Jan 28, 2015 - 3:00pm
This article first appeared in RenewEconomy on 28 January 2015.
Manager, Investment and Governance
Given that many Australian universities carry out world-leading research on climate change you could be forgiven for thinking that they would be among the leaders in measuring and acting on their own climate and carbon risks. Australia’s particular vulnerability to the effects of rapid warming, combined with our emissions-intensive economy, should make this even more important. Shouldn't it?
Apparently not, as the first global universities index from the Asset Owners’ Disclosure Project (AODP) reveals. As a group, Australian university endowments performed poorly, with only three receiving any points at all, and none being graded higher than a “D”.
This index is the first of its kind to focus on how tertiary institutions are preparing their investment portfolios for a carbon-constrained future, which scientists – including many employed by those same universities – agree is necessary to avoid disastrous levels of climate change.
Those who oversee endowments and see climate risk as an optional or purely “ethical” consideration might do well to talk to their institution’s researchers about what this future might look like.Although few institutions in the global index performed well, more than half of universities in the US scored at least some points, placing the country’s tertiary sector easily in the lead.
The fossil fuel divestment movement was pioneered in US campuses, and many were also involved in the anti- divestment movement of the 1980s – indeed, one of the top ranking institutions on AODP’s index, Hampshire College, had a leading role in the apartheid campaigns.Two Australian universities, Charles Sturt and La Trobe, chose to directly disclose to the AODP’s survey.
Of those, only Charles Sturt could point to specific consideration of climate risk on its investments.The University of Sydney, while not disclosing directly to AODP, did gain a few points for its publicly-available proxy voting policy.The other Australian university to score any points was ANU, which also only received a D rating.
This might seem surprising after all the furore over ANU’s announcement in October that it would sell out of seven mining stocks, a decision that followed a vigorous “Fossil Free ANU” campaign. However AODP analysts could find little evidence that the socially responsible criteria used by ANU adequately addressed climate risk. Climate and carbon risks require dedicated management.
In the past year, several universities worldwide have announced some kind of response to campus and faculty campaigns on fossil fuels. However these announcements themselves are not always accompanied by actual actions or even concrete timelines on their executions.
This failure to visibly follow through affected the scores of some overseas universities who received worldwide attention in 2014 for decisions to sell their fossil fuel shares, such as Stanford and Glasgow University. The next survey will be an interesting test.
Even universities that verifiably responded to divestment campaigns don’t automatically score highly, as the AODP methodology does not recognize fossil fuel divestment as sufficient by itself to properly guard against climate risk.
A comprehensive response to climate and carbon risks is more complicated than simply selling fossil fuel shares.To understand why, consider that some fossil fuels will be necessary for some years to come, albeit in a far more limited way and at a price that properly reflects their cost.
At the same time, focusing exclusively on companies that extract and sell fossil fuels doesn't address problems with other carbon intensive sectors that rely on consuming those resources, for example, aviation or heavy manufacturing.
Whether through explicit carbon pricing policies or regulations that carry implicit prices, each of these sectors will face significant constraints if they’re not reducing their emissions in a world acting meaningfully on global warming. Pure fossil fuel divestment also overlooks potential exposure of many sectors to damage from the effects of climate change itself, such as port operators, insurers, and infrastructure providers.
A comprehensive response may include other strategies such as measuring portfolio carbon intensity, risk-weighting carbon intensive assets, active ownership or company engagement and various means of hedging.
The AODP survey considers all of these areas, and more. Neglecting to consider these factors suggests that many university endowments are surprisingly blinkered about the well-researched risks that threaten their investment returns.
After the survey for this index was sent out to universities, Monash University accidentally included AODP on an email proposing the university ignore the request so that “we would simply be in a position to say that we are unaware of their scoring”.
The email points out that most of the other prestigious “Group of 8” universities planned to ignore the survey. Indeed, none of them replied – but avoiding disclosure doesn't mean they can avoid climate risks, or continued scrutiny.
University endowments solicit charitable donations and bequests to fund future research and education; so arguably, farsightedness and transparency should be fundamental for them. Indeed, unlike superannuation funds, university endowment trustees cannot even use the excuse that they need to keep in mind the reaction of customers to short-term fund performance.Our universities can and should do better with their investments.
Kate is Investment & Governance Manager at The Climate Institute.
Prior to joining the Institute in 2014, she worked primarily as a financial
journalist, winning awards for her work at the Financial Times and the
Australian. Earlier, she was a technology and business reporter for the
Australian, and online editor of Australian IT. Kate is a veteran of new
media, and was one of the first online journalists to be hired by the
ABC in the late 1990s.