On 25 February 2021, the University of Edinburgh announced that it had completed divestment from fossil fuels, marking a significant milestone in its journey to become carbon neutral by 2040.
University completes divestment from fossil fuels
The following questions and answers provide more information on what fossil fuel divestment is; why the University chose to divest; the process it took to do so; and what it plans to do next to continue making more responsible investments.
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.