Should the University of British Columbia buy shares in and take profits from fossil fuel companies or invest in funds and projects directly linked to controversial energy projects?
The UBC Board of Governor’s considered that question after some faculty and staff urged the university to divest its endowment fund stakes in fossil fuel projects.
On the surface, the answer is simple. The Board of Governor’s mandate is to make money for the endowment fund. Its fiduciary duty is simply to get the best return possible to support the school’s academic mission.
But setting investment policy is more complex than that. UBC is responsible for examining the short- and long-term risks of its investments. And that requires assessing both internal and external factors that might influence an investment’s return.
A large institutional investor such as UBC can use its leverage to change company policies.
When evaluating any individual investment, the university must consider whether climate change poses any financial risk to its expected returns.
In regards to its positions in projects related to fossil fuels, UBC’s investment committee waffled. It decided not to divest from fossil fuels at this time, but directed its lawyers to review legal questions arising out of any possible future divestment.
That certainly is a cautionary approach. Given the speed at which climate change is occurring and the global pressure to reduce carbon emissions now required by the Paris Agreement, the university should have already answered its legal questions and been prepared to update its investment policies.
If divestment exposes the board to potential legal action over its failure to produce as much value as possible, then it will have no choice but to continue investing in lucrative but controversial energy projects. And it should work quickly to change whatever mandate or legislation impedes them from divesting.
In the meantime, however, UBC should develop a strategy for showing greater sensitivity to environmental issues. The university’s Board of Governor’s should press companies for greater transparency about the risk from climate change, and how they are mitigating that risk.
A large institutional investor such as UBC can use its leverage to change company policies.
And, by the way, let’s put to rest the notion that the UBC investment committee is handling only “public” money. Private individuals and group donations account for 75 percent of the endowment funds. It’s more difficult to classify the balance, which comes from housing developments on UBC’s land.
It’s important for UBC to move quicker than it has. If Canada is going to meet its obligations in the Paris Agreement to keep emissions below the 1.5 to 2.0 degree target, every institution and every individual has to start today planning for a world that does not depend on oil or gas.
The UBC Board of Governor’s has done the prudent thing, for now. But that action is woefully lagging.