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A statement from the Chief Financial Officer about the University’s position on offshore funds and fossil fuel investments.

This statement was made by the Chief Financial Officer, Anthony Odgers, in response to recent queries about the University's investments. It was read at a Discussion in the Senate House on Tuesday 5 December 2017. You can read the rest of the remarks made at that Discussion in The Reporter, No. 6488.

The publication of the Paradise Papers by The Guardian newspaper, which said the University and some colleges had invested in Cayman-registered funds, has renewed questions on the University’s approach to investment and its holdings in fossil fuels.

The initial reporting focused on the use of the Caymans for secrecy and tax avoidance. However, the newspaper subsequently had to correct its story to make clear that the use of the Cayman funds was to save costs for the University rather than taxes.

The purpose of the institutional “offshore” market is to minimise costs by aggregating investors, usually located in several different jurisdictions, into a single investment fund, rather than multiple vehicles, and to ensure that these investors are subject to one level of taxation in their given jurisdictions, rather than two. 

There is a clear distinction between open use of legal mechanisms to ensure compliance with tax laws, and the misuse of offshore centres to evade tax, commit fraud or hide wealth from legitimate scrutiny. The University condemns any such illegal or unethical behaviour.

Most of the Cambridge University Endowment Fund (CUEF) is invested outside the UK. As a charity, the fund is fully or partially exempt from tax in the jurisdictions in which we invest.

The offshore markets through which the endowment may invest are properly regulated, efficient and well run.  In all cases we disclose our identity to administrators and to tax authorities.

The newspaper also sought to suggest that the funds were used to make significant investment in fossil fuels. That is not the case. The position on investment in fossil fuels remains the same as that which was reported in 2016.

Working Group on Investment Responsibility

This position was set out by the Working Group on Investment Responsibility, which was set up by the University Council in May 2015 and reported back in June 2016.

That report made it clear that, like many other institutions in the charity and higher education sectors, direct holdings are the exception rather than the rule. Only a small part of the University’s investment portfolio is managed directly by the University.

The report said: “Of these directly managed securities, the Group found that at this time the University has no exposure to the most pollutive industries, such as thermal coal and tar sands, and no expectation of having any such exposure in the future. It also has negligible exposure to other fossil fuel industries.”

The University holds most of its investments indirectly through pooled funds and other vehicles run by third-party managers who oversee the individual securities.

On these, the report said: “In relation to investments managed externally, there are no holdings in tar sands companies and only negligible holdings in thermal coal companies and any future holdings in such companies are expected to be negligible.”

Nothing in the Paradise Papers changes this position.

The report, endorsed by Council, rejected full divestment in favour of a policy of ‘active engagement’ with fund managers. It also recommended an open letter from the Vice-Chancellor and the Chief Investment Officer to its external managers.

That open letter stated: “The University’s Investment Board and Office expects its appointed investment managers to incorporate an assessment of climate change risks into their investment processes.”

The letter made it clear that future action by governments, including, for example, fiscal and regulatory change concerning carbon, was likely to affect the economic attraction of investments in this sector. Conversely, it said that companies which diversify away from the most environmentally damaging activities are likely to have better long-term success and therefore the best return on investment.

Following the letter, the Investment Office has continued to engage with fund managers on this and on their overall environmental, social and governance approach. In particular, it surveyed all of the active equity managers. It is clear from responses that there is widespread support for the University’s approach.

Divestment Working Group

In May 2017, the Council set up the Divestment Working Group (DWG), to consider the question of divestment from businesses involved in fossil fuel extraction.

The DWG has been informed that the University’s exposure to the energy sector in June 2017 (including both fossil fuels and renewables) remains well below the global stock market average (using the MSCI All Country World Index).

The DWG is continuing with its work, including wide consultation and open Town Hall meetings. It is expected to produce at least a preliminary report by May 2018. You can read more about the Divesment Working Group on its website.




13 December 2017