The decision of the Australian National University’s endowment to divest shares in seven resource companies is not an unusual move within the context of institutional asset owners. How those investors choose to allocate their assets has nothing to do with any government and they should not feel pressure to invest in any one company, asset class or country.
In the Australian Financial Review’s story on Friday October 10, “ANU’s Santos blacklisting a disgrace and job threat, says Abbott minister”, it was reported that federal ministers and corporate executives were putting pressure on the ANU, a private investor, to back down from its decision to divest from seven resource companies.
Where private investors allocate their assets should not be a concern of the government.
Listed companies are subject to the vagaries of the market, and that includes institutional investors’ decisions that are based on their own investment principles.
Increasingly those investment principles include environmental, social and governance considerations and companies need to get used to that.
In May this year Stanford University, which has a much larger endowment than ANU at around US$18.7 billion, announced it would not invest directly in publicly traded companies whose principal business is the mining of coal for use in energy generation.
Institutional investors allocate according to their investment principles and Stanford’s investment policy, adopted in 1971, says the trustees’ primary obligation in investing endowment assets is to maximise the financial return of those assets to support the university. It also says that when the trustees judge that “corporate policies or practices create substantial social injury”, they may include this factor in their investment decisions.
“Stanford has a responsibility as a global citizen to promote sustainability for our planet, and we work intensively to do so through our research, our educational programs and our campus operations,” said Stanford President John Hennessy at the announcement of the divestment plan.
The resolution means that Stanford will not directly invest in about 100 publicly traded companies for which coal extraction is the primary business, and will divest of any current direct holdings in such companies. Stanford will also recommend to its external investment managers, which invest in wide ranges of securities on behalf of the university, that they avoid investments in these public companies as well.
Endowments and pension funds all over the globe divest from companies as a consequence of their investment beliefs.
Swedish pension funds with combined US$140 billion asset under management and the Dutch pension fund PGGM with about US$174 billion of assets divested from Walmart last year because of the company’s poor labour practices. Both investors had engaged with the company to change its practices over many years but the company failed to act. Divestment was the last option.
PGGM is an active voter of its shares and engages with companies to change their behaviour in line with its principles. In 2012, it voted at more than 3,100 shareholder meetings, was in dialogue with 746 companies and excluded 42 companies from investment. It now also checks the 2,800 companies in the FTSE All World Index, in which it is invested, against its own specific ESG index.
One of the world’s largest investors, the $850 billion Norwegian Sovereign Wealth Fund, which owns 1 per cent of all of the world’s stocks and whose assets are from oil reserves, has set up an expert group to assess whether it should stop investing in fossil fuel companies. The fund will move 5 per cent of its total assets into renewable energy.
Divestment from companies, is not about being un-Australian, un-American or un-Dutch. It’s about investing consistently with the principles determined by the trustee board which is a fiduciary for the beneficiaries.
The board of the $29 billion Australian industry fund HESTA recently decided to restrict investments in thermal coal. The decision was made in the context that new or expanded thermal coal assets face the highest risk of becoming stranded before the end of their useful life, and to invest in them is not prudent or in the interests of members in the medium and long term.
HESTA has an established climate change policy, which requires the fund to incorporate climate change considerations into its investment processes.
It also has tobacco company exclusion across its portfolio. And this investment policy is consistent with the profile of the 785,000 members on whose behalf it invests assets. HESTA is the health industry pension fund.
For Harvard University investing its US$33 billion endowment responsibly is one of three ways the University is focusing its efforts on the obligation to the planet and “our collective future”, its president, Drew Faust, said in May.
The other contributors are its research and academic work – its faculty lead the world’s research in environmental science, technology and renewable energy, and developing law and policy around sustainability and climate change.
“As long-term investors, we are by nature focused on material ESG factors and the responsible stewardship of our investments,” Faust said on being the first university endowment to sign the United Nations-backed Principles of Responsible Investment.
Interestingly, many faculties ridiculed this step saying it did not go far enough, with 100 faculty signing an open letter to Faust calling for fossil fuel divestment.
Asset owners invest according to their investment principles, and do not adhere to pressure of external parties, whether it be lobbyists, faculty or government.
If governments of Australia had been more forward looking perhaps revenues from the carbon tax could have been put into a sovereign wealth fund. Then they could have invested in whatever companies they thought fit. That’s a lost opportunity.