Oxford University Bans Fossil Fuel Investments

Oxford University on Monday joined a roster of other colleges banning fossil fuel investments.

The Oxford Endowment Fund, worth roughly $3.7 billion, is also demanding net zero carbon emission business plans across its portfolio. It’s also hiring a climate conscious investment team member.

The storied British institution joins a number of other universities that have formally announced commitments to sustainability amid increasing demand from students, academic researchers, and their own investment boards.

“We will continue our deep engagement with the investment groups in the fund, and further encourage them to move to a net zero world across their portfolios of companies,” Sandra Robertson, CEO and CIO of Oxford University Endowment Management (OUem), said in a statement.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The school also said it is also developing its own strategy for environmental sustainability that will be published later this year.

The decision comes at a time when the energy industry has been severely hit by the coronavirus. As drivers stay home and economic activity slows, oil prices this month have dropped below zero. Supply has not only outstripped demand, but has overtaken storage.

Meanwhile, the fund’s allocation to oil and gas has already been significantly reduced, the university council noted. Over the past 13 years, the endowment fund decreased its stake in energy to 2.6%, down from 8.5% in 2007. Of that remaining allocation, just 0.6% is invested in fossil fuel extractors.

A number of other schools have similarly made commitments to net zero emissions this past year. Earlier this month, Harvard required a net-zero strategy for its $41 billion endowment. Other universities, such as Georgetown, Middlebury, and Syracuse, have committed to divesting from fossil fuels.

Swedish Pension AP1 Divests From Fossil Fuels

Anti-Fossil Fuel Protests Hit Australia Pension’s Doorstep

Tags: Divestment, energy, fossil, Fossil Fuels, Gas, Oxford, University, University of Oxford

Despite raking in investment returns of 17.3% in 2019, the funding ratio of the 100 largest US corporate pension plans rose only slightly for the year because of plummeting discount rates.

According to consulting and actuarial firm Milliman, the asset gains last year were the second highest in 20 years for the plans, behind only 2003’s investment return of 19.5%. However, the strong returns were nearly canceled out by a 94 basis point (bps) drop in discount rates to 3.06% from 4%. The falling rates raised pension liabilities and caused the overall pension funding ratio for the year to edge up slightly to 87.5% as of Dec. 31 from 87.1% at the end of 2018.

“Corporate pensions have experienced a lot of turbulence so far in 2020, and plan sponsor strategies in response to the recent economic stressors and the CARES [Coronavirus Aid, Relief, and Economic Security] Act are just beginning to take shape,” Zorast Wadia, co-author of Milliman’s Pension Funding Study, said in a statement. “Organizations that are considering deferring contributions this year should keep in mind the resulting impact on funded status, tax deductions, PBGC [Pension Benefit Guaranty Corporation] premiums, and pension expense.”

The $34 billion in contributions made by the sponsors of the plans in 2019 was lower than expected, according to Milliman, following two years of record high contributions of $61.8 billion and $59.5 billion for 2017 and 2018, respectively. Among the 100 companies sponsoring the plans, 13 contributed at least $1 billion in 2019 with the largest being made by United Parcel Service Inc., which made $2.1 billion in contributions last year. In 2018, six employers made larger contributions, with AT&T leading the way with $9.3 billion in contributions.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The trend of plan sponsors implementing liability-driven investment strategies, which involve shifting more assets into fixed income, continued in 2019, according to the study, as equity allocations in the pension portfolios increased only slightly to an average of 32.5% during 2019 from 32.1% at the end of 2018.

The percentages of pension fund assets allocated to equities, fixed income, and other investments were 32.5%, 49.1%, and 18.4%, respectively, at the end of fiscal year 2019, compared with 32.1%, 48.0%, and 19.9%, respectively, at the end of fiscal year 2018. Unlike in 2018, when plans with fixed income allocations of more than 50% outperformed other plans, those plans underperformed in 2019.

Plan sponsors continued to execute pension risk transfers in 2019, led by GE, Lockheed Martin, PepsiCo, and Ford, which reported total transactions of $2.7 billion, $1.9 billion, $1.3 billion, and $1.3 billion, respectively. However, the pension risk transfer market was down from the record high in 2018 as Milliman estimated that there were $13.5 billion in risk transfers in fiscal year 2019 compared with $18.8 billion the previous year.

The transfers continued to be spurred by rising PBGC premiums, according to the study. PBGC flat dollar premiums increased to $80 in 2019 from $74 in 2018, while the variable rate premium increased to 4.3% of a pension plan’s PBGC funded status deficit in 2019, from 3.8% in 2018.

The results of the Milliman 2020 Pension Funding Study are based on the pension plan accounting information disclosed in the footnotes to the companies’ 10-K annual reports for the 2019 fiscal year and for previous fiscal years.