Universities Should Clean Up Their Portfolios


When student environmentalists and Tony Abbott’s old boss agree, you know something’s up.

Across Australia and around the world, student campaigns are calling on their universities to pull their finances out of coal, oil and gas companies, industries whose continued growth will cook current students’ careers.

Last week Lateline revealed that financial officers of Australia’s Group of Eight (Go8) Universities have been colluding to avoid scrutiny over how they manage carbon risks to their endowments.

In a spectacular own-goal, Monash University's Chief Financial Officer accidentally cc’d a divestment activist on a confidential email advising the vice-chancellor to ignore said activist and revealing that the G08 universities had agreed to play dumb and pretend they had never received a survey asking them to disclose their fossil fuel investments.

The survey came from the Asset Owner’s Disclosure Project, an initiative chaired by ex-Liberal leader and ANU Professor John Hewson. The project previously surveyed and ranked the world’s 1000 biggest funds on how they manage carbon risks, and is now working on grading 300 international universities.

Since being named and shamed, the Go8 universities have been coy.

On the day the news broke, Melbourne University announced that it would not divest from fossil fuels. The University of Western Australia refused to comment and UNSW passed the blame onto their fund managers, claiming they have “no control over externally managed funds”.

Ironically, on the same day Unisuper, the fund most university employees use, announced it would remove fossil fuels from its socially responsible investment option.

Meanwhile, ANU’s Vice-Chancellor Ian Young, who also heads up the Go8, declined to confirm whether ANU would participate in Hewson’s survey.

Later this year, under their new investment policy, ANU will decide whether fossil fuels cause “substantial social injury” and therefore must be excluded. They will have to work hard if they want to deny that fossil fuels cause "injury", particularly as their investments include oil and gas giant Santos, which was recently caught contaminating an aquifer with 20 times the level of uranium deemed safe to drink.

Aside from a worrying pattern of secrecy, this blooper shows us that universities have not been listening to the rhetoric which their own academics spout regarding basic risk management.

Concern is building about an ever inflating "carbon bubble". A growing focus on environmental policy and falling costs for renewables threatens to create "stranded assets" and destroy vast swathes of investor value in the fossil fuel industry.

The risks are so big that even the World Bank is urging investors to shift portfolios away from carbon-exposed assets. John Hewson compares the situation to the “sub-prime chaos” that triggered the GFC and hit portfolios hard, including at universities.

Currently, Australian coal producers are suffering due to the low coal price and high cost of production. However, there are plans to invest over $100 billion in new Australian coal mines over the next 15 years. Any first year economics student will tell you that flooding the market with new coal will further depress the price, making new coal mines a very unwise investment indeed.

Internationally, fossil fuel companies have committed to extracting and burning five times the amount of carbon emissions required to keep us below the “safe” two degrees of global warming, meaning that industrialised nations would need to make a simultaneous decision to scrap their commitments to emissions reduction in order for these companies to meet their financial claims.

Any first grader can tell you that these numbers don’t stack up.

On the other hand, contrary to the proclamations of Melbourne University, ditching fossil fuel investments does not lead to lower investment returns. A study recently released by The Australia Institute, with modelling by Aperio Group, showed that protecting your portfolio from longer-term fossil fuel risks doesn't mean sacrificing short-term returns.

In fact, limiting fossil fuel exposure could put you ahead, given the energy transformations under way. In the EU, fossil fuel based utilities have together lost over $600 billion in value in recent years, while global solar stocks have soared ahead of the rest of the market.

And imagine the positive headlines for whichever university is Australia's first to take leadership on fossil fuel investments. It's the sort of thing to make alumni proud enough to open their wallet, confident their donation won’t go into a coal mine.

Whatever you think about the moral arguments for divestment, you can’t really argue with transparency around prudent financial management.

Rather than working up excuses like a recalcitrant student, our universities should start actually doing their homework. They'll soon discover the benefits of taking action.

Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.