FAQs on Divestment at the University of Toronto

For a more comprehensive set of short answers to common questions please see Section 7 of the divestment brief. Two versions of the brief are available, the finalized version originally presented to President Gertler and the update for the ad hoc committee which remains a work in progress.

The following video answers many of the common questions and addresses many of the counter-arguments that are frequently encountered:

Also, this radio interview on the CBC by president Stuart presents many of the arguments, and shows the weakness of the counter arguments.

What follows is a somewhat abbreviated version of the FAQ from the original brief.

Q:. What is the divestment campaign calling on the U of T administration to do?

A: The Toronto350.org brief calls on the U of T to:

  1. Make an immediate statement of principle expressing the school's intention to divest its direct holdings of stock in the 200 fossil-fuel companies from around the world with the largest reserves;
  2. Immediately stop making new investments in the industry;
  3. Sell its direct holdings in the 200 companies over five years;
  4. Sell its stock in Royal Dutch Shell within one year.

Q: Which institutions and cities are following this course of action?

A: Fossil-fuel-divestment campaigns are active at more than 300 schools across North America including The University of British Columbia, McGill University, the University of New Brunswick–Fredericton, the University of Victoria, McMaster University, Concordia University, Simon Fraser University, Harvard, Yale, Princeton, Stanford, MIT, Duke, Caltech, the University of Michigan, Tufts and Wellesley. Campaigns are also starting in Europe including at Oxford University in the U.K. To date, seven universities and colleges have pledged to pursue fossil-fuel divestment: San Francisco State University Foundation, Hampshire College, Unity College, Sterling College, the College of the Atlantic, Naropa University and Green Mountain College.

In June 2013, the city council of Providence in Rhode Island voted 11–1 in favour of divestment. Several other cities are considering divesting from fossil-fuel stocks. For example, the mayor of Seattle has called for the city to divest from fossil-fuel stocks its fund for daily operations (US$1.4 billion), its deferred compensation plan (US$700 million) and its pension system (US$1.9 billion). The mayor of Portland, Oregon, has urged the Oregon State Treasurer, the Local Government Investment Pool and the Oregon Investment Council to divest all state holdings in fossil-fuel companies. The San Francisco Board of Supervisors has urged the retirement board to divest US$583 million in fossil-fuel holdings in the city’s $16-billion retirement fund.

In addition, in July 2013 European Union Climate Commissioner Connie Hedegaard called for the European Investment Bank, the European Bank for Reconstruction and Development and the World Bank to eliminate public support for fossil fuels. Each year, these three institutions provide US$168 billion in funding for projects around the world (see p. 131 of the brief).

Q: Why should the University of Toronto ‘take sides’ in this matter?

A: The University of Toronto’s Policy on Social and Political Issues With Respect to University Divestment and its Procedures for Responding to Social and Political Issues with Respect to University Divestment list the criteria for deciding when an issue is no longer properly the subject of academic debate, meaning that divestment is justified. Divestment from fossil-fuel companies is compatible with the policies and procedures. Furthermore, the university has already taken several other actions that acknowledge the seriousness of climate change and the appropriateness of changing university practices in order to make it less severe.

Partly because of the political influence of fossil-fuel corporations — and the effectiveness of their campaign to delay government action — climate change has become an urgent problem. The decisions made in the next few years will do a great deal to determine what sort of energy infrastructure will be dominant for the century ahead. That, in turn, will help determine how severe climate change will become. By taking decisive and well-justified action now, the university can demonstrate leadership in responding to this serious problem (see p. 124-126 of the brief).

Q: Isn’t shareholder activism a better option?

A: As with the tobacco industry, the problem with the fossil-fuel industry is the product itself. U of T representatives cannot convince the executives of Peabody Energy and Coal to stop digging and burning the company’s reserves simply by demanding this outcome at a shareholder meeting. Likewise, shareholder activism cannot persuade Shell to stop producing oil and gas. (see p. 125 of the brief).

Q: Other people will buy the stocks the U of T sells, so how does divestment make a difference?

A: Divestment has proven to be a successful strategy in the past, notably in the cases of tobacco and South African apartheid. Divestment campaigns have undermined damaging companies’ social license to operate. They also signal that important institutions with access to a great deal of expert advice have considered the question seriously and decided it is appropriate to act (see p. 126 of the brief).

Q: Don’t fossil-fuel companies also invest in renewable energy?

A: In 2008 British Petroleum (BP) launched a rebranding effort in which company officials claimed that the initials now meant ‘Beyond Petroleum.’ This is now recognized as an example of ‘greenwashing’ — a company advertising itself as being environmentally friendly while not actually adopting sustainable practices.

BP has abandoned its foray into solar-power generation and put its wind-farm business in the U.S. up for sale. The amount of money fossil fuel companies invest in renewable energy is dwarfed by their investments in unconventional sources of coal, oil and gas. The fossil-fuel industry spends vast sums of money touting its environmental credentials, while its business plans — which depend on burning all of their fossil fuel reserves — are fundamentally at odds with environmental sustainability (see p. 131-132 of the brief).

