The RIWG carefully studied the proposed policy of divestment and its goal of reducing carbon emissions. While most experts agree on the effects of climate change, there is not a similar consensus among experts on the impact of divestment from fossil fuels on climate change. It was also not clear that the Board of Governors could achieve divestment without jeopardizing its legal and fiduciary obligations to the pension plan members and the university. However, the RIWG does recommend that the university take the following actions to achieve many of the desired goals expressed during consultations:
It was suggested that investment results from companies that do not follow robust environmental, social and governance (ESG) practices may be weaker over time, with lower returns and higher volatility. This idea may be especially relevant for fossil fuel companies because of the risk of stranded assets. As the fiduciary for the university’s investment funds, the Board’s responsibility includes prudent oversight of investments with the aim of maximizing returns and minimizing risk. The Investment Oversight Sub-Committee (IOC), acting on behalf of the Board, reviews investment managers, assessing their holdings and the potential for good performance. As part of this process, the IOC should ensure that managers monitor ESG practices, especially where the absence of such practices are a threat to long-term returns. Unless the Board is made aware of these risks, it cannot be in a position to mitigate them.
With the foregoing in mind, the RIWG recommends that the university:
a. Commence an ESG training and education program for responsible administrators, the Board, the joint Finance and Investments and Pension Committee and Investment Oversight Sub-Committee, which covers, among other things, practices for monitoring and accountability along with ESG risk analysis methodologies.
b. Investigate methods for conducting an ESG risk analysis on the university’s investment funds. This would include looking at how ESG factors affect growth and sustainability in various asset classes. If a reasonable, reliable and cost-effective method is available, conduct an ESG risk analysis.
c. Revise the ESG sections in the statements of investment policies and procedures to reflect the university’s mission, vision and values, a more robust statement on the consideration of ESG factors in decision-making, and revised practices for measuring, monitoring and mitigating ESG risk in the investment funds.
d. Incorporate any revised policies, practices and processes into the terms of reference of Joint Finance and Investments and Pension Committee and Investment Oversight Sub-Committee.
e. When looking for new investment opportunities, consider impact-investing and other ESG opportunities that align with our investment policies, practices, asset classes and risk/return requirements.1
Stakeholders requested greater transparency with respect to the university’s ESG policies and exposure to ESG risk, in particular funds invested in the CU200. RIWG recommends that the university develop and make publicly available an annual report that includes the following elements:
a. Allocations by asset class for each investment manager.
b. Percentage of funds invested in CU200 and percentage of CU200 for each investment manager.
c. Assessment of progress on recommendations from this report.
d. Reports on ESG policies and risk assessment methodologies of each Investment Manager including:
i. Rationale for investing CU200 stocks (if they are part of their current investment portfolio);
ii. Policies on proxy voting that support ESG practices;
iii. ESG initiatives such as UNPRI membership or rationale for not being a signatory.
e. Where available, Scope 1, 2 and 3 greenhouse gas emissions data (on gross and per dollar of revenue basis) for the largest 10 public securities holdings of the university. This would help members of the university community better understand the extent to which greenhouse gases are emitted throughout the life cycle of an investee company’s production and product usage.
Seek funding to create an alternative fossil-free/impact-investing endowment investment fund that is available to university donors. The IOC would provide oversight for this fund consistent with other university funds. This would also support the Board’s continual monitoring of ESG practices and ESG risk.
Continue to monitor and discuss with other universities RI and ESG strategies and concepts. Become a member of the Responsible Investing Association of Canada. Measures of success could range from the development of proxy voting policies and guidelines to the development of sustainable investment funds that meet the risk/return requirements of our investment funds.
Laurier’s 2014-2019 Strategic Research Plan is organized into five thematic clusters of excellence. Three of the five thematic clusters that are particularly relevant to ESG are environment; governance and policy; and economics, markets and management. RIWG supports the advancement of research into the environment, climate change and sustainability as a way to make a significant impact on the reduction of carbon emissions and the advancement of clean renewable energy. RIWG also supports research into improving the GHG emissions data and investigating the efficacy and trade-offs involved in using portfolio management to address climate change.
Laurier has put significant effort into researching and implementing sustainable practices for several years. The university’s Sustainability Action Plan 2012-2016 and the university’s underlying sustainability policy have specific goals related to infrastructure and operations, education and community partnerships. The RIWG fully supports the work done by Laurier’s sustainability office and recommends that the university put more emphasis on educating the Laurier community in an effort to reduce carbon emissions both on and off campus. Since consumers create the demand for energy, by educating our community on conservation and the use of renewables we can set the example for our broader community.
1 It should be noted that the university invests in pooled funds, meaning that the individual investment manager selects the specific companies and Laurier purchases units within the pooled fund. So, these type of investments decisions would be made within the pooled fund level and not at the individual stock or bond level.