Opinion

Money Talks: Making Sense of Divestment

Following the Money Talks event which brought together industry, activists and researchers, Tanya Fiedler, Alastair Fraser, Lisa Heinze and David Schlosberg look at the dual role of universities to maintain a positive reputation amongst students while maintaining its fiduciary duty.

Photo via Shutterstock, ID: 1555865300.

The Sydney Environment Institute proudly supported the Money Talks event co-hosted by Sydney Ideas in early August, which featured one of our member researchers, Dr Tanya Fiedler, as chairperson. The event was designed to provide an overview of divestment and highlighted universities as a case study for how institutions can shift money to support a clean and prosperous future.

“There is a lot of evidence this can be done without any negative impact on the returns.”

The event began with a powerful statement by student representative Alison Eslake from Fossil Free USYD at the University of Sydney (Fossil Free USyd). Alison reminded the audience that students have been demanding divestment by the University of Sydney for six years, and that a 2014 student referendum saw 80% support the University to divest from companies whose primary business is the extraction, processing and transportation of fossil fuels.  Following a sobering account of the devastating impacts of climate change already occurring in Australia and around the world, Alison called for “the University to use its position and its financial power to take a stand on our side.”

The impact of climate change on younger generations is regularly in the back of the minds of those working in, or advocating for, climate action. But the force, passion and emotion demonstrated by Alison provided a compelling jolt for all attending the event, setting the scene for why divestment is a necessary tool in the fight against climate change.

Dr Alastair Fraser described fossil fuel divestment as “a simple shifting of money out of fossil fuel investments into something else.” He further explained that divestment did not mean selling all your investments or closing your super, but rather ensuring your money is invested in companies and funds that do not fund the fossil fuel industry1. He also highlighted the good financial news that “there is a lot of evidence this can be done without any negative impact on the returns.”

Fossil fuel divestment is a powerful tool in the fight against climate change because at least 77 per cent of known fossil fuel reserves cannot be burnt to ensure we meet the target of limiting global temperature rise to 2 degrees Celsius2, (the top-end target set by the IPCC and global climate community). The 2019 UN production gap report notes that current plans from fossil fuel extracting nations tracks at 50% more production by 2030 than is consistent with a limit of 2 degrees warming, and 120% more than would be consistent with a 1.5 degree warming3. The divestment movement works by taking funds away from companies that would be extracting those fossil fuels, limiting the production potential and giving us a better chance of achieving 1.5 to 2 degrees of warming. While the divestment movement began as a primarily political movement, it is now increasingly also understood as a financial one. Specifically, the risk of fossil-fuel assets stranded by a rapidly de-carbonising global economy means that directors of publicly listed entities and superannuation trustees, increasingly perceive the risk of holding such assets as counter to their fiduciary duty, the duty to act in the interests of their shareholders or members respectively.

Rachel Deans from campaign organisation Market Forces described how their company works with a variety of stakeholders to ensure money is not invested in fossil fuel, and other environmentally destructive, industries. Recently, Market Forces led a divestment campaign for UniSuper members, which generated signatures from over 10,000 academics across Australia. The result so far has been divestment from a small group of coal mining companies. While this is an encouraging start and demonstrates that member/stakeholder pressure can yield results, as Rachel reiterated, “We want, and members want, UniSuper to divest from all coal, oil and gas, all industries that are not compatible with a safe climate.”

International guest, Phil Harding, joined us from the University College London (UCL), where he is Director of Finance. He spoke of UCL’s decision to divest its holdings in October 2019, which includes an endowment of around $375 million. The announcement came alongside the launch of UCL’s Sustainability Strategy, seemingly in alignment with Alison’s (Fossil Free USyd) earlier comments that:

No number of green campus initiatives will erase the knowledge that this university is profiting from the continued success of the fossil fuel industry. No number of green campus initiatives will reverse the effects of the carbon released from fossil fuels.

 “While some fear divesting removed opportunity to ‘engage’ with companies, they have found universities have more influence as engaged and impactful research centres than they do as shareholders…reputational risk in terms of student demand played a role, in the end, the decision to divest from fossil fuels made the best economic sense.”

UCL’s own Fossil Free campaign had been active since 2015, and had arranged roundtables with the University’s investment managers, and met with Phil as well as the VC over the course of the years. The initial resistance to divest came in four key areas: concern for damage to broader interactions with the energy industry in regards to research activity; a view that divestment was unlikely to have the desired impact of shifting companies’ outputs and that shareholder activism would more productive; fear it would damage performance of the portfolio by limiting the range of investable stocks; and worry there would be a limited number of investment managers with the ability to manage a bespoke, ethical portfolio. But, as Phil explained, by the time they decided to divest in October 2019, “our investment managers had largely exited their positions in relation to energy industry stocks anyway, just by virtue of the fact that it became increasingly apparent that they didn’t offer good long term secure financial returns.” Phil further explained that, while some fear divesting removed your opportunity to ‘engage’ with companies, they have found universities have more influence as engaged and impactful research centres than they do as shareholders. So while reputational risk in terms of student demand played a role, in the end, the decision to divest from fossil fuels made the best economic sense.

