Fossil fuel divestment: Q&A

Fossil fuel divestment is when an organisation or investment fund sells any direct financial investments it has in companies that extract fossil fuels such as coal, gas, oil and tar sands. These may be directly owned shares, or investments in pooled and tracker funds.

Many institutions such as universities, pension funds, religious institutions and charities are divesting their money out of fossil fuel companies for both moral and financial reasons:

• Moral: fossil fuel consumption is the most significant cause of global heating which is a threat to both people and the planet, thus it is not morally acceptable to invest in its extraction.
• Financial: Fossil fuel reserves are at risk of being overvalued because a certain amount (known as “stranded assets”) can never be extracted due to the negative impact burning them would have on global heating.

Alongside divestment, institutions are encouraged to invest in companies that help drive clean energy production and that support communities globally to adapt to, overcome and reduce the impacts of climate change. This is one form of “responsible investment”: investments that benefit people and the planet as a whole.

The University wants its investment portfolio to reflect its commitment to tackling the climate crisis by transitioning out of investments in fossil fuel companies and by focusing on lower carbon products and other investment types that are socially and environmentally responsible.

At present, suitable cost-effective and scalable technologies to entirely replace fossil fuels do not yet exist across their full range of uses: power, heating, land and sea-based transport, aviation and petrochemicals.

However, the shift to low carbon and fossil-free technologies is moving forward at an increasingly rapid pace. Whilst we expect fossil fuels to remain in use for decades to come, we want our investments to support a transition towards a decarbonised economy.

Investing responsibly is an important element of our “whole institution approach” to tackling the climate crisis that also includes our research, teaching and operations. Our whole institution approach is set out in our 2016 Climate Strategy, titled Zero by 2040, in which we commit to become carbon neutral by 2040.

In 2013, we were the first University in Europe to sign the UN’s Principals of Responsible Investment: an internationally recognised initiative seeking to build a more sustainable financial system. During the last nine years we have continued to demonstrate leadership in responsible investment and provide transparency in our approach, to encourage other institutions to explore how they too can invest more responsibly. Divesting from fossil fuels was an important step in our responsible investment journey.

The University's holdings - direct and indirect - change frequently as our investment managers respond to a changing market. By 2018 the carbon intensity (carbon per million invested) of our directly held shares was estimated to have already fallen by over 90% from a peak in 2006.

As of early 2018, our direct investment in fossil fuels represented less than 1 per cent of the total University of Edinburgh funds under management and included direct investments in two firms totalling less than £5m.

By January 2021, the University had switched out of pooled funds that could not make the commitment to be fossil fuel free by the end of 2020.

As of February 2021, our direct and pooled investment in fossil fuels is zero. This means the University does not hold any direct shares in fossil fuel companies, and our pooled and tracker funds do not invest directly. We continue to monitor the likelihood of indirect investment.

At the end of December 2020, the University of Edinburgh’s endowment fund was valued at £511 million, the largest endowment fund of any university in Scotland. We are now the largest university endowment in the UK to be free of direct fossil fuel investment.

In 2014, we undertook a major review of our investments in fossil fuels companies, published in May 2015. That review committed us to substantial actions: to end coal and tar sands investment, to prioritise low carbon investments across other industries, and to revisit our actions in 2018 and decide on our next steps. Following the review, we wrote to companies investing in coal and tar sands and explained our decision, and divested our stocks within the following few months.

In 2016, we published our climate strategy, Zero by 2040 that set out how we would leverage our investments to reduce our emissions further in order to become carbon neutral by 2040. In 2017 and in response to increasing opportunities and the desire to support positive change, we committed £60m to investments in renewables and sustainable technology investments.

In 2018, we revised our investment approach to ensure it was fully consistent with the 2040 goal. A key element of this was our announcement that the University would transition out of fossil fuel investment within three years (end of 2020).

In February 2021, we were delighted to announce that our divestment from fossil fuels is complete. We are now considering what further action we can take to move ‘beyond divestment’ and contribute to a zero carbon future.

As well as reducing the carbon emissions of our investment portfolio, supporting our carbon neutral by 2040 goal and demonstrating leadership in responsible investment, we hope our actions and transparency encourages other organisations and institutions to investigate what more they can do to decarbonise their own investments.

