Canadian universities on a long road to fossil fuel divestment

Once rooted in moral and environmental arguments, campus campaigns snag high-profile wins with financial case for going fossil-free

Photo by Melody Chan

When the University of Victoria ended fossil fuel investments in its $225-million working capital fund in February, student activists cheered a hard-won victory.

“It has taken eight years of student action to get to this point,” says Emily Lowan, lead organizer of Divest UVic. “I wish the speed of action was quicker, but still it is a major victory that should be celebrated.”

The campaign is not over. Activists are now focused on UVic’s $445-million endowment foundation. Over the past four years, the endowment has cut fossil fuel investments to below 2% of its portfolio, but it has not as yet promised full divestment. “We are still only halfway there,” Lowan says.

The developments at UVic capture the state of divestment campaigns on many Canadian campuses: some high-profile wins but with miles to go for climate-change activists determined to remove the fossil fuel industry’s social licence to operate.

Despite only a few full divestment successes to date (see sidebar), momentum is with the campus activists, researchers say.

“It’s definitely picking up steam,” says Jaylene Murray, a research associate with the University of Saskatchewan’s Sustainability and Education Policy Network, which identified 38 campaigns at Canadian universities in a 2019 study on divestment activism. “We are seeing increases globally in terms of environmental stewardship and activism ... and not just in terms of divestment, but social justice movements as well.”

University of Ottawa professor Darlene Himick, who received a Social Sciences and Humanities Research Council grant to examine the impact of fossil fuel divestment campaigns globally, points to the success of previous student drives to end apartheid and tobacco smoking. “The history is there,” she says. “Students know they can make change.”

Long-time divestment advocate Cam Fenton, Canada lead for 350.org, says campaigns once rooted in moral and environmental concerns have added financial considerations to the case against fossil fuel investments.

“To some degree, the financial argument has caught up with the moral argument,” he says, noting among other factors the poor performance of energy investments over the past decade.

Earlier this year, the non-profit Institute for Energy Economics and Financial Analysis reported that the oil and gas sector “placed at the bottom of the S&P [Standard and Poor] 500 in five of the last seven years and second-to-last in a sixth.”

In 2019, after years of resistance to divestment, the University of California cited financial risk factors in deciding to make its US$13.4-billion endowment and $70-billion pension fund fossil-free. “Our job is to make money for the University of California, and we’re betting we can do that without fossil fuel investments,” UC chief investment officer Jagdeep Singh Bachher co-wrote in an op-ed for the Los Angeles Times explaining the decision. “We believe hanging on to fossil fuel assets is a financial risk.” Bachher’s position caused a stir in the investment community, considering he had previously been deputy chief investment officer at Alberta Investment Management Corp., the provincial Crown corporation that manages pension, endowment and government funds in the oil-rich province.

In Canada, relentless pressure from students, faculty and staff has prompted some universities to reconsider past opposition to fossil fuel divestment.

In 2019, the University of British Columbia reversed its previous position and promised to divest its $2-billion endowment from fossil fuels “as soon as possible,” and also declared a climate emergency.

“That was a huge victory,” says Michelle Marcus, divestment lead with Climate Justice UBC, emphasizing the significance of the declaration. “They are making a political statement that we need to get away from fossil fuel for reasons of the climate crisis,” she says.

But many universities reject calls for outright divestment.

“This is a complicated area, and divestment is such a simple solution to a very, very complicated problem,” says University of Toronto president Meric Gertler. “We don’t think we would be doing everything we could if all we had done was divest.”

Instead, his institution relies on environmental, social and governance (ESG) factors in investment decision-making; engagement with carbon emitters; and disclosure and reporting policies to curb the carbon footprint of its University of Toronto Asset Management (UTAM) Corp., which manages more than $11 billion in endowment and pension assets. U of T has pledged to reduce the “carbon intensity” (carbon emissions per dollar of investment) of its pension and endowment portfolios by 40% by 2030, compared to 2017, a target exceeding the federal government’s 30% goal.

Fossil-fuel-sector investments represent 2% of UTAM’s pension and endowment portfolios, down from 5 to 6% five years ago, says its president and chief investment officer, Daren Smith. “If you focus on oil and gas companies in the portfolio, it represents a declining share of the portfolio, and we would expect that to continue to decrease in the future.”

In December 2019, compared to 2017, UTAM reported a 12.9% reduction in absolute greenhouse gas emissions. Eliminating all equity investments in fossil fuel companies based on the 2019 carbon footprint analysis (and reinvesting the proceeds) would have reduced carbon emissions by 13%, according to the university. “[The difference is] so small because so much of the carbon footprint in any portfolio is associated with those activities that are downstream users of fossil fuels, not the firms associated with the production and distribution of fossil fuels,” Gertler says.

Campus activists are unpersuaded

Carbon-intensity measures represent a ratio, not an absolute reduction, argues Evelyn Austin, a member of multiple climate-change advocacy groups, including Divestment and Beyond at U of T. Moreover, she warns of loopholes in the university’s carbon-cutting commitments.

“This idea of shareholder engagement and ESG is the biggest hurdle that divestment is facing,” she says. The real power of divestment is as a “public statement,” she argues. “It is about removing the social licence that we grant to fossil fuel companies when we invest in them.”

University administrators say they share advocates’ sense of urgency.

