What may an Ethical Investor do with profits from fossil fuels due to the war on Ukraine?

What may an Ethical Investor do with profits from fossil fuels due to the war on Ukraine?

Photo: unsplash.com / Zbynek Burival @zburival
13 March 2024

Oil companies have clearly benefited from the rise in oil prices caused by Russian full-scale invasion of Ukraine in 2022. Some of them recognized this and donated parts of their profits to Ukrainians immediately in 2022. Investors in fossil fuel companies benefited as well, among them universities’ endowments. Ethical Investor first published in 1972 provides a framework that we use to analyse options for university communities and the Board of Trustees. 

We discuss the reasons why some universities have decided to work directly with Ukrainian students and researchers. In this paper we explain the case for this action if universities position themselves not only as scientific but also as a moral avant-garde of the society. We propose an outreach by the universities fundraising arms to the alumni and philanthropic organizations if the universities are not able to reach Ukrainian scholars directly. 

We also note that as a result of the high oil prices, many economies have suffered social distress and need to be recognized as the group injured by high oil prices of the war waged by the Russian Federation. 

Purpose of the University and Free Exchange of Ideas as the Means to It

Some fifty years ago, Yale University has produced several publications that are noteworthy for the assumptions made in them as well as the questions they addressed. 

A pre-eminent historian of the American South, C Van Woodward wrote on the freedom of expression at Yale. The report starts as follows:

The primary function of a university is to discover and disseminate knowledge by means of research and teaching. To fulfill this function a free interchange of ideas is necessary not only within its walls but with the world beyond as well.

We write in the tradition of “free interchange of ideas” with university communities. In the time of declining trust in most institutions, including universities, open communication is most needed. 

Ethical Investor: the Responsibility for Ethical Conduct Starts with Individuals

New knowledge can be applied immediately and universities become natural first users. Publication of Ethical Investor, according to the web site, made Yale a leader in managing institutional endowments with an “ethical responsibility”. The book informs the practice of responsible investing by a major US institution and is widely known and used in the field. 

Ethical Investor starts with a generous and uplifting tradition of the supreme trust in basically decent human understanding and moral judgment. In the quaint, liberal, humanistic tradition of the 20th century an individual possesses the capacity for human understanding. Institutions would just do well to follow the individuals in managing their endowments with ethical purpose (p 6):

Here we expound, as a point of departure, what we take to be the minimal moral responsibility that all members of society have always been asked to observe: as individuals, we recognize varying degrees of commitment to take affirmative action for social improvement, but we share the obligation not to inflict harm upon others …Such an effort, we believe, is required not only of individual men and women but also of the large collective institutions through which men and women function in complex society. 

How do the authors envision individuals, and then institutions, making ethical choices?

Social injury as the guide to the minimum of good conduct

In view of the authors, the practical way for an individual to follow a moral purpose is to recognize, avoid and correct “social injury”– it is a “moral minimum”:

While, as we shall see, this injunction, to prevent and correct what we call social injury, is easier to state in the abstract than to translate into workaday rules, that difficulty does not obviate an honest effort to respect the prohibition. (p.6)

The negative injunction to avoid and correct social injury threads its way through all morality. We call it a “moral minimum”, implying that however one may choose to limit the concept of social responsibility, one cannot exclude this negative injunction…

The view that all citizens are equally obligated to avoid or correct any social injury which is self-caused finds support in our legal as well as our moral tradition (p.18)

In sum, we would affirm the prima facie obligation of all citizens, both individual and institutional, to avoid and correct self-caused social injury. Much more in the way of affirmative acts may be expected of certain kinds of citizens, but none is exempt from this “moral minimum”. 

In some cases it may not be true – or at least it may not be clear – that one has caused or helped to cause social injury, and yet one may bear responsibility for correcting or averting the injury (p.21) 

While shareholders may prove, in the short run, to be less concerned for the public interest than some advocates of shareholder responsibility hope, in the long run society will benefit from more widespread participation in moral and social issues. Keeping people away from these issues only increases the atrophy of responsibility already pervasive in a highly organized society. The fabric of trust, so essential for a democratic nation, rests on the reciprocal expectation that persons and institutions will take responsibility for the social consequences – intended or unintended – of their acts (p.64)

In the Guidelines section Ethical Investor defines social injury as follows: 

e) Social injury; the injurious impact which the activities of a company are found to have on consumers, employees, or other persons, particularly including activities which violate, or frustrate the enforcement of, rules of domestic or international law intended to protect individuals against deprivation of health, safety, or basic freedoms (page 171). 

