La Trobe University this week became the first Australian university to commit to full fossil fuel divestment, having pledged to do so over the next five years. This is the result of campaigning by staff and students at university campuses.
The university holds an investment of A$40 million in a managed fund. Over the next five years it will work with the fund manager to create a portfolio that does not invest in the 200 most carbon-intensive listed companies.
The university reported:
The change was in response to suggestions by a group of students and staff passionate about reducing the impact of climate change and lobbied university leaders to change its investment strategy.
Even though such decisions have been criticised on the basis that there is a trade-off between sustainability and profitability, Vice-Chancellor John Dewar argued that these were actually compatible.
This is a relatively enlightened view, based on the premise that decisions based on sustainable criteria actually perform better in the long run. This can occur through reducing risk and improving stakeholder relationships and, in turn, reputation.
Other Australian unis
Other universities have made smaller but similar decisions. In 2014, the Australian National University (ANU) announced it would divest from seven companies as a component of its Socially Responsible Investment Policy. This amounts to only 5% of the university’s domestic equity and the value of shares to be sold is around A$16 million.
In February this year, Sydney University put a freeze on new fossil fuel investments and it plans to reduce its investments in fossil fuel companies. But this action has been criticised as being tokenistic without a clear plan for full divestment.
Divestment campaigns have been significantly driven by the activist group 350.org, which has reported:
Over the last two years, more than 180 institutions representing US$50 billion in assets have committed to divest. There are now more than 500 active divestment campaigns under way at universities, cities, churches, banks and other institutions.
Benefits for the university
Universities are in the perfect position to take the lead in enacting the values that they have been built upon.
In this regard La Trobe University has a key platform on sustainability, which states:
We will operate sustainably and ethically … The University’s response to climate change, and to sustainability more broadly, requires us to consider carefully our ethical choices and everyday practices.
This divestment decision is fully in line with the university’s espoused values and strategies.
This is the very reason students and staff are increasingly pressuring universities to ensure they take action. Students are looking to their places of study for leadership. The student population frowns upon conflict between values and actions, which affects decisions as to where they will study.
Even though climate-interested investors are increasing in numbers, the outcomes for the economy and investors depend on getting traction with other investors.
There needs to be a pool of funds that can be invested in similar ways. It is not just the impact of ethical investment funds here that can bring about change; increasingly we see the impact of what are called Environmental, Social and Governance (ESG) funds.
These funds invest in companies based on the measurement and reduction of their impact in terms of the environment, social and governance criteria.
Is it meaningful?
However, one argument is that divestment does not drive change and that institutions can exert more influence by staying invested. This can occur through influencing company strategies and decision-making; in this way, using a voice rather than exiting the market is seen to be more effective.
Other criticisms are that such decisions are simply public relations exercises that will not actually influence the behaviours of these fossil fuel companies. It is argued that there are always other investors who will continue to invest in these companies and so the net effect is negligible.
But increasingly owners of companies (investors) are realising their influence on company behaviour. They understand that by pooling funds investors can influence companies’ climate behaviour. Hence there is scope for investors, in this case universities, to be more active and to use the power of their investment holdings transparently to change corporate behaviours.
This may be by divestment, but it can also be by using the influence and power of their shareholdings through discussion and negotiation with the companies. There is scope for universities to form a bloc to do so collectively, although such an approach has not been much in evidence so far.
So will La Trobe University’s actions to divest from fossil fuels bring about changes in the behaviour of fossil fuel companies? Probably not, but as a leader in the sector in this regard it will not harm the university’s reputation, and it may build momentum and form the basis of such action increasingly being seen as a new norm.