In March, McMaster University president David Farrar asked his board of governors for an exit strategy from fossil fuels “as soon as possible.” The strategy would likely accelerate the university’s pledge made last October to achieve a 45% carbon reduction in public equities in its $1.3-billion portfolio by 2030 and carbon-neutral investments in publicly traded shares by 2050.

Since 2018, McMaster had cut exposure to Carbon Underground 200 companies to 2.1% from 4.5% of investments, with holdings expected to have ESG/sustainability plans and be aligned to the 2015 Paris Agreement.

“The only way the transition [to a low-carbon future] is going to happen is that everyone who needs the energy has to change, as well as everyone who makes energy,” says Deidre Henne, assistant vice-president of administration and chief financial officer at McMaster University. “So, everyone is part of the problem and the solution.”

But divestment advocates question the rationale for engagement with oil companies, given their poor returns and a global shift away from fossil fuels.

“We are going from high carbon to low carbon, and it is going to happen in a matter of years,” says Mark Campanale, founder and executive chairman of Carbon Tracker Initiative, a London-based think tank that analyzes the impact of the transition from fossil fuels on capital markets.

“In Canada, with many but not all [investment managers], I get a sense that they don’t believe what they are seeing in front of their eyes about the energy transition.”

With fossil fuel dependence waning, Campanale argues that net-zero targets that use carbon offsets to achieve a desired emission goal become less relevant measures of responsible investing. “Say we reduced our emissions,” he says. “That is not the same thing as saying you are protecting the capital of your pension fund from the downside threats of the [energy] transition.” In effect, he urges investment managers to focus on the big picture: the global move toward a lower-carbon economy.

As some Canadian universities continue to weigh their options, several institutions have chosen to incorporate divestment in a wider strategy tied to improving the economic and social well-being of society.

In 2019, Montreal’s Concordia University committed to divest its endowment from coal-, oil- and gas-sector investments by 2025, with the goal of a 100% sustainable portfolio by the same date. The university also pledged to double to 10% (from 5%) the share of investments in enterprises with social and environment impact (such as a Montreal company that recycles out-of-date food for new uses).

Divestment, alone, “just won’t solve the [climate] problem,” says Marc Gauthier, university treasurer and chief investment officer at Concordia, who prefers a sustainability-focused portfolio with social impact. The pandemic, he says, has only reinforced the strategy.

Before COVID-19, “the talk was always about climate risk,” he says. Now, “the pandemic has raised social issues that are connected to climate risk.”

Concordia’s divestment-plus approach also plays out at UVic. In its divestment announcement, the university earmarked $10 million for a renewable-power impact fund linked to the UN’s Sustainable Development Goals. A year ago, UVic pledged to invest 25% of its portfolio assets in sustainable investments.

Through a blend of divestment and responsible investing, says UVic treasurer Andrew Coward, “we are still able to achieve our financial returns and adhere to our fiduciary duty and at the same time meet our carbon reduction [targets].”

Divestment of the working capital fund, he adds, accelerates UVic’s promise to reduce carbon emissions by 45% by 2030.

Despite gains, activists vow to remain vigilant.

Radiologist Eric Halgren, a faculty leader of University of California at San Diego’s divestment movement, says advocates continue to press the university to release implementation details of its fossil-free commitment. Still, given growing attention to the financial case for divestment, he says, “it is encouraging to see that the smarter people are deciding to get out of fossil fuels, and it will become an avalanche.”

At UVic, divestment campaigner Lowan is similarly encouraged, but watchful.

“It feels like the administration is finally listening in terms of climate action and social justice,” she says, of UVic’s divestment move. “We are really excited about the direction things are going, and we are hoping to make more progress in the future.”

How do Canadian universities fare on divestment?

After more than a decade of divestment campaigns, more than half of Britain’s public universities, including Cambridge University, have pledged to divest. In the United States, 55 universities and colleges have committed to full or partial divestment, according to 350.org. In Canada, so far, eight universities have pledged to full or partial divestment. Here’s a range of Canadian university responses to date:

  • Université du Québec à Montréal is the first Canadian university to fully divest of fossil fuels, doing so in 2017. Others set their own timetables: Lakehead University, 2023; University of Guelph, 2025; University of British Columbia, “as soon as possible”; and Concordia University, 2025.
  • Laval University announced divestment plans in 2017 but two years later switched to a “responsible investment” strategy, promising a 30% cut in the carbon footprint of its foundation by 2025 and 50% by 2030. “We decided to expand the scope of our commitment to greenhouse gas emissions of all sectors instead of a limited focus on the fossil fuel industry,” a Laval spokesman stated in an email.
  • University of Toronto and McGill University both reject divestment, instead pursuing a multipronged approach to reduce the carbon footprint of holdings. Last June, with 13 other Canadian universities, the two institutions announced a “responsible investment” charter that commits them to consider environmental, social and governance (ESG) factors in investment decisions; measure and reduce carbon over time; and engage with carbon-emitting companies to curb climate-related risks.
  • In February, a coalition of 10 Canadian university endowments and pension plans announced they would work with SHARE, a non-profit investor advocacy organization, to engage with corporations (in which they have holdings) on climate change risks.

Jennifer Lewington is an intrepid reporter and writes regularly on many topics, including business school news.

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