Cambridge has often been criticised for not divesting from fossil fuels immediately.However climate activists may not realise that the real culprit lies a rung above the university — it is the legislator who must take much of the blame. This article first will outline why the University cannot simply divest from fossil fuels because of the ethical concerns of trustees. It will then discuss the narrow circumstances where beneficiaries’ ethical concerns may be taken into account. The article will then argue that theUniversity could divest by utilising a financially driven argument, and finally it will ask the key question; why is the legislator not doing more to encourage– rather than deter – ethical considerations being taking into account by trustees?
What must a trustee take into account when investing?
The Trustees Act 2000 (TA) outlines trustees’ duty to invest. This Act contains an exhaustive list of considerations which a trustee must take into account when investing money. The guiding principle that underlies these provisions is that the power to invest ‘must be exercised so as to yield the best return for the beneficiaries’ (Cowan v Scargill (1985)).
This makes us question: if the University has the power to make any investment that benefits the trust financially, why don’t trustees choose environmentally friendly investments which are also financially satisfactory? Cambridge’s trustees could do this and not breach their duty to invest. However, this comes with a caveat; the trustees must be making this choice for purely financial reasons. It must be because the alternative investments would be more financially beneficial for the trust. The trustees cannot take their own moral considerations into account.
Why can’t trustees take ethical considerations into account?
As seen in s.4 TA, there is an exhaustive list of standard investment criteria that a trustee must take into account: i) the suitability to the trust (s.4(1)) and ii) need for diversification (s.4(2)).(Note that ‘suitability to the trust’ is to be analysed with regard to the portfolio theory, which only takes into account financial risks and benefits.)It is ultra vires a trustee’s statutory duty to take into account any other factors.
Cowan v Scargill makes clear that trustees must put to aside ethical considerations and commercial morality. Here, the trustees of the National Union of Mineworkers did not want to invest in oil as it would take away from the mining business. This was seen as a breach of their duty to invest. Possibly quite contrary to one’s gut sense of justice, trustees will be in breach of their duty if they choose to act ‘honourably’ rather than purely in favour of the trust (Buttle v. Saunders (1950)). Trustees are actively encouraged to “gazump,” disregard environmental, social and governance and to act “dishonourably” - short of illegality - if to do so would benefit the trust financially (Cowan). The rationale for this is that ‘honourable’ considerations are subjective – what might be an ‘honourable consideration’ for the trustee may be a completely irrelevant objective to take into account for the beneficiary. As the beneficiaries are to be prioritised, their interests matter only. It could even undermine the entire duty to invest if the trustee was to take the personal view that gaining wealth passively is unethical! It’s consequently understandable why CambridgeUniversity trustees cannot immediately divest from fossil fuels , even if they wanted to — if anything, wanting to divest for any reasons other than economical would act against them! How then, might students be able to get around this?
When may the ethical considerations of Beneficiaries be taken into account?
The answer may lie within the caselaw regarding beneficiaries’ non-financial interests. Whilst trustees’ cannot take their own ethical considerations into account, case law shows that the ethical considerations of the beneficiary may be considered. Megarry VC commented (in obiter) in Cowan that the benefit of beneficiaries may not solely mean financial benefit[TW2] . Rather, the moral and social benefit of the beneficiaries should be taken into account. This acknowledges that some beneficiaries would prefer to ‘receive less than to receive more money from what they consider to be evil and tainted sources.’ This was an obiter comment, and was not binding authority, but, this principle has become law in the context of charity cases such as Harries v Church Commissioners for England (1992). This concerned whether a church’s trustees could take into account moral considerations of their Christian beneficiaries. It was found that they could, but this was framed in financial terms. Nicholls V-C stated that ethical considerations could be taken into account only insofar as the profitability of investments is not jeopardised. Prima facie, the purpose of the trust is to ‘receive maximum return,’ thus they i) must not conflict with the aims of the charity and ii) must not hamper its work - both being linked to the return of the charity in the long term.
Therefore, for Cambridge University trustees to be able to divest due to ethical reasons, they must therefore show that i) CambridgeUniversity is a charity and; ii) investing in fossil fuels is either a) in conflict with the aims of the University or b) hampers its work.According to the University’s Statutes and Ordinances, it is a charity under the Charity Act 2011 - satisfying (i). As the aim of the University is to educate and facilitate research, it is unlikely that (ii)(a) is satisfied -investing in fossil fuels does not conflict with this. However, (ii)(b) is instead likely satisfied; the investment could be said to hamper theUniversity’s work. It was argued in Harries that the church’s work would be hampered where ‘potential recipients of aid…[would be]…unwilling to be helped because of the source of the charity’s money’. If the recipients of theUniversity’s work (i.e. students and researchers) are unwilling to joinCambridge due to the University’s investments, it is clear that such investments hamper its work. Furthermore, another example in Harries was where such investments may alienate others who support the charity financially. This applies to Cambridge, who’s fossil fuel investments may alienate potential alumni donors - particularly as the graduate pool is likely more environmentally conscious than the past.
Where does this leave us now?
Can the University’s trustees divest from fossil fuels without breaching their duty to invest? Ultimately the answer is yes. As aforementioned, the easiest route would be for the University to frame such a decision in financial terms - arguing that to divest would be for the financial benefit of the trust. This would be a reasonable argument; the ‘suitability of investments’ criterion (TA 2000 s.4(3)(b)) includes maintaining a fair balance between all beneficiaries - including those of the future (Nestle vNational Westminster Bank (1992)). As the world is moving towards renewable energy sources, fossil fuels are unlikely to sustainably increase in value; it would be in future beneficiaries’ interests therefore to divest.Furthermore, if beneficiaries make comments on which financial investments they would prefer, the trustees must consider them, although will not be bound by them (X v A (2000)). The second option, and more difficult route, would be to argue that the beneficiaries ethical considerations necessitated investment following Harries.
Why is the legislator not encouraging ethical considerationsbeing taken into account?
As mentioned above, the reason trustees ethical considerations cannot be taken into consideration is because they are subjective. However, they could be taken into account if Parliament enacted legislation positively enforcing trustees to do so. As a ratified signatory to the Paris ClimateAgreement 2015, the United Kingdom has shown on the international plane that environmental considerations are an objectively reasonable ethical consideration to prioritise over financial gain. Why has it not enacted such philosophy into its domestic legislation? There is clearly precedence for doing so. The EqualityAct 2010 means employers are not allowed to discriminate[TW3] , even where it may be financially beneficial to do so. This is a clear example of when Parliament’s legislation has stopped financial considerations from overriding other values within our society. It is about time they enact similar legislation to govern trustees’ duty to invest.
In conclusion, the University can be criticised for not using the options available to them to divest from fossil fuels. However, such prioritisation of financial interests has been thrusted onto trustees by legislation. The true culprit for such lack of divestment is, rather, Parliament.There is no excuse as to why legislation is deterring trustees from taking into account environmental considerations. In fact, it should be actively encouraging them to do so.