The narrow definition above is used to create a specific policy at a particular time and place. Ethical Investor is clear that the definition will evolve with time and effort, as stated in the beginning of the work: 

Although the nоtion of social injury is imprecise and although many hard cases will be encountered in applying it, we think that it is a helpful designation and that cases can be decided on the basis of it. In the law, many notions (such as negligence in the law of torts or consideration in the law of contracts) are equally vague but have received content from repeated decision-making over time… Moreover, our Guidelines attempt to give some content to the notion of social injury by referring to external norms… 

For the authors, new knowledge would change the definition of injury over time:

We would hope that under our proposed Guidelines similar “case law” would develop. (p.21)

And it is clear to the authors of the present report and Ethical Investor that inadvertent and unanticipated injury would still lead one to correct it: 

In some cases it may not be true – or at least it may not be clear – that one has caused or helped to cause social injury, and yet one may bear responsibility for correcting or averting the injury (p.21) 

We will return to the curious case where one has not caused the injury but “must bear responsibility for correcting or averating the injury”. For now, we may also ask ourselves how this approach applies in the following case: 

Suppose the sole cause of the largest portion of economic profits is a series of events that necessarily included social injury to a large group of human beings. The injury was not caused by investees of the university but it was necessarily part of the chain of events that were the main cause of the profits of the business.  It is clear that the profits of the business in that large measure were possible if, and only if, distress and injury were caused to a large group. How should the university community act?

We are talking about the extended rise of oil prices around the time of February 2022 brutal full-scale invasion of Ukraine and the 2013-14 period of the first invasion of Ukraine by the Russian Federation. 

Did War against Ukraine cause ever higher oil prices in 2021-22?

In January of 2024, at the presentation of a book on the 2022 war by Yaroslav Trofimov, we asked the author whether economic considerations were part of the “calculus” for the invasion. The answer given was affirmative and referred to an even stronger position of the Russian Federation as energy supplier in Europe after the initial attack in 2014. At the Harvard Ukrainian Research Institute conference “Decolonizing Ukraine”, we have asked about the dynamics of the energy prices and aggression: threats, actual aggression, followed by higher energy prices and greater share of the market, with more power to obtain higher prices with a threat of greater aggression, with more actual aggression in a perpetual and escalating cycle. The cycle seemed to describe reality well.  

All other things being equal, the expectations and realizations of the expectations of the Russian aggression against Ukraine have resulted in higher oil prices, according to contemporary expert and press reports. The headlines of March 3, 2022 and July 1, 2022 capture the essence of the argument of higher prices in case of greater escalation: “JPMorgan Sees Oil at $380 on Worst-Case Cut by Russia” and “JPMorgan Says $185 is in View If Russian Supply Hit”. The July 2022 Bloomberg article also introduces the argument of strategic use of oil as a tool of economic aggression:

Global oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts, JPMorgan Chase & Co. analysts warned…

Observant readers will ask about the start of the Russian war against Ukraine in 2014 concluding with occupation of Crimea and parts of Eastern Ukraine. Did we observe similar effects on the oil prices? In May 2015 Bureau of Labor Statistics (BLS) notes (we acknowledge to our readers the language that does not recognize nature of the war):

As depicted … prices began to climb steadily at the beginning of 2014. In February, the upward trend in prices accelerated… as tensions between Russia, a major world petroleum producer, and Ukraine stoked fears that energy supplies could be disrupted. 

We do see similar mechanisms at work in 2013-14 as in 2021-22. In fact, the public nature of the preparation of attack by the Russian Federation in 2021-22 would allow the energy export revenue to rise in anticipation of the now predictable cycle of escalation of aggression. 

We can turn to direct market participants for their views. Energy companies have noted the brutal invasion and have acted to render humanitarian support immediately. At least in the mind of the energy market participants, there was a link between prices and the war. One company has donated 4bps of its publicly traded market capitalization (0.04%) or 1% of the profits for the first quarter of 2022. In Lithuania, Ignitis Grupe has earmarked 10% of “additional profit” for 2022 to humanitarian causes in Ukraine and has issued an appeal to its peers to follow the suit. 

