Q & A with President Meric Gertler on U of T's 14-point plan, Beyond Divestment
“The University of Toronto must go beyond an approach based on the blunt tool of divesting from fossil fuel companies”
Universities have a crucial role to play in helping to meet the global challenge of climate change, says University of Toronto President Meric Gertler – and as a publicly supported academic institution, U of T has a responsibility to take decisive action.
Gertler outlined his vision for that role in Beyond Divestment: Taking Decisive Action on Climate Change, U of T's 14-point plan to address climate change released March 30.
Beyond Divestment is a response to the President’s Advisory Committee on Divestment from Fossil Fuels which, last December, recommended that the University adopt a strategy of targeted and principled divestment as well as a number of initiatives in the broader field of sustainability.
Gertler says U of T’s financial investments must take into account environmental, social and governance (ESG) factors – including climate-related risks – when appraising long-term performance. In addition, he stresses the University needs to take a leadership role in research, teaching and its own use of resources to respond to what has become the most pressing environmental issue of our generation.
The president also discussed his response to the advisory committee’s report with U of T News, and shared his vision for the University’s role to address climate change.
What is Beyond Divestment recommending?
I believe it is important that the University of Toronto takes real action to meet the global challenge of climate change. One of the ways we can do this is by making a commitment to responsible investing. But we can do much more than that.
I am calling for the University of Toronto Asset Management Corporation to revise U of T’s investment strategy to include a systematic consideration of environmental, social and governance (ESG) factors. There is a growing consensus in the investment industry that prudent managers can best uphold their fiduciary responsibility to the beneficiaries of trusts such as pension funds and endowments by taking climate-related risks and opportunities, as well as a broader range of ESG factors into consideration when they appraise the long-term performance of individual investments. The ESG approach I am asking UTAM to adopt would apply not only to the assessment of our direct investments in fossil-fuel producing firms, but also to U of T’s direct investments in fossil-fuel consuming firms. Moreover, over time, it could also apply to our indirect investments – that is, those investments we make through pooled and indexed funds.
Further, we will launch a series of special funding programs and initiatives that enable our scientists, scholars and graduate and undergraduate students to pursue environment- and energy-related research, education and industrial partnerships and educational programs. Finally, as a large operation, we already have a stellar record on all three of our campuses in reducing energy and water use and our carbon footprint. In fact, U of T earned a Canada’s Greenest Employer designation in 2015. The actions I’ve outlined in my response ensure we will continue to perform even better.
Universities are relatively small players in the investing world but the University of Toronto is a leader in research and teaching – and it’s there where we can have a tremendous impact. I want to make sure we are supporting the efforts of faculty and students, and we are walking the talk on our own campuses by taking action to reduce our carbon footprint.
Is the University of Toronto divesting from fossil fuels?
The committee indicated that a blanket divestment strategy would be unprincipled and inappropriate, and I agree with them. The challenge with fossil fuels divestment is that it only addresses – at most – one-quarter of Canada’s greenhouse gas emissions, and ignores those activities such as transportation, manufacturing, construction and buildings that collectively generate the bulk of our emissions. If we’re serious about addressing climate change, we need a strategy that alters behaviour and encourages more progressive practices across the entire economy and society.
The committee recommended a targeted and dynamic approach to guide the university’s investment decisions. It advocated a firm-by-firm (targeted) approach, instead of a blanket approach that classifies an entire sector as off-limits. It singled out a subset of the fossil fuels sector that it judged to be particularly unhelpful in supporting our collective effort to abide by the 1.5 degree C threshold enshrined in the Paris Agreement. It singled out some individual companies by name. But it also advised that, if such a company were to change its practices significantly in a way that helps us achieve the Paris Agreement goals, it should be considered eligible for investment. This is what I mean by a dynamic approach.
U of T does not hold direct investments in the companies that the committee singled out in its recommendations. As UTAM moves to adopt an investment strategy guided by ESG factors, its investment managers will systematically search for those firms that are best-in-class when it comes to their environmental, social and governance practices. This would likely include fossil fuel producing firms as well as those firms that consume fossil fuels. I believe that, over time, as this active, ESG factor-based investment strategy is employed, the results in terms of the investments held by the university will be consistent with the essence of the committee’s recommendation.
This ESG approach could ultimately apply not only to the assessment of direct investments, but also to U of T’s indirect investments, through pooled and indexed funds. We will look to the experts and international standards to guide us as we incorporate ESG factors into our investing.
The University of Toronto must go beyond an approach based on the blunt tool of divesting from fossil fuel companies. We have a crucial and unique role to play in helping to meet the challenge of climate change. As a publicly supported academic institution, we feel a strong sense of social responsibility to take action.
Why is the University of Toronto not divesting from the companies recommended by the committee?
The University does not have any direct investments in the companies the committee named for immediate divestment.
In regard to our other direct holdings, I am asking the University of Toronto Asset Management Corporation, which manages our pension and endowment, to develop a set of principles by July 1 to guide investments in a way that takes environmental, social and governance factors into consideration.
What will happen to the committee’s recommendations?
First I want to thank the committee for their dedication to this work, and for offering thoroughly researched and thoughtful recommendations. I’ve also been impressed with the work of the student representatives of Toronto350, and with their ongoing engagement and collegiality. They’ve really represented U of T with integrity, and they are both to be commended for advancing discussion and action in a constructive way.
I gave the committee’s recommendations serious consideration and my response very much embraces the spirit of those recommendations. I believe the actions I’ve outlined reflect an even broader and more impactful approach to the question of investment and fossil fuels.
What happens next?
I am asking UTAM to take a number of actions:
- develop principles by July 1 that will enable consideration of ESG factors in undertaking direct investments;
- make the University of Toronto among the first Canadian universities to become a signatory to the Carbon Disclosure Project.
- evaluate signing the United Nations-supported Principles for Responsible Investment Initiative;
- determine ways in which it can vote proactively and deliberately on shareholder resolutions aimed at reducing climate-related risk for firms in which they are directly invested;
- evaluate signing the Montreal Carbon Pledge, which commits investors to measuring and publicly disclosing the carbon footprint of their investment portfolios every year; and,
- report annually on its efforts to assess ESG factors in making investment decisions.
What will this mean to investment returns?
We have a fiduciary responsibility to maximize the investment returns of our pension funds and endowments, subject to acceptable levels of risk. A growing body of international evidence indicates that good investment returns can go hand and hand with being environmentally responsible: this is not an either/or proposition. We’re going to look to international standards as our guide to consider environment, social and governance factors – including climate-related risks and opportunities – as part of our investing strategy.
What are you doing beyond investments?
The University’s investments play a small part in the influence we can have on the global response to climate change. Our most effective contributions will come from our role in research and teaching. I’m recommending we take several actions, including more funding for climate change related research and education initiatives. Our campuses also should be a test bed for new technologies and a leader in adopting energy-saving and alternative energy technology.
I’m proposing a number of actions:
- a tri-campus clean-tech challenge to encourage environment- and energy-related entrepreneurship;
- $750,000 distributed over three years for climate-change related research and education initiatives;
- prioritizing climate change-related themes in selected programs and curricula;
- increasing the Utilities Reduction Revolving Fund by 50 percent, from $5 million to $7.5 million, to encourage more extensive implementation of energy-saving retrofits in our buildings;
- formally adopting substantially more rigorous energy efficiency standards for capital projects;
- pursuing opportunities to use U of T facilities for environmental and sustainability research;
- investigating the potential of other renewable energy projects;
- establishing a U of T committee on the environment, climate change and sustainability with a mandate to coordinate and advance U of T’s environmental research, innovation, education and energy consumption initiatives.