Divestment Double Standard

Last month, UBC’s Board of Governors officially voted against the divestment proposal brought by UBC C350. This has already been covered widely, so search other news places if you want a primer on it. That the Board voted against it is not surprising in the least. It was obvious from the start that they were very skeptical of the idea and emails included in the Gupta FOI package made that abundantly clear. Simply the fact that the Board voted against divestment isn’t objectionable: there are credible arguments to be made in favour of divestment, there are credible arguments to be made against divestment, and it is certainly a topic on which reasonable people may disagree. That’s why it’s such a shame that rather than engage in that debate (that we know of publicly – they claim lots and lots of work has been done in meetings that no one was allowed to attend) the Board hypocritically voted to create a new experimental “Sustainable Futures Fund” (SFF).

The crux of UBC’s arguments for the rejection of divestment are found in a Responsible Investment Policy which was adopted by the Board in April 2014. The policy describes divestment, aka screening, as “an option through which investors may express their dissatisfaction with the environmental, social or governance practices of a company, industry or a nation with the aim of influencing these practices.” The policy then lists five criteria which any divestment proposal – regardless of who submitted it for consideration – must meet.

Without going too far into the weeds, the responsible investment policy itself has a lot of problems. First it was only put in place AFTER UBC C350′s proposal had been approved by students in a February 2014 referendum. By adopting the policy, the Board was imposing retroactive conditions on a proposal that had already been voted on. Secondly, and this is probably related to the first point, the 5 criteria are essentially impossible to meet in the way UBC has been interpreting them. The university commissioned a legal opinion from Koskie Minsky about whether or not UBC C350′s divestment proposal met the five criteria. That legal opinion essentially put the onus on anyone proposing divestment to predict the future, requiring certainty that their plan would turn out better than any possible alternatives.

Which brings us to UBC’s proposed alternative, the “Sustainable Futures Fund” (SFF). It is described in the motion passed as a fund “that incorporates non-financial objectives for high environmental, social and governance issues including a portfolio mandate for low carbon emissions.” The SFF is a divestment proposal, plain and simple. It fits the definition in the policy. Greg Peet, chair of the Finance committee, explicitly said it was a form of divestment during the meeting. As a divestment proposal, it should be evaluated against the same five criteria as UBC C350′s divestment portfolio before it can be considered by the Board.

It was not evaluated against those five criteria prior to being approved, of course, and UBC staff have confirmed that the SFF will not be evaluated against this criteria in the future either. It’s a pretty clear double standard being applied – the old paternalistic chestnut of “do as I say, not as I do”. This decision should hopefully make clear that the Board’s difficulties with governance, engagement, and decision-making go well beyond the Gupta Affair and are built into how they conduct themselves on other big issues too.

(An aside to note that UBC’s new VP External Philip Steenkamp has been valiantly trying to uphold the status quo through completely nonsensical statements. Through gathering tape for our podcast, I’ve heard no shortage of them but here’s an example from Vancouver Magazine: “…there was a request from the Canadian Association of Petroleum Producers to make a presentation to the committee and they said no—and equally, they said no to the divestment group. They felt that would allow them to look at all the evidence and not favour one particular actor over the other.” Looking at ‘all the evidence’ apparently involves deliberately avoiding hearing evidence from people who bring knowledge and expertise from both sides of the issue.)

A few justifications have been put forward for why the SFF required no study, no legal opinion, no serious consideration. One is that the Responsible Investment Policy only applies to divestment proposals submitted by others, not ones generated by UBC. There is no language in the policy that would suggest that to be the case: the policy is written as a general guideline for the management of endowment funds. The other is that fiduciary duty will not be an issue because donors will provide specific instructions that their funds should be placed in the SFF and agreeing with all that entails. Except that the very first donor to the SFF is the university itself, transferring $10M from a different endowment to act as seed funding for the SFF. In approving that allocation, the Board of Governors should have had to both follow the Responsible Investment Policy AND ensure that their fiduciary duty to the university was being upheld while doing so. In other words, in making those instructions as a donor to the SFF, was the Board upholding their fiduciary duty? If so, how do they know?

The hypocrisy is even more jarring given that, except for the rather vague description provided for the SFF – that it is a fund that takes non-monetary Environmental, Social, and Governance (ESG) considerations into account – it’s not clear what it is, really. How to evaluate investments on ESG grounds is a matter of interpretation and priorities. The Board did not bother waiting to figure out any of those details before throwing millions at it. What better way to demonstrate a strong commitment to upholding fiduciary duty than to spend first and do the due diligence later.

Bottom line: the University should subject their new SFF to a serious evaluation based on the same criteria that other divestment proposals are subject to. Not only to be following their own policy, but also to show that the five conditions can actually be satisfied without the need for clairvoyance. Why not set aside whatever UBC paid Koskie Minsky to evaluate UBC C350′s divestment proposal, and allow the AMS and Faculty Association to jointly pick a law firm to evaluate the SFF on the five conditions? They’d be hypocrites not to.