In January 2024 the leading scientific magazine Nature published the work of Chinese scientists dissecting the effects of the war on oil prices:

.. it was found that the Russia-Ukraine war resulted in a $37.14 increase in WTI crude oil prices, reaching 52.33% [increase], and a $41.49 increase in Brent crude oil prices, reaching 56.33%

We do find this work yet another confirmation of the link between invasion and higher oil prices. 

The academic research, unusually prominent donations by energy companies to Ukrainian humanitarian causes, contemporary comments of the press and experts, the history of 2014 invasion and its effects on energy markets, and the understanding of the profitability of aggression for the Russian Federation all suggest to us that the war caused the higher energy prices in 2021-22. 

Most Shareholders Agree with Humanitarian Aid by Corporations but Fiduciary Duties of the Companies Limit Aid to Ukraine

Fiduciary duty of the companies limits the amount of donations to humanitarian causes. The level of charitable donations has a series of precedents that determine the customary and acceptable. We do know now that the donations to Ukrainian humanitarian causes by energy companies in the 2022 period were not challenged by their shareholders. This fact, the tacit support of Ukrainian aid, suggests that, in addition to the management of the companies, shareholders as a group have felt the duty to aid Ukraine. 

Many global companies in sectors outside energy have made donations to Ukrainian humanitarian causes. The vast majority of them have profitably operated in the Russian federation since 2014 financially supporting ongoing aggression. The full-scale war of 2022 has changed their worldview and humanitarian donations to Ukraine were the least they could to reflect this change.  For some energy companies, that is also the case. 

Why did the energy companies with no connection to Ukraine or Russia have to go out of their way to provide humanitarian assistance to Ukraine? One reason is the recognition of the source of the profits in 2022: larger profits were only possible because of the war. Yet another reason is the very case proposed by the Ethical Investor, where the company is not the source of the “social injury” but its “correction” is a “moral minimum”. The recognition of the source of profits led to the necessity to act, within the bounds of fiduciary duties, with provision of humanitarian donations.

The energy companies have provided information about the source of the profits to all of their shareholders, small and big, and have left the vast majority of the profits to the shareholders. With the profits comes the responsibility to decide on the use of such gains. And institutions of higher learning are many of such shareholders. 

What Should Universities Do with Profits in Energy from the War in 2022?

Energy companies have sought to minimize their profits from the war by providing humanitarian contributions. Company shareholders, institutional and individual, have supported these actions by not challenging the judgment of the management in courts. To the extent taxes were paid on the profits of the companies in democracies, governments have used them to support the freedom and life of Ukrainian people over the last two years. None of these institutions have a mandate to help Ukraine but they have done so to an extraordinary degree. 

Can the university seek to restrain sources of the profits for their endowment? Yes, indeed much of the Ethical Investor is dedicated exactly to such an enterprise. How can it do so in this particular case? Again, we turn to the concept of social injury from the Ethical Investor. We believe that the fact of “social injury” is clear in the case of energy profits during 2021-22. In the spirit of the Ethical Investor approach, we find that a refusal to profit from such injury at the level of the university or college endowment would be “the moral minimum”:

The endowments shall not profit from the events that produced or are expected to produce grave injury to a group of people. 

We feel that individuals will agree with such a statement and will be able and willing to carry it out in practice. In fact, a similar approach has been proposed by earlier observers already mentioned in the Ethical Investor: 

Do not profit from immorality (p.5)

Our proposal to refuse to profit would allow the efforts to “correct the injury” in a case highlighted by the Ethical Investor above, where a party does not cause injury but must bear responsibility for correcting it:

In some cases it may not be true .. that one has caused or helped to cause social injury, and yet one may bear responsibility for correcting or averting the injury (p.21) 

The actions of energy companies to aid Ukraine is one example of such a situation. Energy companies have acted promptly in line with our proposal and shareholders of the same energy companies have come to the same conclusion. 

Did the Endowments Profit from Energy Prices? Three Cases of Endowment Return

The proposal for a university to refuse profits coming solely as a result of distress and injury to others is not radical at all. In fact, a significant portion of universities and colleges may be currently applying the logic of the proposal in ethical management of their endowments, formally or not. This fact would be evident, under certain assumptions, in the annual results of the endowments for the fiscal year ending June 2022. 

