Board Adopts Ad Hoc Committee Report on Fossil Fuel Investments

The University will continue to phase out fossil fuel investments in the endowment, reaching zero by the year 2035.

On February 26, 2021, the University of Pittsburgh’s Board of Trustees unanimously voted  to undertake the actions presented to them by the Ad Hoc Committee on Fossil Fuels.  As a result, it is expected that the University will continue to phase out private fossil fuel investments in the Endowment, reaching zero private investments in fossil fuels by the end of 2035. In support of this decision, Chancellor Patrick Gallagher commented, “It is hard to overstate the deep importance and urgency that our community feels about climate change and the impact that it is having on all of this.”

Over the past several years, the Pitt community has had active discussions about socially responsible investments (SRI), as evidenced by the progress leading up to the Board’s decision. The report released by the Board’s Ad Hoc Committee on Fossil Fuels is a 124-page culmination of 6 months of work, 2 public forums, 12 committee meetings, 11 interviews with internal and external experts, and additional research. The report also discloses that the Pitt Endowment’s investment exposure to fossil fuels has already decreased by more than 42% between fiscal year 2015 and 2020 (10% to 5.8%, respectively).  By adopting the Ad Hoc Committee’s full report, the Board also agreed to:

  1. Actively choose to not apply a negative screen to the Endowment with respect to fossil fuels.
  2. Support the University’s existing ESG Policy and direct the University to apply ESG considerations to every investment decision.
  3. Support the Board’s Investment Committee in monitoring expectations that the Endowment’s private investments in fossil fuels will go to zero by the end of 2035, while continue to pursue strong “risk-adjusted financial returns”
  4. Direct the Board’s Investment Committee to develop and implement a strategy to seek investments that help reduce, avoid, and eliminate greenhouse emissions.
  5. Direct the University to provide greater transparency regarding the Endowment generally, as well as in its fossil fuel investment trends.
  6. Support the University in publishing its first annual public ESG Report in 2021, which will address ESG considerations generally as well as fossil fuel investments
  7. Support “regular, clear, and accessible University communication, education, and engagement” about the Endowment’s “status, trends, and current and future fossil fuel exposure…including an annual update to the Board and University community.”

How Did Pitt Get to Today?

February’s Board action is Pitt’s latest chapter in an SRI story that dates back to the 1970s, when the Board of Trustees’ Investment Committee (IC) added a “Social Responsibility” section to its governing documents; this section incorporated environmental, social , and governance (ESG) considerations (positive screens) into the Endowment’s management, but restricted utilization of non-financial considerations (negative screens) to the Endowment – unless agreed upon by the full Board.  Only once previously has Pitt’s Board applied a negative screen to the Endowment (for South African apartheid) — and that was removed in 1994 following the end of apartheid in South Africa.

However, the Pitt community’s ask of the Board to address its fossil fuel investments dates back to 2014 with the founding of the Fossil Free Pitt Coalition.

In January 2018, Chancellor Gallagher created a Socially Responsible Investment (SRI) Committee of faculty, students, and staff “to investigate and provide a foundation of facts that could be used by the University to explore socially responsible investment (SRI) strategies that may be suitable for consideration for the University’s endowment.” The seating of this 2018-19 SRI Committee achieved 1 of the 61 goals of the Pitt Sustainability Plan: “Form a committee or task force to consider socially responsible investing, to be composed of faculty, staff, student and administration representatives.”

The 2018-19 SRI Committee “met numerous times, conducted a literature search on relevant topics, collected data on SRI funds and their relative performance and costs, analyzed stated SRI practices of a limited set of other universities with large endowments, and solicited the views of the University of Pittsburgh’s community and stakeholders through two open forums and a public online forum.” In April 2109, the SRI Committee presented its report to the Chancellor.

In August 2019, Chancellor Gallagher directed the Office of Finance to 1) Develop ESG critieria and present it to the Board’s Investment Committee; 2) Establish a approach for “screening and presenting proposed investment exclusions” to the Board; and 3) Expand and leverage the University’s long-term sustainability plan.

In February 2020, Pitt’s Board adopted an SRI Screening Process.

In March 2020, the University released its ESG Policy.

In June 2020, Pitt’s Board of Trustees activated the SRI Screening Process and created an Ad Hoc Committee on Fossil Fuels composed entirely of Trustees to provide a report on “options on whether, to what extent, and via what methods the University, in its Endowment, should consider divestment from fossil fuels in existing and/or future investments.” This report was presented to the Board Chair in January 2021 and all findings and options were adopted by the Board.  As a result, the Board of Trustees dissolved its Ad Hoc Committee on Fossil Fuels.

