Wednesday, 13 December 2006

FAQs on Ethical Investment and the Arms Trade

1. Why do universities such as UCL invest in arms companies?
There are several reasons why this occurs - they include (in no particular order):

  • Since 9/11 and the “war on terror” many arms company share prices have sharply risen as defence budgets have increased and new orders have come in. At the same time, universities find themselves strapped for cash due to the current funding crisis in education and so try to make money from investments to stay in the black.
  • Many elite, research-intensive universities in the UK receive large amounts of research funding from arms companies through contracts they carry out in their science, engineering and technology departments. They therefore want to retain good relations with these companies and perceive them as economic partners rather than merchants of war.
  • Investing in the arms trade is common practice for many universities (45 universities confirmed to Campaign Against Arms Trade that they invest in the arms trade) and so forms the economic status quo. Finance directors may feel it is therefore easier for to carry on as they are rather than making time-consuming changes.
  • There is often nothing preventing universities from investing in the arms trade. Without ethical investment policies expressly prohibiting such investments finance directors will see their fiduciary duty to maximize profits as their one and only concern.

2. Who is to say which companies are ethical and which aren't? Where do you draw the line?/ Ethical criteria are too tricky to define and apply to an investment policy, so what's the point?
A university's investment decisions rely upon the information and instructions that the finance director receives. Ethical concerns can form a part of this process as there are recognised frameworks for socially responsible investing- and for ascertaining institutional values. Directors of finance can be instructed to weigh ethical and financial considerations and the evidence from the size of the UK ethical investment market (£17bn screened + £280bn under 'engagement' instructions), and its positive performance shows that many do so successfully.

3. Do we really think that by getting one university to withdraw it's shares in a company that produces weapons that this will stop the arms trade? Someone else will buy them and nothing will have changed.
When a university or any other institution invests in a company it confers upon that company a credibility that would not otherwise have existed. Taken in isolation, one university divesting from the arms trade will have a small impact, but as more universities divest and are seen to be able to manage quite well with alternative investments the economic status quo will be brought into question and universities which continue to invest will be pressurised into justifying their continued association with arms companies. Furthermore, the debate which arises around divestment issues allows the culture of military influence on campus- through funding of research- to be broached.

4. The same people who argue against the university investments also want more money to pay lecturers and support staff with. Providing the best facilities for students requires income from sensible investments, so why not invest in a company that makes a profit? Doesn't it makes financial sense to invest in a company the government is throwing money at?
Whilst it is true that arms companies receive a unique subsidy of £890million from the UK government every year, the idea that universities should benefit from this seems absurd given the current funding crisis they face and the recent introduction of top-up fees. It would be far more prudent economically for the government to invest more money in universities directly, so that they don't have to rely upon market speculation for income.

5. Won't Socially Responsible Investment harm financial returns?
Ethical investment funds that preclude arms company shares are amongst the most profitable. In the past decade the Church of England’s £4.3 billion ethically-managed fund, for example, was the 2nd best performer of more than 1,000 funds.

6.Aren't Colleges and Universities, as charities, legally prohibited from investing ethically?
Trustees are obligated to pursue the best interests of the Charity – but this specifically does not exclude Ethical Investment. In fact, Charity Commission regulations (2001) state, ”trustees of a charity should decline to invest in a particular company if it carries out activities which are directly contrary to the charity's purposes.” Amongst other precedents from law and government recommendations, the Goode Committee on Pension Law Reform concluded “Trustees...are perfectly entitled to have a policy on ethical investment and pursue that policy.”

7. What alternative investment opportunities are available?
The ethical investment industry is well-established in the UK and offers a range of services for institutional investors. A good place to start would be Ethical Investment Research Services (EIRIS), who produce guides for investors and fund managers so that they can find the ethical policy which is right for them.

8. The Armed Forces need the best equipment and these companies provide it. What's wrong with supporting British industry and British jobs?
The seven UK-based arms companies which the Clean Investment Campaign focuses on are primarily arms exporting companies. When a contract for equipment for the UK armed forces comes up, it is often possible to buy cheaper (and arguably better) military equipment from abroad. However, government ministers often 'buy British', helping companies sell their equipment abroad. In July 2003, BAE Systems sources were reported as saying that export orders were 'a vital factor' in the recent decision by the government to buy BAE Systems Hawk jets. The Treasury had estimated that opening the bid to competition from other companies would save the UK tax-payer £1 billion. Choosing more expensive equipment in order to support exports is a direct subsidy to the arms trade. The MoD's own estimates show that 65,000 jobs are sustained by military exports, just 0.2% of the national labour force.

9. Could my tuition fees be invested in the arms trade?
It is possible that money from tuition fees could end up being invested in the stock market and thus in the arms trade. One scenario would be if there was a surplus from the tuition fees fund after the money for, for example, staff pay, the university estate and bursaries/scholarships had been allocated and the surplus funds were not ring-fenced. However, because every university manages its finances in a different way, with different operating costs, this could only be known for certain following access to an institution’s accounts.