The University of Toronto applauds itself on divestment efforts while student groups and faculty members remain unconvinced
According to the University of Toronto Asset Management Corporation (UTAM) 2021 Annual Report, U of T currently holds approximately $4.2 billion dollars in its endowment. For more than nine years, there has been an ongoing effort by faculty members and students to pressure UTAM to divest from all investments in fossil fuels.
In October 2021, U of T President Meric Gertler announced that UTAM would be divesting all direct investments in fossil fuel companies within a year. On November 7, 2022, U of T celebrated its success in divesting from direct investments in fossil fuel companies and announced considerable progress towards its goal of divestment from indirect investments in fossil fuel companies by 2030. However, behind all the celebratory language, there remains considerable dissatisfaction from environmental groups at U of T.
This month, in order to better understand this announcement, Ultra Vires (UV) met with representatives from the student group Climate Justice UofT, Erin Mackey and Léo Jourdan, as well as faculty members of the organization Divestment & Beyond, Professors Paul Downes and Paul Hamel.
A Brief Timeline of Divestment at U of T
Many students at U of T who arrived prior to 2019 will likely be familiar with the demonstrations and debates of the Divest U of T movement. However, for the uninitiated, this brief recap will likely suffice. Readers interested in learning more can find a complete timeline of the student and faculty efforts to realize U of T divestment from fossil fuels in Amanda Harvey-Sánche’s 2022 working paper entitled “U of T Fossil Fuel Divestment Timeline.”
A starting point for understanding the University’s divestment from fossil fuels is a report by the student group Toronto350, The Fossil Fuel Industry and the Case for Divestment by the University, which was published on March 3, 2014. On March 6, 2014, Toronto350 presented President Gertler with a petition requesting that U of T fully divest from direct investments in fossil fuel companies. In response, President Gertler put together an advisory committee to investigate the petition. The advisory committee released a report on December 15, 2015 in favour of immediate targeted divestment from fossil fuel companies found to be disregarding the international effort to limit average global temperatures. The idea stemming from this report that institutions such as U of T have an obligation to divest from companies disregarding international efforts towards climate change became known as the “Toronto Principle.”
On March 30, 2016, President Gertler released his rejection of his own advisory committee’s recommendation, opting for an entirely different strategy to address climate change. Instead of divestment, the University would focus on environmental, social and governance factors when choosing investments. The decision was considered a shocking reversal of the Toronto Principle, resulting in media attention, student demonstrations, and a response from members of the advisory committee.
It was following this reversal in policy that U of T’s chapter of The Leap formed, superseding Toronto350 with the renewed mission of promoting divestment. In the fall of 2019, a coalition of students, faculty members, and staff likewise founded the interest group Divestment and Beyond as a response to Gertler’s 2016 rejection of the Toronto Principle. After a series of joint open letters, petitions, and activism on campus throughout 2020, changes finally came about in 2021.
On July 1, 2021, U of T transferred $6.9 billion of its pension assets to the University Pension Plan, transitioning control of the money away from UTAM. Following this transfer, on October 27, 2021, President Meric Gertler announced that UTAM would be divesting all direct investments in fossil fuel companies within the endowment within a 12-month period. The announcement also stated that UTAM would divest from all indirect investments in the fossil fuel industry by 2030.
Some Perspectives on the Current Situation
On November 7, 2022, U of T reported that UTAM, as described in its most recent Responsible Investing Report, had successfully delivered on its commitment to fully divest from direct investments in fossil fuels and made considerable progress towards its goal of complete divestment by 2030 of indirect investments. The announcement celebrated that it had exceeded its carbon footprint reduction target, hitting a reduction of 30 percent in the portfolio’s carbon footprint.
When UV reached out to Mackey and Jourdan of Climate Justice UofT, the two explained student discontent with the fact that this divestment effort did not include the endowments of the federated colleges of St. Michael’s, Trinity, and Victoria. The endowments of these colleges are worth approximately $89 million, $69 million, and $506.7 million respectively.
When UV reached out to Professor Paul Hamel and Professor Paul Downes, faculty members and long-time advocates of divestiture, we obtained a different perspective.
When asked about the University’s 2022 announcement, Professor Hamel had this to say:
“Remember the announcement was that they had divested completely […] their direct holdings in fossil fuel companies. Did you find anywhere what [the holdings] were or how much [was invested]? It is simply not stated anywhere. There is simply no statement […] you cannot get that data.”
Professor Hamel stressed that at a university, evidence is the gold standard. As things currently stand, there is no evidence to corroborate UTAM’s claim that they have divested from all direct holdings in fossil fuels.
Professor Downes echoed these concerns: “without more evidence or data to back up the President’s claims, it is impossible for us to be sure that he is not deceiving the University about UTAM’s divestment achievements to date.”