“Profit” may be defined as an aggregate positive return on the university endowment portfolio (“positive nominal return”) in its fiscal year. If the endowment did not show positive return in the fiscal year ending June 2022, then the university will see no profit from the oil price increase. Hence there would be no cause for any action by the university. 

Real purchasing power of the endowment may have fallen because of inflation even though nominal returns were positive. For example, a nominal return of 7% for the endowment and inflation index at 8%, would in fact show a real loss of 1% in purchasing power of the endowment, ceteris paribus. Many university endowments do in fact target real returns defined as the nominal return less relevant inflation index. For universities considering real returns of their endowment, there will be no profit if real returns were not positive. Hence there would be no cause for action. 

Some universities will consider the purchasing power of their financial assets at the end of the year to decide if there was profit in the endowment. Purchasing power may decline compared to the beginning of the fiscal year due to 1) returns on the endowment, 2) high actual inflation, 3) higher expected future inflation, and 4) completed capital investments. If endowment return was 11%, inflation index was 8%, and capital investment spending was 4.5%, the endowment purchasing power has decreased, ceteris paribus. If the inflation was not transitory, but the inflation expectations have increased, purchasing power would decline even more significantly. In June 2022 this was the case when inflation expectations for a ten-year period stood at 2.4% compared to 1.59% in June 2021. 

All of the approaches above are reasonable. Board of Trustees and university planning bodies may use a variety of these approaches to determine if the university endowment has profited from the increase in energy prices. If there were no profits, there is no cause for any further actions if one accepts this interpretation of our proposal. 

Profit of the Endowment: One Year or a Decade? Before or after 2022?

Our discussion of profit, all the various definitions, assumed the period of one year. Does it have to be so? Certainly, In the fog of war, university communities have done well to use the certainties of the shortest period of one year. In most annual reports, it is common to show endowment performance over the longer time periods: three, five, ten or even twenty years. Success of investment strategies is measured over decades and in a variety of economic and market cycles. Spending rules also rely on performance of the portfolio over longer periods of time. 

We propose that one should use the three, five and ten periods in defining “profit of the endowment” for the purposes of our proposal – it is a common practice of institutions and individuals. If the past performance of the endowment had no profits in the period including 2022, then the university will have no cause for any action. 

In our daily life, we can hardly claim that we profited from an event if we never spent the money received as a result of it. So we would like to add a temporal component to our definition of profit: spending occasioned by the financial profits received. With such a definition, a university community would be right to claim that the community has not profited because the financial profits have not yet been turned into material benefits of spending. This will happen only over time and hence the reason for the present discussion. 

The temporal aspect of profits also requires us to consider future returns of the endowment in deciding whether there was profit for the purposes of our proposal. An example would help. As the financial profits are made in 2022 but, left unspent, may diminish because of returns lagging inflation over time, then again the university community will see no profits for the purposes of our proposal. This definition would be consistent with the individual experience of profit that requires actual spending of the funds. 

Higher Oil and Gas Prices Caused by Russian Federation War Against Ukraine: Who Are the Injured?

Higher prices would not be possible without the injury of the Ukrainians in the war by the Russian Federation. The second injury would occur to the many countries, members of the United Nations. For these countries, higher oil prices meant the choice between energy and food, energy and social services, energy and security. Before 2022 these countries would be struggling to secure basic human rights for their citizens. Once the high oil prices have arrived, malnutrition and civil strife would all lead to loss of human life. In history, famine and lack of healthcare are common killers. 

Would Refusal to Profit Also Mean Correcting the Injury? Criteria from the Ethical Investor

Refusal is a negative action and it clearly is not sufficient for an individual or an institution to fulfill its moral purpose. An individual would seek to repair the damage done from any injury with a positive action. The refusal to profit is only the first step and allows one the means to consider positive actions. In Ethical Investor, legal tradition serves as a guide to identify the criteria necessary for positive action to “correct the injury” (p22-25) :з

 “need”, “proximity”, “capability” and “absence of other help;”. 

The criteria from the Ethical Investor above allows to formulate the practical questions to decide if a responsibility to act exists:

  1. Does the injured party need humanitarian/educational assistance presently? 
  2. Does the conflict affect the university community in a significant, proximate way? 
  3. Does the university have the capability to provide such assistance effectively? 
  4. Does the university have to act before the need disappears or assistance is rendered by other organizations? 

