There are two forms of ethical investment. The first works on a ‘do no harm’ principal and involves screening out particular kinds of stocks that an investor has decided are beyond the pale. Tobacco is almost always on this list, along with alcohol providers, gambling stocks, weapons manufacturers, pornography and of course big oil. The UK’s Investment Management Association counts 94 ethically managed funds, most of them run on the ‘do no harm’ principle.

CUSU’s Sustainable and Responsible Investment Society Coalition advocates that Cambridge join these funds in divesting from certain industries on the basis that the University should be a role model in society, acting responsibly and helping create a safe future that is better for everyone. No one can question this ideal.

But in reality a safer future is unlikely to be achieved by Cambridge and other institutions divesting from fossil fuels. According to the International Energy Agency, despite the growth of renewable energy and nuclear power, fossil fuels will remain the dominant source of energy generation for the foreseeable future. Even if Cambridge divested from fossil fuels and every major institution in the world followed suit, demand for coal, oil and gas would remain sufficient for the industry to survive.

Indeed in divesting, Cambridge would be likely to cede ownership of big oil to those investors who are least environmentally aware and least likely to uphold industry standards. It would be the worst of all worlds.

The second form of ethical investing is based on a “do good” principle. It involves screening companies for good ethical behaviour. Many organisations already do this for consumer goods, but the practice is gaining popularity in the investment community. The power of this form of investment is that is creates an incentive for companies to improve their practices and it ensures that dialogue remains between companies and those pressing for reform.

Under this system, Cambridge and its colleges would invest primarily in those energy companies with the best records. Greenopedia has devised an index based on open environmental reporting, greenhouse gas emissions, production efficiency, oil spill efficiency, pursuit of alternative fuels and stance on climate change. Of the big oil majors it currently ranks Shell first, BP second, Exxon Mobile third,Conocco Philips fourth and Chevron fifth. Of course these companies are not perfect. Exxon continues to question global warming and BP has suffered from the Deep-Water Horizon disaster. But through engagement, responsible investors have a chance to shape the impact and trajectory of an industry which holds sway over our environment’s future.

There are two major problems with an approach that chooses investments based on environmental criteria. First, ethical portfolios do not tend to perform as well as those with the full range of stocks to choose from. As the FT notes, “sin stocks” tend to pay the highest dividends.

Over the past two years in the US, the aptly named Vice Fund (which invests only
in alcohol, tobacco, arms and gaming stocks) has made a total return of 56.3 per cent; far ahead of the Ave Maria Catholic Values fund, which excludes them and returned 34.5 per cent. The underperformance of a portfolio would be of particular concern for an institu- tion like Cambridge, a centre of pioneering and expensive research, and as such a worthy cause in its own right.

Second, there is more to ethics than just the environment. In the 1980s, the Council on Economic Priorities, a social and environmental think-tank, noted that Marlboro maker Philip Morris, the leading cigarette company, at the time, was highly rated for its progressive policies on the hiring of women and minorities and for offering excellent day care. In 2012 ExxonMobil donated over $200 million to charitable causes and paid for its workers to carry out over 776,300 hours of volunteering. While it is easy to be cynical about such efforts they do make a significant difference and they provide a timely reminder that no industry should be considered totally irredeemable.

Cambridge University’s endowment currently stands at £4 billion, of which over £1bn is invested in global stocks. Moreover, thanks to its global reputation it is already an institutional role model among investors. Cambridge should use this power and influence not to draw the ethical investors out of oil and other blacklisted industries, but to push for higher environmental and ethical standards in those areas which need them most. If the world is to have a safer and less carbon intensive future it will owe it to continued political and economic engagement rather than sanctions.