Regarding the progress that UTAM celebrated in its 2021 Responsible Investing Report, Professor Downes stressed that the University was being misleading with its claim that the carbon footprint of its endowment investments had fallen by 29.8 percent since 2020, because this is a measure relative to the size of the endowment. In reality, the absolute reduction in carbon emissions related to the investment portfolio is only 8.5 percent. It is public knowledge that the University plans to double the size of its endowment through its “Defy Gravity” campaign, leading Professor Downes to worry that the University will continue to release misleading statistics to track its progress.
Looking ahead to UTAM’s goal to divest from all indirect investments by 2030, Professor Hamel expressed great concern: “as far as we’re able to tell, they can’t even know what’s in their portfolio.”
Professor Hamel explained that a large portion of U of T’s endowment is invested in complex “manager of manager” funds. The result of this choice is that the University may not even be able to understand what the carbon footprint of their portfolio truly is. Further, Professor Hamel explained that U of T is not allowed to report on a large amount of the funds that the endowment is invested in, meaning that there is no way for the public to understand what the funds are or what they are composed of. Finally, Professor Hamel commented that it is unclear what the University means by divesting from all indirect investments in fossil fuels, or whether it is even possible.
When UV asked what he saw as the purpose of U of T’s divestment announcements, Professor Hamel lamented that it appeared to be, to a large degree, an act of advertising; an effort by the University to appear attractive to prospective students and donors.
Professor Hamel and Professor Downes agreed that progress in this area likely requires a call for increased transparency on the part of the University, as well as pressure from donors.
Readers interested in the continued effort to promote fossil fuel divestment at U of T should consider looking into the grassroots student group Climate Justice UofT on Twitter and Instagram (@climatejusticeuoft) and sign their current petitions.
On November 24, 2022, Ultra Vires received the following statement from a University of Toronto Asset Management Corporation spokesperson:
Building on its success in reducing the carbon footprint of the Endowment fund (and the university’s pension plan assets that it previously managed), the University of Toronto Asset Management Corporation has further delivered on U of T’s climate commitments by fully divesting the Endowment portfolio from direct investments in fossil fuel companies – a crucial step toward achieving net-zero carbon emissions associated with the Endowment by 2050.
UTAM joined the United Nations-convened Net-Zero Asset Owner Alliance in 2021. The Alliance has established a framework to guide its members toward a 2050 net-zero objective. The framework includes setting ambitious five-year targets, and Alliance members must report regularly on their progress toward these targets. UTAM’s membership in the Alliance on behalf of the University’s endowment makes U of T the first university in the world to join this group of institutional investors. As a signatory (on behalf of the University’s endowment) to the United Nations-supported Principles for Responsible Investment (PRI), UTAM participates regularly in formal PRI assessments of its responsible investing activities and shares both the results and the transparency evaluation in our responsible investing reports and on our website. (The next assessment is expected in 2023.)
As has been our longstanding practice and for competitive reasons, UTAM does not publish a list of investments held, whether held directly or indirectly. However, annually, UTAM publishes the asset mix composition of the University of Toronto’s endowment portfolio compared to its benchmark reference portfolio – both on our website and in our annual report. We also publish the names of all external investment managers engaged by UTAM with more than $1 million CAD invested in aggregate on behalf of the University’s investment portfolios, with the exception of a small number of managers that have requested that their names not be disclosed.
When making any public statements, including those regarding our progress toward divestment, we are diligent in ensuring that the statements are correct. It is not our practice to overstate our achievements and compromise our integrity and the trust that University has placed in us. We are staffed by investment professionals, most of whom are CFA Institute members, subject to the Institute’s behavioural and ethical standards as well as our own Code of Ethics, which incorporates the expectations of securities regulators as UTAM is registered with the Ontario Securities Commission. Although it doesn’t speak directly to the status of divestment, the carbon footprint calculations as at Dec. 31, 2021, reported in our 2021 responsible investing report were independently verified by Pricewaterhouse Coopers LLP (through a limited assurance engagement), further underscoring our commitment to accurate reporting.
We achieved complete divestment from direct investment in fossil fuels by terminating a segregated account corporate bond investment mandate and restructuring the endowment’s publicly traded corporate bond portfolio such that it is comprised of a third-party investment manager’s ex-fossil fuels corporate bond fund (we refer you to a news article that we published to our website on July 14, 2022, with further information on this ex-fossil fuel strategy https://www.utam.utoronto.ca/utam-partners-with-rpia-in-new-fossil-fuel-exclusion-strategy/), as well as passive exposure that is benchmarked to the newly launched FTSE Canada All Corporate ex Fossil Fuels Enhanced Bond Index.