One community was able to answer affirmatively to all four questions. UC Berkeley supported a community of scholars in Ukraine in 2022. And so did Indiana University. Both institutions had specific factors that allowed them to step forward: a dedicated group of volunteers, prior ties with Ukraine, and strong institutional support. These institutions also saw the need that was not going to disappear with assistance of other organizations. 

Suppose the university community lacks a requisite group of volunteers, what are other ways of providing the assistance effectively? Before we answer that, let us consider the basic duties of the Board of Trustees to fully appreciate the options available. 

Board of Trustees must ensure funding for research and teaching

The primary goal of the university can only be accomplished by the requisite funding: research and teaching require a budget. The Board of Trustees will be judged by its ability to supply funding for the university. 

The injunction to fund research and teaching for the Board of Trustees is so strong that we have to consider the recent news to appreciate it fully. If vocal alumni donors with sufficient fundraising record voice displeasure at the presidents’ actions and decide to stop donations that would be made in normal circumstances, the Board of Trustees may find it easier to follow the precept of “funding” and encourage university management to resign rather than, on balance, face funding shortfalls. This may explain the course of events ending in resignations of top university presidents in the fall semester of 2023, even when other important social considerations argue for a different outcome. The voices of faculty, students or staff regarding presidents’ actions would be important but will be viewed through the prism of their effects on fundraising

Can the Board of Trustees Act to Correct the Injury Directly? I Will Do a New Thing!

We believe that the Board cannot act directly to render humanitarian/educational assistance to correct the injury as its sole purpose and only outcome. Berkley and Indiana communities were able to render aid, however, for the one reason that, we believe, in the process of rendering humanitarian/educational assistance, certain kinds of knowledge will be created or the new ties forged that will ensure creation of new knowledge. The importance of teaching its students about the most significant conflict in Europe in the 21st century was not lost on the university leaders. 

It is also apparent that many institutions do not have the unique conditions of Berkley and Indiana. We do believe that even in these circumstances the Board can act to adopt the proposal, follow its fiduciary duties, and meet the goals of research and teaching. 

Alumni and Philanthropic Foundations Can Help Universities Preserve Academic Context

Ethical Investor (p.70) and its many readers have all agreed that maintaining Academic Context – the most conducive environment towards the creation and dissemination of knowledge – is a paramount objective.  For some scholars and students, the fact that some of the benefits of their education came at the cost of social injury would negatively affect the Academic Context. The proposal to refuse the profits from the social injury would repair the proper Academic Context, for at least part of the university community. Again, how can it be achieved?

University development offices and alumni relations departments have been able to raise tremendous funds for the causes that university firmly believes in. We propose that universities use that network to reach out to donors – individuals and philanthropic organizations – who understand the present situation and would like to help correct the injury via humanitarian and educational projects that the university trusts and supports. These projects may be run by a consortium of schools or be independent. 

Never have the universities approached their funding base for external causes, and such action would give meaning to “refusing to profit”.  Exploring causes outside the university budget with the donor alumni base would, in all probability, forgo some of the donations to the university. At the same time, such an approach would be able to attract a number of donors who will appreciate the utmost attention to the Academic Context, as well as attract new members of the university community.

Individual philanthropy in the United States already has great examples of successful humanitarian projects in Ukraine. Buffett’s fortune was able to deploy $500 million since the start of the full-scale war and has pledged $300 million in 2024. Again this is an example of a very sophisticated economic actor who has examined the situation closely and was able to act in line with the precepts we find in the Ethical Investor. 


We do hope the above discussion is useful to university communities, alumni and the general public. Some groups of readers will reasonably question the tortuous discussion of the definition of profits of the total university portfolio, or its endowment, rather than the plain truth of a profit on fossil fuel investments in periods of 2014 and 2022 occasioned directly by the war. We humbly recognize this fact and trust that so would many university communities and the Board of Trustees. 

University donor communities have shown remarkable foresight in growing institutions of higher learning that remain at the core of American society. The more we hear about the problems and challenges of higher education, the more we realize its importance and hope that the spotlight, controversy and discussion would make institutions stronger. Together with the philanthropic community, universities have a chance to answer the challenge of our times – rebuilding the communities ravaged by the violence and economic destitution – find this knowledge and impart this teaching.  

Authors have used Chat-GPT for review of the text of the article.

  • Yuriy Omelchenko, Economist, BA in Economics and Mathematics, 1999 graduate of Grace Hopper College, Yale University


The author doesn`t work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations