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University of Toronto rejects activists’ call to sell oil and gas investments

ANALYSIS: Even the most environmentally-focused Prime Minister ever to lead Canada does not think fossil fuel divestment makes sense.

Just two weeks after the University of British Columbia’s board of governors rejected calls to sell the school’s shares in oil, gas and coal producers, Justin Trudeau told a Vancouver audience in early March it was time to transition to a low carbon economy. The Prime Minister stressed, however, that the energy sector would need to remain funded in order to complete that process.

“We must also continue to generate wealth from our abundant natural resources to fund this transition to this low carbon economy,” Trudeau said on March 2. “The choice between pipelines and wind turbines is a false one. We need both.”

University of Toronto President Meric Gertler provided an even more important reason to reject calls for divestment in a 43-page document published early Wednesday morning: It will not work. Punishing oil and gas producers specifically, Gertler argues, is a far too narrow way of viewing a much broader issue.

“A serious limitation to any decision to divest from fossil-fuel companies is that such firms only account for one-quarter of Canada’s greenhouse gas emissions, with the balance produced by other factors such as transportation, housing and manufacturing,” he wrote.

Instead of outright divestment, Gertler proposes including so-called ESG (environmental, social and governance) risks in any analysis carried out by the school’s investment arm – University of Toronto Asset Management – before making future decisions to invest directly. The UTAM manages more than $6.5-billion in pension and endowment funds; as of the end of 2015 it held stakes worth more than $1-million in more than a dozen Canadian oil and gas producers such as Encana, Canadian Natural Resources, Raging River and Suncor.

“The virtue of an [investing] approach such as the one I am outlining is that it allows us to look at the practices of firms not just in fossil-fuel-producing sectors, but in the rest of the economy as well,” Gertler wrote.

He added in an interview on BNN that the University of Toronto has responsibilities that extend beyond environmental awareness.

“We to have to look out for the returns in our funds,” Gertler told Michael Hainsworth on The Business News. “We have a responsibility as fiduciaries to uphold that interest.”

Deciding to stop investing in any company that exhibits a “blatant disregard” for global efforts to reduce greenhouse gas emissions – as a UofT advisory panel recommended in December 2015 – also represents a slippery slope.

Paul Gardner, partner and portfolio manager at Avenue Investment Management, explained to BNN early Wednesday morning the “divest from fossil fuel companies” mindset could easily be used to justify selling stakes across a multitude of industries.

“What do you do with utilities that burn coal, or technology companies that provide services to oil and gas?” Gardner asked rhetorically. “The biggest polluter out there is the car so perhaps let’s ban investing in Ford and [General Motors] as well.”

Schools from across Canada and around the world have faced increasing pressure to divest their fossil fuel holdings in recent years. Despite virtually all of them deciding divestment is not the most effective way to reduce greenhouse gas emissions, some (such as UBC and Concordia) have set aside millions of dollars from their endowments to focus on low-carbon investments.

While those measures are unlikely to satisfy some of the most ardent opponents of fossil fuel use, they ultimately remain the most rational way of dealing with climate change from an investment perspective. Until renewable energy can be made more sustainable, reliable and affordable, simply pulling funding from fossil fuel companies will do nothing to make the carbon-intensive fuels they produce any less demanded by an increasingly energy-hungry world.

Companies directly involved in oil/gas/mining that UofT had investments in as of Dec 312015 (where holdings exceed $1M): 

  • Advantage Oil & Gas
  • Agnico Eagle Mines
  • Canadian Natural Resources
  • Devon Energy
  • Enbridge
  • Encana
  • Goldcorp
  • Occidental Petroleum Corp
  • Parex Resources
  • Raging River Exploration
  • Royal Dutch Shell
  • Secure Energy Services
  • Suncor
  • Total Energy Services
  • Total SA

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