The idea of what would now be called an “impact” investment – broadly, the investment in companies or organisations with a view to generating not simply a financial return but also a beneficial social or environmental benefit – would be seen as anathema.
That is not to say that there was in the past no thought given to the nature of an investment other than whether it produced an acceptable level of profit.
The investments in a trust portfolio could give and have given rise to controversy.
There have been many prominent examples.
They have included successful campaigns in the 1970s and 1980s challenging the holding within, for example, the endowment trust funds of universities of shares in (large and profitable) tobacco companies, or in banks (regarded as safe) doing business in pre-reform South Africa.
Also there were restrictions on investing in (profitable) pharmaceutical companies accused of unethical practices in their sales to developing countries – but these were largely about what not to invest in rather than the pursuit of a philosophically driven positive investment policy.
Cowan v Scargill
A rare example of the latter was the Cowan v. Scargill case in 1984.
The dispute itself was as to whether or not the trustees of the National Union of Mineworkers pension fund could or should, as the NUM appointees contended, cease acquiring new foreign investments, gradually divest itself of existing foreign investments, and liquidate investments in industries competing with coal in favour of investment in the UK coal industry.
There was substantial argument as to whether trustees could adopt and follow ethical (as the NUM appointed trustees and the Union itself contended they were) investment policies and what such policies were.
The court’s decision, in short form, was that trust decisions were to be made in the best interests of the beneficiaries of the pension trust.
“Best interests” usually meant best financial interests.
If those financial interests meant making an unethical investment then, with some limited qualifications, trustees were not free to decline to make that investment based on their own world view.
The Cowan decision was not without its critics. Some of its conclusions were doubted in Hames v. Church Commissioners for England (1992).
But Cowan did not decide that it was never possible for trustees to adopt and follow an ethical investment policy (subject always to the express terms of the trust): it decided that the primary obligation of the trustees, from which they were not entitled to depart, was to act in the best interests of the beneficiaries.
Pension Law Reform
