Universities now have a financial responsibility to their faculty, alumni and students – as well as a moral one – to divest their endowments of all fossil-fuel investments, and the University of British Columbia is well-placed to become the first to do so, an internationally known economist says.
Jeff Rubin, an author and former chief economist at CIBC World Markets, told UBC students this week that the oil sands stocks, and fossil-fuel companies in general, will continue to perform badly as climate change compels governments around the world to restrict future carbon emissions. That means investments overseen by university endowments and pension funds will eventually have to drop these companies, because rating agencies will no longer give the firms the high credit grades needed to secure such investment, he said.
"What's happened to coal stocks, in terms of credit downgrades, is ultimately going to happen to oil sands stocks, and in time they're not even going to be eligible for institutional portfolios," Mr. Rubin said in an interview. "The knock before was, 'If you allow your conscience to be your portfolio manager, it's going to hurt your return' and that's been the stigma that activists have had to contend with.
"The reality is very different."
There are 34 active Canadian postsecondary divestment campaigns across nine provinces, according to the Sustainable and Education Policy Network.
Most are student-led initiatives aligned with 350.org, an environmental group targeting governments, institutions and organizations across the globe to "go fossil-fuel free."
At the end of last year, Concordia became the first Canadian university to commit to divesting when it took $5-million out of its $130-million endowment to see if socially responsible and environmentally sustainable investments could bring similar returns.
The University of Toronto and McGill University, which have endowments that are among the largest in Canada, still invest in the oil sands and other carbon-heavy industries.
Oil has been trading at below $45 (U.S.) a barrel. Last year around this time, the price obtained by many Alberta producers was more than $60. Since the last recession, oil sands stocks have fallen on average about 80 per cent, said Mr. Rubin, a long-time critic of Canadian bitumen. Even if those recover somewhat, low-cost producers will be able to outperform high-cost extraction operations such as Arctic and deep-water drilling, the oil sands and maybe even fracking, Mr. Rubin added.
George Hoberg, an environmental policy professor at UBC and divestment advocate, said Mr. Rubin is now "just one of many leading financial analysts who have come to the conclusion that, sooner or later, concerns about adhering to a carbon budget are going to create great risks for fossil fuel stocks."
He said financial analysts increasingly share Mr. Rubin's views, noting that earlier this week, former Bank of Canada governor Mark Carney, who now runs the Bank of England, called on companies to come clean with their "climate-change footprint" so markets are not sent into turmoil when it becomes clear how much of their fossil-fuel reserves are "stranded" due to carbon regulations.
"The fact that someone of that stature is that concerned really sends an important signal to capital markets," Prof. Hoberg said.
Prof. Hoberg helped spearhead a drive earlier this year that persuaded his colleagues to vote in favour of the campaign and led to UBC's responsible investment committee studying the issue. The school's administration is set to vote on whether to divest $100-million from its $1.3-billion endowment this fall, but it remains unclear how much the controversy over former president Arvind Gupta's abrupt resignation will affect that schedule.
Prof. Hoberg predicts UBC might be beaten to the punch by the University of Toronto.
There, Mr. Hoberg's son, Sam Harrison, a second-year engineering student, has helped lead a divestment campaign that created an ad hoc presidential advisory committee, which Mr. Harrison said must report to the school president with a yes-or-no recommendation by the start of December. That committee, made up of professors, administrators, one student and one alumnus, has had a year to study whether the university should divest its $1.5-billion portfolio of about 200 fossil-fuel companies.
"The divestment brief proposal we submitted was a 200-page academic report with more than 1,000 footnotes and citations – it's not something they can easily brush off," Mr. Harrison said. "The wind is at our backs, and if U of T is ever going to make a strong statement and stand up for their students on climate change, now is the time when they might do it."
Markus Ermisch, a spokesman for the Canadian Association of Petroleum Producers lobby group, said in an e-mailed statement that targeting a specific industry or commodity is "not appropriate or effective."
"It's particularly not appropriate when some companies in those industries are driving innovation in the specific areas highlighted by some groups as the reason not to invest in them," he said.