New paper explores university divestment/engagement debate … but leaves it to reader to decide

Academics summarise the evidence but steer clear of proposing solutions

A new study by three Cambridge University academics looks at the climate change divestment/engagement debate at the University – but leaves it up to the reader to make their own judgment.

The paper is by David Chambers of Cambridge’s Judge Business School, Elroy Dimson of Judge and the London Business School, and Ellen Quigley of the Centre for the Study of Existential Risk, who is also Advisor to the Chief Financial Officer (Responsible Investment).

“We do not propose solutions. Instead, we ask you, the reader, to consider the arguments and to take a position.”

Dimson is a well-known professor who chairs the Advisory and Policy Boards of FTSE Russell and is a former chair of the Strategy Council of the Norwegian Government Pension Fund Global. Chambers is Reader in Finance and Academic Director of the Centre for Endowment Asset Management. While a student, Quigley co-founded Positive Investment Cambridge and Positive+Investment.

They describe the background and the research behind the current divestment debate at Cambridge, but say: “In contrast with other Journal articles, we do not propose solutions. Instead, we ask you, the reader, to consider the arguments and to take a position.”

The trio summarise relevant research and “challenge the reader to form her own view on the choice between divestment and engagement”.

The paper opens with an account of Tilly Franklin, the incoming chief investment officer (CIO) of the Cambridge University Endowment Fund, and Anthony Odgers, the University’s chief financial officer (CFO), meeting to discuss their response to the University’s fossil fuel divestment movement. It followed the departure of the previous CIO and most of the investment team “against a background of ongoing pressure from students concerned about climate change”.

While summarising the situation and relevant research, they remark that changes in investment policy “should be evidence-based”.

The paper concludes in an unusual open-ended way, starting: “In his Old Schools office, Mr Odgers [CFO Anthony] and Ms Franklin stood at the window of one of the oldest buildings in the University, the scene of academic discussion and contemplation since 1441.”It muses: “Should the University divest its holdings in fossil fuel companies, should it engage, or should it do both? How should it accomplish this within its fund-of-funds structure? What sort of investment team is needed for this new era of responsible investing? What other actions could the University take, given its particular strengths and influence, to do its part to combat the climate crisis?”

Meanwhile Dimson has been involved in a separate paper that has found that leadership is “decisive” in collaborative engagements.

It used data from the Principles for Responsible Investment’s Collaboration Platform (the former ‘Clearinghouse’) and found that “for maximum effect, coordinated engagements on E&S [environmental and social] issues would preferably have a lead investor who is well suited linguistically, culturally and socially to influencing target companies”.

The findings are drawn from a dataset comprising 31 PRI coordinated engagement projects initiated between 2007 and 2015. The sample includes a total of 1,671 engagement sequences targeting 964 firms in 63 countries.

The study, believed to be the first to provide detailed evidence of the nature and impact of “such engagements in a global setting” had input from sustainable investment figures such as Jane Ambachtsheer, Cathrine De Coninck-Lopez, Valeria Piani and David Pitt-Watson.

And yet another paper, Corporate Governance Through Exit and Voice, is based on inhouse data from Standard Life Investments, from the days before it merged with Aberdeen Asset Management. It suggests that corporate engagement contributes to an “informational advantage” that in turn contributes to market outperformance, or alpha.

The preliminary paper was written by Marco Becht, Julian Franks and Hannes Wagner and uses nine years’ worth of internal information along with input from Professor John Kay and Standard Life/Aberdeen figures like Guy Jubb, Keith Skeoch and Euan Stirling.

It had funding partly from Norges Bank Investment Management (NBIM) under the Norwegian Finance Initiative (NFI) Research Programme.