The issue of universities divesting assets that pose climate risks can be a contentious one – even, it seems, among those of us who agree that it is an important goal. Last month the Asset Owners Disclosure Project (AODP), which I chair, came under fire over our Global Universities Index, which allegedly failed to recognise certain higher education institutions' commitments to divest fossil fuel assets.
One anonymous vice-chancellor of a British university, quoted in a previous Conversation article, argued that the logical link between climate-exposed investments and future pension funding is “fairly obscure in the strategic priorities for most universities”, and dismissed our index, which ranks universities on the strength of their actions to reduce climate-based investment risk, as "a rather pointless league table”.
Perhaps some clarification is in order about what our project is trying to do, and what we think is important in judging universities' efforts to guard their investments against climate risk.
First, let’s take the so-called “fairly obscure” logical link from climate change, via investments, to future pension funding.
If asset owners continue to invest in fossil fuels, either directly or indirectly, then the risk is fairly high that they will be left holding stranded investments in coal, oil and perhaps natural gas, which are just too expensive to extract, given the high costs imposed by future regulation, carbon pricing, or both.
In the GUI report, we are not solely referring to university pension schemes. University endowment funds continue to invest in a variety of carbon-intensive assets across the board.
Failure to recognise and report future risks is ethically dubious and makes little financial sense. It follows, logically, that beneficiaries across the spectrum would be the ultimate losers under this scenario. Universities are stewards of both endowment funds, and in some cases their own pensions pools, and should therefore either start to take seriously the importance of disclosure of how they are managing climate risk or hedging against it.
Divestment should be more than promises
Second is the issue of divestment (on which our calls for action are far from alone), and particularly how we have chosen to credit (or criticise) universities for their efforts (or lack of them).
The low scores awarded in the AODP’s league table does not mean we do not recognise divestment as an effective tool to mitigate the adverse effects of climate change. The AODP sees divestment as one tool of several to help reduce climate risk, but we are still seeing too many empty promises from universities around the world.
Many institutions are pledging to divest from fossil fuels on moral grounds, but are failing to meet these commitments or have been opaque in their progress. Most of the universities that say they have “divested” have actually only committed to do so, without understanding the difference between talking and walking.
The University of Glasgow’s divestment announcement last October is a case in point. Glasgow has said that it will divest from the largest 200 coal, oil and gas companies by reserve size over a 10-year period. Yet there is no further information on when certain stocks or sub-sectors will be divested from, and it appears that we won’t know for another 10 years whether Glasgow has actually done what it said it would.
Commitments can always be undone, or worse not started. Only a practical, visible change to an organisation’s investment processes can prove that it is dealing with climate risk appropriately. Glasgow’s commitment, while receiving some points on our Global Universities Index survey to recognise the fact that it intends to remove a great deal of climate risk, is purely designed to send a political signal, not a risk price signal.
This approach is not truly risk-based. What if the carbon crash happens before 2024? What if stock prices fall dramatically beforehand? The lack of detail on the plan itself isn’t worthy of a great deal of praise, because without more detail and transparency, it doesn’t appear to actually safeguard Glasgow from unnecessary risk, and it doesn’t challenge the rest of the supply chain to do more for asset owners to avoid climate risk.
Transparency, not silver bullets
Last month’s decision by the University of Sydney to cut the carbon footprint of its investments was a better course of action, particularly given that the Australian university sector is increasingly perceived as recalcitrant. It was refreshing to see a university take a genuinely risk-based approach to the omnipresent danger of climate-exposed investments.
Sydney’s commitment to reduce the emissions intensity of its portfolio by 20% over three years – and, just as importantly, to report on its progress every year – is commendable and marks a great first step in the decarbonisation of the university’s portfolios. It is particularly important that the university is continuing to update stakeholders on its decarbonisation process, as promises alone are not helpful in the fight to solve climate change.
This isn’t to say that Sydney’s announcement is a silver bullet. The lack of information so far about which companies it intends to divest from shows that there is still some unnecessary opaqueness. Most of all, the plan is still only a pledge and the university has not yet reduced its portfolio emissions. Transparency is the key, and Sydney must allow itself to be compared with its peers to be taken seriously and avoid charges of greenwash.
We have already acknowledged the work of US higher education institutions Unity College, Green Mountain College, Sterling College and the College of the Atlantic for their moral-based divestment (they were placed second through fifth, respectively, in our table).
A glowing rating awaits others, once they achieve something. Call us old-fashioned but we think it’s pretty pointless to award points for media releases rather than action.