FAQs

1. Why do councils such as Edinburgh invest in arms companies?

Since the “war on terror” many arms company share prices have sharply risen as defence budgets have increased and new orders have come in.There is often nothing preventing councils from investing in the arms trade. Without ethical investment policies expressly prohibiting such investments, pension managers 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 council’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.

Pension managers 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 council 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 an institution invests in a company it confers upon that company a credibility that would not otherwise have existed. Taken in isolation, one council 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. 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.

5. Aren't Councils legally prohibited from investing ethically?

Trustees are obligated to pursue best value – but this specifically does not exclude Ethical Investment. The Goode Committee on Pension Law Reform concluded “Trustees...are perfectly entitled to have a policy on ethical investment and pursue that policy.”

6. 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.

With thanks to UCL P and P