What do BHP, BP, Shell and Rio Tinto have in common?
They’re among the worst carbon polluters in Australia. The University of Sydney bought millions of dollars’ worth of their shares in 2022.
The purchase was revealed in internal documents obtained by Honi through freedom of information laws and puts not only the University’s commitment to sustainability into question, but the function of USyd’s burgeoning investment portfolio itself.
The University of Sydney primarily invests in privately managed investment funds whose holdings are in many cases opaque, making it difficult to assess their carbon footprint. This difficulty is exacerbated by extensive greenwashing in the financial services industry; the Australian Securities Investment Commission (ASIC), which regulates these funds, undertook 35 enforcement actions between July 2022 and March 2023, many against private investment funds. However, when Honi conducted an investigation into the portfolio in April last year, it revealed that the funds the University had invested in were merely proxies for investment in fossil fuels. The University had, at the end of 2021, invested over $200 million in investment funds, MCP Credit, Palisade, SVP and Plato, which had in turn invested in corporations like Santos, Whitehaven Coal, BHP and Woodside Petroleum.
The University, at the end of 2022, still held shares in each of these managed funds. But, a University spokesperson said, in response to a question about Plato specifically, that the fund manager had divested from companies including Woodside, Santos and Ampol.
However, at the same time it told its investment managers to sell shares in fossil fuel companies, the University actually increased its holdings in fossil fuel companies.
The University of Sydney, in 2022, purchased 109,685 shares in BHP, 18,163 shares in Rio Tinto, 6,984 shares in Shell, and 77,000 shares in BP.
The revelation of the University’s purchase of these fossil fuel shares comes at the same time as it is revealed that the University continued to directly hold shares in Rio Tinto and BHP, as well as shares in BP and Shell.
As of 2022, the University held 314,561 shares in BHP (worth $14 million), 54,761 shares in Rio Tinto (worth $6 million) and 69,874 shares in Shell (worth $3 million), as well as shares in 188,414 shares in BP (worth 1,587,154).
When asked how it justified expanding its shares in some of the biggest contributors to the climate crisis, the University said “our investment portfolio has grown over recent years as a result of increased investment income and inflows into the funds. This implies proportional increases in underlying investments to rebalance the portfolio.”
This is not a necessary implication, nor does it abrogate the University’s responsibility in having expanded its ownership of fossil fuel companies. In fact, the proportion of BP and Rio Tinto shares to the USyd investment portfolio doubled from 2021 to 2022. The proportion of Shell and BHP shares also increased, as a percentage as well as in raw numbers.
In an earlier response to the same question, the University said, “We have committed to divest/exclude companies from our investment program that are significantly involved in the extraction of, or generation of power from, coal, oil or natural gas (defined as generating 20% or more of revenue from these activities), unless they can demonstrate alignment with a low carbon transition.”
This quote mirrors s 9(2)(g) of the University’s 2022 investment strategy, a policy put into force before the purchase of these shares, and by which the University justifies its investment in various unethical companies.
The University gave a range of responses to Honi’s questions as to why these carbon-polluting companies met its investment criteria.
A University spokesperson said Rio Tinto did not meet the “significant involvement” in fossil fuel extraction or power generation requirement. This may be technically true but Rio’s Stage 3 emissions, largely from the conversion of Rio’s iron ore into steel, were 584 million tonnes of CO2 in 2022, almost one per cent of the global total. Clearly, restricting divestment to fossil fuel extraction and use is an inadequate criterion, seeing that it does not exclude one of the world’s largest polluters.
The University’s justification for its shareholdings in BHP was that the company was not excluded by USyd’s investment policy “based on its alignment with low carbon transition methodology, as rated by the Transition Pathway Initiative (TPI)”.
The University did not directly justify why it continued to hold Shell shares in 2022, other than the pooled investment manager with which it held the shares had not yet implemented USyd’s investment guidelines. It instead generally claimed it met the investment criteria, without explaining why.
If BHP, BP and Shell are companies “aligned with a low carbon transition,” it is unclear which companies are not: Shell and BP are seeking to expand their fossil fuel production; BHP’s widely reported “sale” of its oil and gas business will simply keep production going, but in different ownership.
As the climate crisis intensifies, the University cannot justify expanding its investment in the companies most responsible for causing it. This is especially true, given the University’s concerted marketing campaign promoting its sustainability credentials: there is no sustainable future if institutional investors, like USyd, ramp up their investment in the companies that are burning fossil fuels.
Indeed, it is incongruous for USyd to purchase solar panels, make efforts to reduce landfill and water usage on campus and then increase its ownership of shares in the fossil fuel industry. As UN Secretary General António Guterres said last year, “Some Government and business leaders are saying one thing, but doing another. Simply put, they are lying. And the results will be catastrophic.”
An emerging argument, which could be used to justify the University’s approach, is that divestment can be ineffective, and that shareholder activism is a more effective method available to institutional investors like the University.
When asked if the University has purchased the shares so it can engage in shareholder activism, a spokesperson said “through our engagement with portfolio managers we discuss sustainability as well as other items to manage the overall risk in the portfolio. We also work with our sustainability consultant, Mercer, to survey investment managers on their sustainability policies and processes and use these findings to inform discussions.
“As a member of the Institutional Investors Group on Climate Change (IIGCC) we support the collective engagement of asset owners with companies to encourage more rapid change.”
This is hardly a clear “yes”.
As such, the University has generally been without an explanation as to why it has purchased its shares in carbon-polluting companies, beyond that these companies are harmless or promise to improve soon.
However, if we are to consider the way in which the University approaches its investment fund, the reason becomes more clear. For one, the University employs a range of people with extensive corporate experience to manage its finance committee, and investment sub-committee. Karen Moses, the Chair of the Finance Committee, who sits on the investment sub-committee, describes herself as having “over 30 years experience in the energy industry spanning oil, gas, electricity and coal commodities.”
And, unfortunately for all involved, the superannuation arm of Mercer, the University’s “sustainability consultant” is being prosecuted by ASIC for greenwashing. The appearance of climate action is clearly more important for both institutions than actual divestment.
It is completely unjustifiable for the University to have expanded its shareholding in fossil fuel companies, and the worst polluting companies in Australia. Beyond Shell, BHP, and Rio Tinto, USyd’s investment fund has also been expanded into a wide variety of mining companies (such as Fortescue Metals, Anglo American Platinum and South32). It is even worse that the University has made these investments at the same time it has repeatedly promoted its sustainability credentials, with new investment guidelines at the core.
If the University as Sydney, an institution that ostensibly exists for the public good, was serious about climate change, it would completely divest from fossil fuels, or actively engage in forceful shareholder activism with the shares it holds. For it to do anything less would be a blatant exercise in greenwashing, in corporate governance, and disdain for the future of the students it educates.