The full findings and options of the 2020-21 Board Ad Hoc Committee on Fossil Fuel are provided below:

“Key findings on fossil fuel investments:

  • A.  The economic and social context of fossil fuels and climate change is changing locally and globally, with the University and its community being important actors and stakeholders in that transition.
  • B. Globally, increasing investor considerations of ESG factors and a growing body of data have brought greater focus on the long-term financial implications of GHG emissions and climate change.
  • C. Given that fossil fuels are likely to become decreasingly important in the long-term, existing and new investments that focus on the exploration and production of fossil fuels are expected to continue to become less attractive on a risk-adjusted basis.
  • D. The growing focus on GHG emissions is likely to create many new attractive investment opportunities associated with the development of technologies and processes that reduce or avoid GHG emissions.
  • E. Many other institutions of higher education, foundations, and private investment firms have considered divestment from fossil fuels for their endowments, resulting in a wide variety of approaches. Most institutions with investment positions on fossil fuels have agreed that fossil fuels are increasingly risky investments, and a common approach for institutions choosing to take action is to phase out their investment exposures to fossil fuels in an orderly manner.

Key findings regarding the University’s Endowment [CEF]:

  • F. The CEF is a pool of capital primarily provided by donors, is intended to exist in perpetuity, and its growth is critical to achieving the University’s mission for current and future generations.
  • G. The same social and economic context and financial markets that have led the University to operationally and academically recognize the importance of sustainability and climate change as vital issues for the University and society have also already materially affected the University’s perspective on investing in the exploration and production of fossil fuels.
  • H. The University has already reduced fossil fuel exposure in the endowment by 42% over the past 5 years – from 10% in 2015 to 5.8% currently.
  • I. The University’s view is consistent with the growing global investment consensus that fossil fuel investments will continue to present additional, unattractive future risk. Accordingly, given risk-adjusted, return-driven considerations, the CEF’s fossil fuel exposure is expected to fall to 1% by the end of 2035, with private investments in the exploration and production of fossil fuels running off to zero by the end of 2035.
  • J. The University is actively seeking attractive investments that will advance the reduction and/or avoidance of greenhouse gas emissions.
  • K. Adopted in March 2020, the University’s ESG Policy documents how the investment team universally considers environmental, social, and governance factors when evaluating all CEF investments, based on the strong conviction that the assessment of ESG factors will enhance the CEF’s long-term returns.

Key findings regarding the University community:

  • L.University students, faculty, staff, and alumni, along with external stakeholders, weighed in on the Ad Hoc Committee’s Charge. These articulate comments showcased the University community’s durable passion and commitment to the exploration of CEF divestment from fossil fuels, with the strong majority of commenters supporting divestment.
  • M.The University’s sustainability and carbon neutrality commitments showcase its long-term commitment to balancing equity, environment, and economics so that current and future generations can thrive. Documents like the Pitt Sustainability Plan and forthcoming Pitt Climate Action Plan help to ensure that the University will meets its goals in a strategic manner.
  • N.The University takes its role and responsibility of being a premier research institution and community anchor seriously, both educating and researching about the entire life cycle of energy resources, along with their uses, opportunities for efficiency, environmental impacts, and policy and social implications.

After consideration and review, the Ad Hoc Committee provide[d] the following statements and options to the Board for consideration.”  In February 2021, the Board decided to:

  1. “Forgo applying a negative screen to the CEF with respect to fossil fuels.
  2. Strongly support the implementation of the University’s current ESG Policy and direct the University’s Chief Investment Officer and investment team to apply ESG considerations to every CEF investment decision.
  3. Strongly support the current long-term strategy of the University’s CEF, which is expected to continue to pursue strong risk-adjusted financial returns while reducing private holdings in fossil fuel exploration and production to zero by the end of 2035, as monitored by the Investment Committee.
  4. Direct the University’s Investment Committee to oversee the development of a long-term strategy focused on seeking attractive investments that help reduce, avoid, and eliminate GHG emissions.
  5. Direct the University to provide greater transparency regarding the fossil fuel investment trends of the CEF, which would support the University in its mission and goals, while increasing University community understanding about the purpose and management of the CEF. Specifically:

[5]a. Support the commitment made by the Office of the Chief Financial Officer (“CFO”) to begin publishing an annual public ESG Report in 2021, which will highlight the application of ESG considerations in ensuring the CEF provides strong financial returns in perpetuity and to fossil fuel investments specifically.

[5]b.Support regular, clear, and accessible University communication, education, and engagement about the CEF’s aggregate status, trends, and current and future fossil fuel exposure (including the basis for any material changes in expectations), including an annual update to the Board and University community.”