A report published in Science on 6 December has revealed the extent to which private research funders are stowing away cash in offshore havens. The exposé entitled “Private research funders court controversy with billions in secretive investments” highlights some stark contradictions between the type of work being funding and hidden investments.
In particular, the author highlighted contributions made by the Wellcome Trust ― a wealthy London-based philanthropy with $29.3 billion in assets ― to research on air pollution and other environmental issues, while at the same time investing in companies that are, in fact, contributing to these problems. Wellcome has entrusted $50 million to Carlyle International Energy Partners, an offshore investment fund based in the Cayman Islands, according to leaked documents. Carlyle owns a stake in Varo Energy, a company based in Cham, Switzerland, that sells fuel to shipping firms and is a major source of soot pollution.
The leaked documents the author is referring to are the Paradies Papers ― a set of 13.4 million confidential electronic documents relating to offshore investments leaked to the German reporters Frederik Obermaier and Bastian Obermayer from the newspaper Süddeutsche Zeitung. Furthermore, the documents have revealed the investment activities of seven private foundations that currently fund a large portion of scientific research.
Of course, offshore investments are not illegal, but they are controversial. In fact, a recent study suggests tax havens are essentially facilitating the destruction of the environment (1). In particular, offshore havens were shown to play a major role in facilitating deforestation and illegal fishing. According to Science, “offshore investments can have impacts that diminish or negate the high-minded social experiments, education, and research backed by science funders.” The report also claims the routine use of these types of investments raise some interesting questions about “transparency, accountability, and social responsibility.”
Upon examining seven of the largest private research funders, Science concluded that they have “in recent years placed and committed more than $5 billion to funds in offshore tax and secrecy havens.” But suggest the estimate is conservative owing to the lack of data and inaccurate documents. Based on the available data, the Bill & Melinda Gates Foundation in Seattle, Washington, was found to have no apparent involvement in offshore funds. However, besides the Wellcome Trust ($926 million in known offshore investments), other philanthropies with sizable offshore investments include
- Howard Hughes Medical Institute in Chevy Chase, Maryland ($891 million)
- Robert Wood Johnson Foundation in Princeton, New Jersey ($3 billion),
- David and Lucile Packard Foundation in Silicon Valley in California ($140 million)
- Gordon and Betty Moore Foundation in Silicon Valley in California ($40 million)
- William and Flora Hewlett Foundation in Silicon Valley in California ($168 million)
Foundations often contend that offshore investments allow them to meet fiduciary duties. However, Annette Alstadsæter, an economist at the Norwegian University of Life Sciences in Oslo argues that these foundations are helping “normalize these practices and blow up the volume, so the infrastructure exists also for the illegal uses.” Nobel laureate Joseph Stiglitz of Columbia University says, “They are robbing the taxpayers” and “giving life to an institutional arrangement which is basically nefarious and bad for our global society.”
Perhaps, foundations should be focusing not merely on investment returns but on financial investments that are more in line with their social, environmental, and philanthropic goals. This does not have to mean missing financial targets, according to Dana Bezerra, a prominent advocate for ethical investing by charities and head of the Heron Foundation in New York City. Indeed, many argue that foundations should and must be “ethical investors,” and this, of course, includes aligning their investment choices with their philanthropic mission.
(1) Tax havens and global environmental degradation. Galaz V. et al. Nature Ecology & Evolution (2018). DOI: 10.1038/s41559-018-0497-3