University Releases Statement Regarding Investments
The University of Melbourne has just released the following statement regarding its fossil fuel investments:
"From The Vice Chancellor
Investment management at the University
28 March 2014
'Does the University of Melbourne invest in fossil fuels?' ask posters around campus. Posing the question has triggered a lively discussion among the governing Council, and with our institutional advisors.
Ethical investment is an important topic, and the debate is very welcome. The starting point is shared recognition of the challenge.
The University works through expert third parties in managing its investment portfolio. At the same time, sustainability and resilience are among the three grand challenges shaping the University's research agenda. On one estimate over 1,300 researchers and around $218 million annually is involved in research across energy, water, carbon management and related domains at Melbourne. Many key research partnerships take sustainability as a key problem, including all planning for the new Carlton Connect precinct.
For example, the Melbourne Energy Institute undertakes projects in energy policy, energy system optimisation and geothermal and data fusion. The Melbourne Sustainable Society Institute investigates sustainability as a societal goal, and seeks to link and integrate relevant research from across the University and beyond.
Sustainability is a core graduate attribute, and guides much teaching and learning on campus. Students can choose from masters level degrees offered through the Office for Environmental Programs and the undergraduate offerings of the Bachelor of Environments. Many faculties offer breadth sequences in sustainability issues, from subjects on climate change, climate and water, ecology, and people and environment to graduate offerings such as the Master of Energy Systems.
The University's engagement agenda too addresses sustainability concerns, from student societies and campaigns, to work with companies seeking green technologies. Collaboration between the University's Centre for Energy- Efficient Telecommunications and Alcatel-Lucent, for example, has generated four patents to reduce the energy consumption of wireless and
fibre-to-the-premises broadband access networks. Other projects include a geothermal pilot demonstration project on the Parkville campus.
There is a similar story to tell about shared goals on environmental impact. The University has set an ambitious target to achieve carbon neutrality by 2030 and since 2008 has undertaken a range of projects to reduce energy consumption and carbon emissions. The record so far is encouraging - energy reduction projects completed between 2008 and 2013 are now contributing an estimated 32,000 tonnes of ongoing annual carbon savings. Initiatives focus on upgrades to heating, air conditioning and lighting systems. A parallel program addresses water consumption through rainwater and storm water capture, water-recycling, leak detection and efficiency upgrades. Further, the University maintains a commitment to a minimum of 5-star Green Star design rating for new buildings and minimum 4-star rating for major refurbishments.
These important initiatives owe much to the commitment of the University Council, faculties, centres and the team at Property and Campus Services. A University Sustainability Forum, now in its fifth year, provides leadership across academic programs, research and engagement and operational activities. New programs are highlighted at the Campus Sustainability Centre.
How should this agreement about the importance of sustainability, and the need for practical action, shape the University's investment portfolio?
The University of Melbourne is one of the largest trustees of charitable trusts in Australia, with more than 830 charitable trusts established by gifts or bequests over the past 160 years. The University's investments provide income for a wide range of University purposes, including funding for scholarships, bursaries and prizes for students, staff fellowships, academic positions, research funding, books and publications, faculty equipment and physical infrastructure.
Given the amounts of money involved, and the trust donors place in the University when they provide money, Melbourne engages external industry experts to manage the investment portfolio. A Council appointed Investment Management Committee (IMC) sets broad parameters on asset allocation, risk and growth strategies. These include a strong preference by the University for investment in Australian equities, but specific investment decisions are made by an external funds manager, the Victorian Funds Management Corporation (VFMC).
The VFMC pools investment funds from many public agencies, provides expert management at a lower cost than the University could achieve acting
alone, and supports long term investment for future growth. The University requires the VFMC to adopt and implement environmental, social and corporate governance policies for investing. It must take into account environmental, social and corporate governance considerations when making investment decisions, and report regularly on environmental, social and corporate governance matters to IMC. The VFMC is a signatory to the Principles for Responsible Investment.
The campaign organised by environment group 350.org has prompted much governance reflection on how University funds are managed, and a sustained discussion about the ethical issues involved in any investment choices. Consultation with the University's institutional advisers has confirmed the higher management costs, and likely lower returns, of customising a portfolio that excludes certain types of investment, such as all companies working in any area with direct or indirect interests in fossil fuels. The IMC has wrestled also with the practical difficulty of reconciling a preference for Australian equities with the realities of the local economy, should companies with direct or indirect links to fossil fuels be excluded.
Among allied issues considered were the costs to future students from reduced returns, and the question of trust with past benefactors. Donors provided money to the University for specific purposes, often scholarships to assist current students. To take decisions that reduce the investment returns available for this purpose is to presume the preferences of those who created the endowment through their donations. As trustee, the University has a fiduciary responsibility to carry out the trust terms and preserve the trust capital by prudent investment.
One argument advanced by 350.org and the related campaign is the poor long-term prospects for fossil fuel companies as their products become less socially acceptable. The University acknowledges through its investment beliefs that companies which effectively manage their environmental, social and corporate governance responsibilities should give better risk adjusted returns over the long term. IMC has committed to monitoring closely the potential impact of climate change issues on the value of investments, and working with VFMC on the risk profile of fossil fuel investments. It is for investment experts, though, to make the judgment calls about how the market will treat particular types of current and future investments.
Now that the issue of ethical investments commands widespread consideration, there will be benefactors who have concerns about particular environmental, social and corporate governance matters such as fossil fuels. It will be important to acknowledge and accommodate that judgement where feasible. To this end, where in future a donor wishes to stipulate investment parameters for their endowment which are not accommodated through the
investment portfolio managed by VFMC, the University will, subject to certain conditions (such as the quantum of the endowment, which must be significant), establish a separate specific investment fund. The investment returns will be specific to the fund and may therefore be subject to greater volatility than those of the VFMC managed fund, and the cost of managing that fund may also be greater. Nonetheless, this will allow donors to decide the balance of risk and return they consider appropriate for their contribution to the future of the University of Melbourne.
The 'Fossil Fuels' campaign raises important issues and is to be welcomed. Through revised investment arrangements we can ensure funds received in future are placed in the market in ways consistent with the intentions of donors. The Council's Investment Management Committee will continue to work closely with VFMC on investment strategy, knowing the returns achieved support sustainability and resilience through research, learning and engagement.