The role of students and staff working together was important in the divestment campaign at the University of British Columbia (UBC), which also announced it would fully divest from fossil fuels in 2019. Alastair Fraser has been involved in the campaign himself for six years, and noted that “one of the takeaway messages was how much healthier the process was once the administration started speaking with students and staff, and everyone started understanding each other’s perspectives”.

Gadi Trees at the University of Sydney Camperdown campus.

The dual role of universities to maintain a positive reputation amongst students while maintaining its fiduciary duty in terms of its endowment is at the centre of many university divestment campaigns. Keith Rovers from legal and consulting firm MinterEllison spoke to both topics as he explained how financial risk plays a role in divestment decisions. He highlighted the role of financial performance, suggesting that, “over time, on a pure finance level, [including] stranded asset risk, you’ll be shifting out of out of fossil fuels.” He further explained the importance of social license, or brand reputation, when considering the role of universities, stating:

Alignment with values is an interesting sort of reputational social risk…whilst the student body aren’t necessarily members that the trustees owe duty to, they are part of the business model of a university. And clearly, customer retention and customer engagement is such that you would think that would factor into trustees’ decision making.

Keith also argued that while divestment was not the only strategy for funds seeking to influence the companies they invest in away from fossil fuels, the fact remained that it was really only the very large global fund managers of the BlackRock and Vanguard ilk that had the financial weight behind them to cause substantive change.

He later reiterated that “finance theory is about risk, return and impact” and opined that, at the end of the day, “impact is going to play a more important factor, particularly when you look at the attitudes of millennials” because “they are looking for how that money is used to create positive impact or at least minimize the negative externalities like climate change.”

Concluding the event, the panellists were asked to share with the audience what we could do to make a difference when it came to divestment, here’s what they had to say:

  • Ask your University or your Super to demonstrate that they are being responsible investors.
  • Write to your banks and superfunds asking them to make more direct changes. If you have time for more action, make phone calls, plan meetings and events.
  • Try and argue the case from the point of view of the investors, thinking about what they are trying to achieve and how the aims of divestment support those goals, without being too absolute. You don’t have to address every stage of the fossil fuel supply chain to still make a significant impact.
  • Take accountability and engage – it’s your Super, so ask the questions. If you’re at a University, find out who are the Trustees and people making the financial decisions so you can lobby them directly. Remind institutions that you are their customer.

For those of you who are currently part of the University of Sydney:

  • Staff members can sign the open letter to the Senate and University Executive calling for divestment as they consider divestment over the coming months
  • Students can join the local Fossil Free USYD group

 

References
1. For more information in this regard, see Hutley and Hartford Davis (2016, 2019) https://cpd.org.au/wp-content/uploads/2019/03/Noel-Hutley-SC-and-Sebastian-Hartford-Davis-Opinion-2019-and-2016_pdf.pdf
2. See for example, McGlade, C., Ekins, P. 2015. The geographical distribution of fossil fuels unused when limiting global warming to 2 °CNature 517, 187–190. and Steffen, W. 2015. Unburnable Carbon: why we need to leave fossil fuels in the ground. Climate Council. 
3. SEI, IISD, ODI, Climate Analytics, CICERO, and UNEP. 2019. The Production Gap: The discrepancy between countries’ planned fossil fuel production and global production levels consistent with limiting warming to 1.5°C or 2°C. np.


Tanya Fiedler is a lecturer in the Discipline of Accounting. Tanya’s research is deeply interdisciplinary, her interests concerned with the ways in which engineering, actuarial science and climate science integrate into work practices, business strategy and accounting. Prior to her academic career, Tanya worked as a consultant for Energetics, a specialist carbon and energy consultancy.

Alastair Fraser is an applied micro-economist with research interests in Environmental Economics, Energy Economics, and International Trade. Alastair has two streams of current research, both motivated by the challenge of effectively reducing carbon emissions associated with our energy use. The first stream is on improving our understanding of how and why consumers decide to conserve energy in response to information, price changes, and other incentives. The second stream considers how imports of goods substitute between methods of transportation.

Lisa Heinze is a pioneer in the Australian sustainable fashion movement and a sustainable lifestyle advocate. She completed her PhD at the University of Sydney on the transition toward sustainable fashion practices, is the co-founder of Clean Cut, Australia’s sustainable fashion council, and a Fashion Revolution committee member. Her previous work was in sustainable development and the green building industry. Lisa is a Research Affiliate of Sydney Environment Institute and she is the Research Lead on Sustainability on Campus.

David Schlosberg is Professor of Environmental Politics in the Department of Government and International Relations, Payne-Scott Professor, and Director of the Sydney Environment Institute at the University of Sydney. He is known internationally for his work in environmental politics, environmental movements, and political theory – in particular the intersection of the three with his work on environmental and climate justice.


For media enquiries, contact Vivienne Reiner, University of Sydney Media and Public Relations Adviser, +61 2 9351 2390 or vivienne.reiner@sydney.edu.au.