Q: Isn’t the energy sector — including oil and gas extraction, production and distribution — highly regulated by all levels of government?

A: When it comes to greenhouse-gas pollution, the fossil-fuel industry is essentially unregulated by the Canadian federal government. Firms are free to use the atmosphere as a dumping ground for CO2 pollution. The harm the industry is causing is largely dispersed, which makes it hard to assign responsibility, but it is incontrovertible that there are significantly deleterious impacts in the aggregate. Furthermore, many governments in Canada have adopted policies intended to accelerate the growth of the fossil-fuel sector such as aggressive international lobbying for oil pipelines and for other forms of fossil-fuel-export infrastructure. They also include steps to weaken environmental assessment processes, and reduce the scope of scientific research on global warming while suppressing the publication of government scientists’ research results and maintaining substantial subsidies to the fossil-fuel industry.

Moreover, the G8 Research Group at U of T’s Munk School concluded that: “Canada has not complied with its commitment to take robust legislative and funding action to reduce its greenhouse gas emissions by 2020.” They also argue that Canada has not “passed legislation that demonstrates a sincere effort to limit its domestic emissions” (see p. 133 of the brief).

Q: If there is a threat to UofT's financial health due to the "Carbon Bubble", won't the professional investors at UTAM see it coming?

Financial bubbles are dangerous things to attempt to 'game' by holding on until the last minute. Assuming that investors would protect the investment just before the Carbon Bubble bursts is akin to assuming that it is sensible to run full-pelt towards the edge of the cliff, believing that you will be able to stop right at the edge.

Furthermore, the professionals at UTAM failed to protect UofT's endowment during the Housing Crisis of 2008, during which the UofT endowment lost $545 million in value. Why would it be safe to assume the same investment corporation would protect UofT sufficiently from a future bubble?

Q: Can’t we just adapt to climate change?

A: The impacts of even 2˚C of global warming would be severe -- and continuing to use fossil fuels the way we do now would likely see temperatures rise by more than 5˚C by 2100. There is no adapting to climate change that would cause the complete melting of the Greenland and West Antarctic ice sheets -- followed by the flooding of huge populated areas -- and other disastrous effects. To have a reasonable chance of maintaining the level of human prosperity we enjoy now, global warming must be kept under 2˚C — and that means most of the world’s fossil-fuel reserves cannot be burned (see p. 24-53 and p. 138 of the brief).

Q: Won’t carbon capture and storage save us?

A: Humanity is now emitting roughly 30 billion tonnes of CO2 into the atmosphere every year. As an article in the MIT Technology Review explains, “[I]f we were to bury just one-fifth of the global carbon dioxide emissions, we would need to build an industry capable of handling twice the volume of stuff as the entire oil industry, an industry that took 100 years to develop, driven by a large and mostly expanding market.” Rather than being a genuine means for dealing with climate change, carbon capture and storage (CCS) has more often been a way for the fossil-fuel industry to claim that a technological solution will soon exist, thereby delaying serious government action. This claim is at odds with the difficulties encountered by test projects like FutureGen — a supposedly ‘clean’ coal-fired power plant announced by President George W. Bush in 2003 that was subsequently scrapped because of intolerably high costs. As a recent article in The Economist noted, “There is not a single big power plant using CCS anywhere in the world.”

The failure of CCS to live up to its promise is especially problematic for Canada, given the degree to which the climate-change plans of the federal government and the Government of Alberta depend on this technology becoming cheap and effective in the near future. This makes it all the more important to begin divestment now (see p. 138-139 of the brief).

Q: Won’t geoengineering save us?

A: Goengineering, which is the deliberate modification of the climate system to counteract the effect of anthropogenic climate change, adds new risks to those from climate change. There is no guarantee it would reduce global temperatures and address the other consequences of climate change -- and in fact it would likely bring significant negative side-effects (see p. 139-140 of the brief).

Q: Can humanity manage without using fossil fuels?

A: This question is extensively examined by Cambridge physicist Dr. David MacKay in his 2009 book Sustainable Energy – Without the Hot Air (available for free online at http://withouthotair.com). Dr. MacKay performed a detailed analysis and concluded that humans can in fact enjoy an improved standard of living without relying on fossil fuels at all. He determined that by combining wind, hydro, tidal, wave, geothermal, solar and nuclear power it would be possible for everyone in the world to consume 80 kWh/day — equivalent to the total per-capita energy use in Hong Kong today.

Officials at the U.S. Department of Energy predict that by 2030 20%of American electricity could come from wind, reducing annual electricity-sector CO2 emissions by 825 million metric tonnes. Iowa already generates 39% of its energy from wind. Concerns about the intermittency of wind energy have also proven to be exaggerated: by balancing production from wind facilities in different areas, consistent power output can be created.

