April 1, 2016

U of T Advisory Committee Report Explains Shortfalls of Divestment

On Wednesday the University of Toronto’s Presidential Advisory Committee released a 43-page, year-long report, laying out the various environmental and economic challenges posed by selling the School’s fossil fuel shares.

The study, Beyond Divestment: Taking Decisive Action on Climate Change, highlights the “strong limitations” of divestment in addressing climate change. In addition to noting that fossil fuel companies are only responsible for a quarter of Canada’s greenhouse gas emissions, it stresses that divestment does not align with the Committee’s “fiduciary duties to the University’s pension and endowment fund beneficiaries.”

In so doing the report, like many others before it, confirms that the costs of divestment far outweigh any potential economic or environmental benefits, concluding that, a “blanket divestment strategy would be unprincipled and inappropriate.”

Instead of outright divestment U of T President Meric Gertler and the Committee propose a more holistic environmental, social and governance strategy which will assess the individual potential risks in any future investments as the most pragmatic way to leverage influence over companies and make tangible steps towards reducing emissions.

At the same time they strongly recommend engagement, arguing that

“…remaining a shareholder in a particular firm permits the investor to exert pressure on that firm’s management to adopt practices that address ESG-related goals – by, for example, reducing the firm’s carbon footprint and GHG emissions.”

The U of T report is not alone in its findings. A study by University of Chicago Law Professor Daniel Fischel found that a university portfolio which divested its fossil fuel equities produced returns 0.7 percentage points lower. For the U of T, which manages $6.5 billion in pension and endowment funds, that translates to approximately $455 million in lost returns.

Rather than stigmatizing fossil fuels, religious institutions and other leading Canadian universities including McGill, University of British Columbia, University of Calgary and Dalhousie University have all consciously reaffirmed the important role fossil fuels play in providing the jobs, energy security and opportunities that underpin Canada’s economy.

Similarly The Globe and Mail editorial board yesterday commended U of T’s decision, while highlighting the moral hypocrisy of divestment when considering fossil fuels’ role in the Canadian economy and society at large. The editorial explains,

“But the current wave of demands for divestment from the fossil-fuel companies…carry more moral fervour than this ambiguous crusade warrants…Fossil fuels are different. Society will need them for years to come, and there is no way for the entire planet to ditch them entirely and immediately without widespread harm.”

Those sentiments were recently echoed by none other than the Canadian Prime Minister, Justin Trudeau, who told a Vancouver audience that the creation of a low carbon economy would require the ongoing funding of the energy sector. He stated,

“We must also continue to generate wealth from our abundant natural resources to fund this transition to this low carbon economy…The choice between pipelines and wind turbines is a false one. We need both.”

Together, U of T, McGill, UBC and numerous other Canadian institutions have demonstrated more than just a unified front against divestment. Political, religious and academic leadership in the country have all gone one step further and highlighted the important role fossil fuels play in the world economy and supporting the transition to a lower carbon future.