Fossil divestment: policy and process

Every year, tens of billions from Belgian banks flow into oil, gas and coal investments. This nullifies all efforts to stop climate warming. But besides the obvious ecological aspect, there is also a financial consideration. After all, analyses predict that in time the valuation of companies with fossil fuel reserves will drop. The Paris Climate Agreement stipulated that, in order to keep the increase in the global average temperature below 2°C, up to 80% of currently known reserves must remain unused. These assets will lose their value, which could have a negative effect on share prices.

For several years now, students of the Fossil Fuel Divestment Movement have been encouraging university administrations worldwide to take this step. Ghent University responded to this plea for a sustainable investment portfolio.

Ambitious framework with exclusion and inclusion criteria

Ghent University has developed its own framework for its investment portfolio, which excludes investments in fossil energy companies and companies with a high C02 footprint. Companies that explore for, extract, refine and transport coal, oil and gas and that generate electricity on the basis of fossil fuels may no longer be included in the UGent investment portfolio. In addition to the exclusion of the fossil sector, it is requested to include companies that are involved in renewable energy sources and the circular economy. In this way, the investment universe is kept sufficiently broad and future-oriented technologies are actively supported. The return expectation remains unchanged; sufficient studies and forecasts indicate that sustainable investments are at least as profitable as traditional ones.

The specific criteria are listed below:

General exclusion criteria

  • Exclusion of companies that do not respect or violate the 10 principes van de Global Compact on Human Rights - Labour - Environment and Corruption.
  • Exclusion of companies involved in controversial activities (this list is not exhaustive and may be extended or modified at any time):
    • Production and/or sale of conventional and non-conventional weapons (< 1% of turnover)
    • Democracy Index (Economist Intelligence Unit): investments in authoritarian regimes (< 1% of turnover)
    • Tobacco (< 1% of turnover)
    • Pornography (< 5% of turnover)
    • Fur and Leather (< 5% of turnover)
    • Gambling (< 25% of turnover)

Exclusion because of our fossil-free ambition (divest):

  • Exclusion of the companies on the Carbon Underground 200 companies list, as published by the FFI (Fossil Free Indexes).
  • Exclusion of companies with fossil fuel reserves.
  • Exclusion of companies that explore for, extract, treat, refine or transport coal, oil and gas.
  • Exclusion of companies that invest in utilities that use fossil fuels to produce electricity.

Inclusion of 'sustainable and responsible' themes (10 tot 20%)

  • Renewable energy
  • Sustainable energy
  • Energy storage
  • Circular economy

Other sustainable and responsible themes can also be added to the portfolio, if they are approved by Ghent University.

Process: how Ghent University reached this result?

1. Agreement of the board with the principle of climate-friendly investment

In 2016, Ghent University decided to include sustainability criteria in the investment of its portfolio, liquid funds of UGent in anticipation of the need to include them for research projects or for infrastructure works.

It was also decided that Ghent Universities portfolio managers, spread over several banks, should submit their sustainability funds to a 'Sustainable Investment Committee' at UGent, which could assess the sustainability aspect and make adjustments where necessary.

Finally, it was decided to invest 10% of the total capital to be invested in specific funds because they are closely related to the UGent activities or in funds where the return is subordinate to the ethical aspect.

2. Composition of an 'open' Sustainable Investment Committee

The 'sustainable investment' committee consists of the logistics manager, the finance director and representatives from all parts of the university. In addition, a representative of the NGO FairFin, a student of the Fossil Free Movement and the environmental coordinator joined this committee.

3. Evaluation of the sustainability funds of the portfolio managers

In 2017, all portfolios of Ghent University switched to sustainable investment funds. The 'sustainable investment' committee evaluated the sustainability aspect. It quickly became apparent that each bank uses its own definition of sustainability and has its own methodology for achieving it. Each sustainability fund still contained many companies that invest in fossil energy. The Sustainable Investment Committee wanted to be more ambitious.

4. Determine own sustainable investment framework

The university board decided to write its own framework, which excludes investments in fossil energy companies and companies with a high C02 footprint and at the same time includes companies working on renewable energy sources and the circular economy.

5. Imposing UGent ambitions on portfolio managers

The banks were challenged to help realise the level of ambition of UGent. The solutions offered varied widely. One launched new equity and bond funds grafted onto the UGent framework and opened them up to other institutional investors. Another bank refined the selection methodology on existing investment products, so that only investments in those companies that comply with the framework of Ghent University remain.

6. Getting others on board

Because we believe SRI can be a lever to help achieve the climate objectives, UGent is helping other institutional investors - public institutions, cities, municipalities, non-profit organisations, but also pension funds and companies - to take this path as well. Our experiences, the process, the investment framework, ... will be widely disseminated. In this way, we can ensure that climate-friendly investment no longer remains exceptional or customary, but becomes mainstream.

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