Asset AllocationMay 27, 2020

University of California Now Fossil Fuel Free, Cornell Votes to Halt Carbon Investments

Downturn in traditional energy sector helps spur universities’ shift to clean energy projects.

Reported by Michael Katz

The University of California (UC)’s investment portfolios are now completely divested from fossil fuels after the investment committee of the university’s board of regents sold more than $1 billion in assets from its pension, endowment, and working capital pools. Meanwhile, the university’s office of the CIO said it has reached its five-year goal of investing $1 billion in clean energy projects.

“We remain convinced that continuing to invest in fossil fuels poses an unacceptable financial risk to UC’s portfolios and therefore to the students, faculty, staff, and retirees of the University of California,” Jagdeep Singh Bachher, CIO for the University of California, said in a statement.

“While we certainly could not have predicted the speed nor depth of the recent downturn in the traditional energy sector, signs point to a structural shift—not merely another cycle of boom or bust,” Bachher added. “Given geopolitical tensions and, likely, a bumpy and slow global financial recovery in a post-pandemic world, lowered demand and oversupply could portend an even longer price drought in oil and gas.”

Since September, the university has sold $900 million of fossil fuel assets in the pension and in the working capital pool, which is on top the endowment’s sale of approximately $150 million in fossil fuel investments last year.

As of April 30, UC Investments had a total of $126 billion in assets under management, including $68 billion in the pension, $13.4 billion in the endowment, and $15.9 billion in working capital.

In addition to the divestment, the university’s investment commitment to clean energy is now $1.04 billion, $750 million of which is allocated to two wind and solar developers and an aggregator strategy to own and operate commercial and industrial solar opportunities. Other investments include renewable energy, waste conversion, and sustainable agriculture and supply chains.

“As long-term investors, we believe the university and its stakeholders are much better served by investing in promising opportunities in the alternative energy field rather than gambling on oil and gas,” said Richard Sherman, chair of the University of California Board of Regents’ Investments Committee.

On the other side of the country, Cornell University’s board of trustees voted to support a resolution from its investment committee to institute a moratorium on new private investments focused on fossil fuels and to grow its investments in alternative energy technologies.

“There’s a growing recognition that we’re transitioning away from fossil fuels globally, and the economic competitiveness of renewable energy sources is rising,” Ken Miranda, Cornell’s CIO, said in a statement. “We’re doing the right thing from an investment perspective, particularly for an endowment with a perpetual time horizon.”

The moratorium came after the investment committee reviewed the near- and medium-term financial outlook for the coal, oil, and gas industries, as well as the potential threat posed by climate change on the university’s $6.9 billion endowment portfolio.

Effective as of May 22, the moratorium applies to new private equity and bond vehicles focused on fossil fuels, which make up approximately 4.2% of Cornell’s long-term investments. That figure is expected to be whittled down to zero over time as existing investments mature and assets are redeployed to other areas, including renewable energy, the university said.

However, the new policy does not apply to indexed and other public equity mandates, such as the S&P 500, where the university is among hundreds or thousands of investors and does not have the ability to alter an index’s composition or direct managers to include or exclude particular securities via active engagement.

Cornell’s investment committee has also directed the endowment to increase its investments in energy-efficient and new technologies, such as carbon reduction and carbon capture “that offer competitive risk-adjusted rates of return and which help in a transition to a more sustainable future,” according to the resolution passed by the board of trustees.

Additionally, the resolution said the investment committee determined that the moratorium and other new measures were “consistent with its fiduciary and stewardship responsibilities.”