In addition, huge opportunities exist to reduce energy use by improving efficiency in industry, transport, power generation and buildings (see p. 133 of the brief).

Q: Can the U of T afford to divest?

A: Yes. There is no evidence of a financial penalty from divestment. Several studies have used historical data to quantify the financial consequences of taking environmental factors into account in the investment-management process. In aggregate, these studies found neither a significant impact on investment risk nor a performance penalty. Therefore there is reason to believe that divestment would involve only a limited likelihood of reducing investment returns. Indeed, divestment could benefit portfolios because it removes the risk of investment in companies whose economic performance and ratings are most likely to decline in the long term due to increasingly negative public perception of them and stronger government regulations on greenhouse-gas pollution. Analyses by economists make two things clear: burning fossil fuels causes considerable social injury, and the prospect of increased penalties for greenhouse-gas pollution threatens the profitability and stock-market value of fossil-fuel companies (see p. 70-81 of the brief).

Q: Are there attractive substitutes for stocks in fossil-fuel companies?

A: Yes, there are many. For example, there are three broad-based mutual funds that are completely fossil-fuel-company-free: Green Century Balanced Fund (GCBLX), Portfolio 21 Global Equity Mutual Fund (PORTX) and Shelton Green Alpha Fund (NEXTX). The GCBLX is solidly in the middle of its grouping with in overall rating, returns and risk of the category, and the PORTX has outperformed its peers. The Shelton Green Alpha Fund only started recently, and hasn’t yet received a rating (see p. 82 of the brief).

Hedge fund billionaire Tom Steyer has decided to divest his holdings in fossil-fuel companies. He believes a portfolio that excludes fossil fuels “will outperform the market” (see p. 131 of the brief).

Q: Will fossil-fuel companies stop making donations to the U of T if divestment proceeds?

A: Fossil-fuel companies’ donations to the U of T are limited. Furthermore, those donations neither offset the financial risks associated with heavy investment in the industry nor compensate for the ways in which such investment contradicts the university’s values and policies. In addition, fossil-fuel companies may choose to continue donating to the university after divestment because of the advertising and positive publicity the companies receive in return (see p. 136 of the brief).

Q: Shouldn’t U of T fight climate change through research and education instead?

A: The active climate-change research and teaching that occurs at the U of T has helped establish that global warming is a serious and pressing problem for people in Canada and around the world. This work is very welcome, but it is not a substitute for divestment. The very existence of the divestment policy shows that the university has accepted the basic argument that some investments are incompatible with the values of the university. (see p. 136-137 of the brief).

Q: Won’t divestment have a negative impact on Canadian jobs and the economy?

A: The opposite is true: continuing to invest in fossil-fuel companies will lead to a ‘tipping point’ in global warming that could significantly and permanently weaken the Canadian economy. The Stern Review on the Economics of Climate Change states that, “The benefits of strong, early action on climate change outweigh the costs.” Early divestment could also help reduce the risk of large amounts of investment being tied up in fossil-fuel projects that must be scrapped soon after completion in order to avoid dangerous climate change.

As a high-profile and opinion-leading institution, the U of T has an opportunity to participate directly and constructively in the world’s economic realignment through divestment (see p. 137 of the brief).

Q: Is there suitable guidance on how to switch from an fossil-fuel-heavy investment portfolio to one that has no such stocks?

A: Yes. The following resources provide valuable guidance: Institutional Pathways to Fossil-Free Investing by Joshua Humphreys, Resilient Portfolios & Fossil-Free Pensions by HIP Investor Inc. and GoFossilFree.org, Divestment from Fossil Fuels: A guide for city officials and activists and The Climate Change Guide — Corporate Canada: Responsible Business Action on Climate Change (see p. 85-86 of the brief)

Q: What is the first step that Toronto350.org suggests the University of Toronto take in divestment, and why?

A: We propose that U of T divest 100% of its holdings in Royal Dutch Shell within a year of receiving this brief. As one of the largest fossil-fuel companies in the world, as well as the university’s largest single holding, Shell represents an ideal starting point for the university’s move to divest from the fossil-fuel industry. Shell’s activities contribute directly to the harmful affects of climate change. In addition, Shell has repeatedly caused significant social harms, including conduct in Nigeria and Alberta that conflicts with domestic and international law. Shell also represents a financial risk to investors, with even greater shareholder uncertainty in the medium- and long-term, because of proposed projects that are costly and high-risk.

Divestment from Shell will not adversely affect the university’s portfolio: this was demonstrated by the university’s divestment from tobacco-company stocks, which comprised a larger proportion of the endowment portfolio than do its current fossil-fuel-industry stock holdings (2.28% vs. approx. 1% in fossil-fuel-industry stocks). Furthermore, the decision to divest from Shell would signal the U of T’s progressive spirit to prospective students, faculty, staff members and other academic institutions (see p. 112-123 of the brief).