Oxford explores ethical screening for treasury portfolio

Oxford City Council is set to employ an investment research service to explore whether it can apply a new ethical investment policy to indirect investments.
The council’s scrutiny finance committee last week agreed that it would take forward a statement of values relating to investments, which will be considered by the authority’s executive.
The statement will cover direct investment, but officers may be instructed to find a way of applying the policy to indirect investments through banks and funds.
Green councillor Craig Simmons, who chairs the committee, told Room151: “Some of our current counterparties are rated red on human rights issues.
“We believe that we would not get lower rates of interest with more ethical investors – historically the rates are comparable.”
But he added that the council may face issues in terms of a reduction of the diversity of its investments if it chose to implement an ethical policy relating to indirect investments.
Simmons said that the council would not be revising its treasury management strategy until the end of this year, and that the new policy would apply to that process.
A report produced for the committee by the council’s financial accounting officer Anna Winship said: “Ethics are to some degree a matter of individual judgement and not investing in any area that some would consider unethical would be highly challenging.
“For example, avoiding investment in oil and gas or mining companies, companies producing armaments or parts for armaments, tobacco, alcohol and gambling companies would rule out 31 per cent of the UK stock market, and 16 per cent of global stock markets.
“Even if these exclusions were feasible on financial grounds, the loss of diversification that would be suffered would present major difficulties for the council.”
The report said that even under the current constraints of the council’s treasury management strategy it was difficult to find suitable counterparties with which to invest its surplus cash.
The report also raised concerns over where to draw lines in terms of companies such as Rolls Royce, which produces jet engines which are used in military aircraft, but also for commercial aircraft.
Simmons said: “This is why we are appointing a firm to come to some conclusions. We might not invest in these firms directly, but we could place money with a green fund that could invest in some Rolls Royce projects.”