and environmental concerns.

One can go further than all of the above, and demand that companies contribute in ways that confer so-called externality benefits – make the whole of the economy and society stronger. But this will only be in the shareholder’s own interests if the private sector make such a contribution in unison. As Ethical Investment moves towards universal adoption this will become feasible.

[6] In this respect, Balliol is legally entitled to enter dialogue with management, liase with other investors, and exercise its rights at AGMs in the form of voting and bringing motions.

[7] Article 3 – Everyone has the right to life, liberty and security of person; Article 4 – No one shall be held in slavery or servitude…; No one shall be subjected to torture or to cruel, inhuman or degrading treatment.

[8] In the UScurrently, environmental reports are considered as such only if they stand separate from the financial reports, and often detail pollution discharge volumes, the structure of the environmental division, awards won and management approaches.

A high profile standardisation initiative is the Global Reporting Initiative (GRI). High profile participants include BASF (Germany), Ford Motors, Panasonic Matsushita Electric, TotalFinaElf (France) and RioTinto (UK).

[9] Source: B Herbert, Newground Investments; Seattleand InvestorResponsibilityResearchCenter. He is currently running a shareholder campaign with institutional investors on this issue.

Posted on 14/10/04 by admin

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