We will continue to engage with companies still carrying out activities in fossil fuel industries via our research, teaching and industry collaboration in order to help the energy sector to transition out of fossil fuels and towards low-carbon energy generation.

The University will also continue to conduct research into climate impacts, climate mitigation and climate adaptation worldwide; support the development of new low-carbon technologies; and embedding sustainability and sustainable development into learning and teaching.

Our commitment to tackling change is part of our broader commitment to creating positive social impact and to tackling the global challenges of our century. Our commitment to being socially responsible and sustainable means that we want to reduce the negative impacts associated with our activities - our buildings, our transport, what we buy, what we invest in - whilst having a positive impact and contributing to the UN’s Sustainable Development Goals through our research, our teaching and in our investments.

As a University committed to becoming net zero by 2040, and which takes a ‘whole institution’ approach, we want our investments to reflect these commitments, reducing negative impacts and supporting the transition to a zero-carbon world.

The climate crisis is one of the most pressing issues facing humanity and the University is committed to continuing to play a leading role in creating a more sustainable world through its research, teaching and operations.

Research

The University of Edinburgh is a global leader in climate change research. Our outputs include research into the nature and drivers of climate change and its impacts (on societies, biodiversity, ecosystems and economies) through to work to help find solutions to both adapt to and mitigate future climate change in socially just and equitable ways. This work spans from local to global and from new technologies to human rights. Key thematic foci include the future of energy; sustainable lands and seas, human health in a warming world; and governance and just transitions.

 Teaching

A key element of our climate strategy is giving students and staff the opportunity to learn about climate change and its impacts, and to develop the knowledge and skills to be successful and impactful in a rapidly changing world and take action to reduce their own footprint.

We offer a range of teaching that focuses on – or includes – sustainability. All undergraduates can take an online credit-bearing course on climate change, resource use and social equality.

There are various opportunities for students alongside or outside of the formal curriculum. The University’s Department for Social Responsibility and Sustainability helps students to learn more about climate change, resource use and other related topics. Students can also undertake work-based placements, volunteering, paid internships and apply for funding for student projects.

Operations

In 2016, the University pledged to become carbon neutral by 2040 – 10 years earlier than recommended by the Intergovernmental Panel on Climate Change (IPCC) in order to limit global warming to 1.5°C.

As the University has grown in size in recent years, it has been challenging to reduce our operational emissions. However, by 2020, we had more than halved our carbon emissions – relative to expenditure – from 2007/8 levels, and reduced our absolute emissions by 15%.

We have invested heavily in energy efficiency, including the creation of a £5m Sustainable Campus Fund and reducing the carbon impact of our new buildings. We also installed a solar farm at the Easter Bush campus.

We are currently reviewing options to make our heating lower carbon; reducing the carbon emissions from our flights; and improving energy efficiency via the Sustainable Campus Fund. We are also implementing an action plan to ensure we are ready for a changing climate on our estates and in our business planning.

For more detailed information on all of the above, view our Social and Civic Responsibility Report 2019/20.

In 2015 we decided to no longer invest in coal and tar sands, and previous decisions were made not to invest in controversial weapons (such as armaments and ultra-electronics) and tobacco stocks. The University’s Investment Committee will continue to respond to the decisions of the University relating to specific exclusions.

Working closely with Finance Department, Investment Committee, Investment Advisors and academic colleagues, the Department for Social Responsibility and Sustainability develops and maintains the exclusion lists compiled to ensure compliance with and reporting to PRI as well as agreed University investment decisions.

In 2013, we were the first University in Europe to sign the UN’s Principles of Responsible Investment: an internationally recognised initiative seeking to build a more sustainable financial system. We report on our progress annually, and since 2018-2019 have scored “straight As”.

The University has already invested more than £170 million in low carbon technology, climate-related research and businesses that directly benefit the environment since 2010.

As of 2021, the University has allocated £8m to invest in socially-positive activities, such as organisations working to dismantle poverty. A total of £5.8m has been committed to date of which c£1.2m has been drawn down with a further c£2.1m investments in the process of being made.

The University will continue to identify ways to reduce carbon emissions associated with investments and make a positive contribution to the Sustainable Development Goals.