Universities are (slowly) feeling their way forward on divestment

The University of Sydney is hoping to chart a path to climate-safe investment. University of Sydney

Another Australian university has outlined plans to reduce the exposure of its investments to climate change, and is taking a contrasting approach to the Australian National University’s high-profile divestment plan announced in October. The University of Sydney on Monday released plans to reduce the carbon footprint of its investment portfolio by 20% over three years.

That will see the university reduce its carbon footprint to 20% below the average of Australian, international and emerging markets, rather than divesting from a particular sector such as the coal industry.

The stated rationale for this is that “divesting entirely from all companies with an interest in fossil fuels could result in divesting from companies that are also committed to building renewable energy sources. In addition, there are many companies that do not produce fossil fuels who are nonetheless heavy emitters”. This is an approach which the London-based Asset Owners Disclosure Project (AODP) acknowledges.

Universities exposed to climate risk

The Global University Index recently released by the AODP ranks and rates 278 universities on their efforts to disclose their investments exposed to climate risk.

The Project’s objective is to protect members’ retirement savings from the risks posed by climate change. It does this by seeking improvements in disclosure and raising the bar on what is considered best practice. The AODP claims to examine “how asset owners are preparing for the repricing of climate-exposed assets and the physical impacts on climate change” (see page 20 here).

This is indeed a serious issue.

I struggled somewhat to work out what was done by the AODP, how it was done and what the various ratings mean. All but the top five universities were rated D (meaning that their climate change risk management is “poor”, see page 5 here) or X (no information disclosed by any means).

The top 12 places were taken by US universities, with Charles Sturt being the top Australian University, ranked 13th. The University of Sydney, which was ranked before it unveiled its current plans, is ranked equal-28th and scores a D rating.

A Vice Chancellor (who provided a comment on the basis that it would be anonymous) from a British university with a strong reputation for innovation and commitment to sustainability, but which received an X rating in the index, told me:

this seems a rather pointless league table, when most universities aren’t in it and of those that are almost all are harangued for not meeting even the basic criteria for the table. In reality while I guess universities recognise that climate change will have investment implications, and indeed may be looking at their investment portfolio in this context, as we are, the logical link from climate change via investments to future pension funding (which is what this organisation is focused on) is fairly obscure in the strategic priorities for most universities.

Time for action

Of course, the issue is broader than universities, although this does not get universities off the hook.

Research published by the Association of Chartered Certified Accountants and the Carbon Tracker Initiative has found that companies don’t typically disclose information on climate change risk that impacts on investors.

Simon O'Connor, CEO of the Responsible Investment Association Australasia told me:

Much of the discussion around investors managing climate risk has focused narrowly on the largest of Australia’s super funds. But beyond the large super funds, there are pools of capital across the economy that need to be considering the risks from a changing climate, and subsequent shifts in policy and technologies.

Universities are a case in point, as are a long list of public sector pools of capital - federal, state and territory- as well as funds managed by charities, corporates and individuals. In reality, too few investors are taking this issue seriously enough, as highlighted by the responses to the AODP universities survey.

There is no doubt that universities, like many other sectors, ought to be doing more. In the case of universities, it is ultimately likely to be students and staff who push for the leadership required to drive the significant change which will inevitably come.

If the AODP is to be a driver of change, I would suggest that it needs to state exactly what it is that universities should do and disclose, and to consider rewarding public commitments that are an important, not to mention difficult, step along the way.

The challenges are abundantly clear from the criticisms directed at the Australian National University, including from Prime Minister Tony Abbott, over its divestment decision. The University of Sydney’s approach cleverly sidesteps a backlash from the coal industry and its backers.

Last year, the University of Glasgow became the first in Europe to divest from fossil fuels. This is not an easy decision for an ancient institution (founded in 1451) with a range of stakeholders who will inevitably have diverse views.

But the University of Glasgow’s commitment is not reflected in its D rating (poor) by the AODP. Points were awarded points for “actual performance”, not commitments – even, apparently, where these commitments have been made public (a form of disclosure, I would argue).

Given the slow pace of change in integrating sustainability and climate risk in universities, it seems unlikely that Sydney University was influenced by its AODP rating. Its approach is a good example to follow. Continued slowness by universities leaves them exposed to reputation risk as well as climate risk.

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