The University of Waterloo has committed to reducing the carbon footprint of its pension and endowment investment portfolios by 50 per cent by the year 2030 and is committing to achieving full carbon neutrality by 2040.
Prioritizing the need to protect financial returns on its investments, in a new report to the board of governors, an expert group recommends changes in investment policies to address both the financial risks and opportunities associated with climate change.
"In recent years we have taken steps to becoming more sustainable investors and today we continue our journey to integrate climate risk into our investment policies," said Cindy Forbes, chair of Waterloo's Board of Governors. "To protect our investments, we're making the decision that we will reduce our exposure to carbon. In doing so we are protecting our primary fiduciary duty to maximise pension fund and endowment returns using measurable science-based targets."
Waterloo's board of governors endorsed recommendations from a Responsible Investing Advisory Group that included expert advisors, students, faculty, staff and board members.
In a summary provided to board members, the group recommended that the University:
- take a proactive approach to incorporate climate risk when investing the pension and endowment funds in order to achieve the risk-adjusted returns necessary to deliver the purposes of the funds,
- pursue a carbon exposure reduction strategy by phasing-out investments exposed to significant climate change risks,
- make investments that support climate change innovation and transition, and
- avoid all material direct investments in fossil fuel exploration and extraction companies.
The commitment is the next step for the institution, which recently declared a climate emergency and has already reduced active equity investments in the energy sector by 69 per cent since initial responsible investing consultations in 2016.
"I am proud that with this new commitment, the University is continuing to show leadership by aligning its investment practices with its teaching, research, and operations on climate change while protecting our long-term financial investments," said Feridun Hamdullahpur, president and vice-chancellor of Waterloo. "As we made clear with our climate emergency declaration, we acknowledge the grave realities of a warming planet. As an educational institution, we also recognize our responsibility to contribute to climate change mitigation to allow current and future generations of students to live in a sound environment."
Sheryl Kennedy, chair of the advisory group, a member of the board of governors and former deputy governor of the Bank of Canada commended the diligence of the advisory group participants. "It was interdisciplinarity at its best. The focus was on finding areas of agreement and solution sets that met our objectives," said Kennedy. "Above all, we have succeeded in putting our fiduciary duty to the pension and endowment funds first in a way that also supports the complementary goals of environmental sustainability and leadership."
With the focus on climate risk and the integration of ESG considerations to support investment decision making, the group expects that the University's active equity managers will not hold any material positions in fossil fuel exploration and extraction companies by 2025. The University will review progress towards achieving its carbon reduction investment targets in 2023 and 2026.
Waterloo has enshrined ESG as a lens for University investments in the Statement of Investment Policy and Procedures (SIPP) for the Pension Plan as well as in the Investment Guidelines for Endowment funds since 2018. The University also became a signatory to the UN Principles for Responsible Investing in May 2020 and has since signed the Investing to Address Climate Change Charter with other Canadian universities.
"With these commitments, we are again acknowledging our responsibility to our past, present, and future students to foster a healthy, sustainable and habitable world," said Jean Andrey, dean of Waterloo's Faculty of Environment. "This investment strategy will not only serve to mitigate the risks of climate change and protect returns on our investments. It will continue to position Waterloo as a leader in fostering technological and social innovation in the service of solving the world's great challenges."
The advisory group also recognized the contributions of students, faculty, and staff in laying the foundation for the establishment of the recommendations. More than 2,000 individuals and 25 groups called on the University to take measurable action on climate investments.
"This announcement is an important win for the University, our students, and the climate," said Truzaar Dordi, a PhD candidate in the Faculty of Environment and member of the group Fossil Free UW. "Through meaningful collaboration, we collectively developed a recommendation that affirms our financial obligation, exceeds our students' calls for fossil fuel divestment, and aligns with the ambitious targets necessary to meet our climate commitments."
To learn more about Waterloo's ongoing commitments to tackling climate change, please visit our Climate and Energy Action Plan website.
