Letter: Debunking UBC’s legal position on fossil fuel divestment

Law Professor Stepan Wood argues that UBC could legally divest its entire $1.71 billion endowment without violating its fiduciary duty.

As Ubyssey web news editor Henry Anderson reported recently, UBC continues to resist divesting its $1.75 billion endowment from fossil fuels. Around 80 per cent of the endowment is held in charitable trusts, which the university has a fiduciary duty to manage in accordance with their terms and in the best interests of their charitable purposes. The other 20 per cent is the university’s own money, which it must manage in the best interests of the university. The university claims that these duties preclude fossil fuel divestment.

I can understand why UBC’s lawyers and bean counters want to be cautious, but there is a good argument that fossil fuel divestment is consistent with — and might even be required by — the university’s legal duties.

First, there is an increasingly strong case that fossil fuel divestment is financially prudent.

Although divestment from a given sector or country can increase financial risk by reducing portfolio diversification, fossil energy is increasingly viewed by financial and economic experts as a risky investment. The financial community itself is increasingly recognizing climate change as a material financial risk, urging its incorporation into corporate reporting and questioning the viability of fossil fuel investments. To this extent, fossil fuel divestment is a logical result of incorporating environmental, social and governance risks into investment decision-making, which is clearly permissible for both charitable trusts and UBC’s own funds.

Second, there is a good argument that continued fossil fuel investment is inconsistent with the university’s best interests and its duties as trustee of charitable endowments.

Traditionally, the way to serve the best interests of a trust’s charitable purposes was by maximizing financial returns. But it is now accepted that a trustee may make ethical investment decisions if they do not increase the trust fund’s financial risk. So if the trustee concludes reasonably that fossil fuel divestment will not jeopardize financial returns, it may go ahead with divestment.

Moreover, a trustee may not make investment decisions that conflict with the trust’s charitable purposes. It is hard to square continued investment in carbon-intensive industries — such as fossil energy — with the charitable purposes of UBC’s endowments, which must surely include advancing UBC’s basic purpose of “pursuing excellence in research, learning and engagement to foster global citizenship and advance a sustainable and just society across British Columbia, Canada and the world.”

It is increasingly clear that fossil fuel investment conflicts with advancement of a sustainable and just society. It is also inconsistent with fostering global citizenship, if global citizenship includes respecting the overwhelming international scientific consensus about anthropogenic climate change and the international community’s commitment to limit global average surface temperature increase to well below two degrees Celsius.

There is also a good case that fossil fuel investment is inconsistent with the university’s purpose of advancing the pursuit of knowledge and the free exchange of information and ideas, in light of the mounting evidence of fossil fuel companies’ active dissemination of public misinformation about climate change.

In short, if an investment conflicts with the purpose of a charitable trust, it must be avoided regardless of financial considerations.

These same arguments apply to UBC’s management of its own money — the remaining 20 per cent of its endowment. It would be hard to argue that investment strategies that conflict with UBC’s stated purposes of advancing a sustainable and just society, fostering global citizenship and avoiding misinformation are in the “best interests of the university,” the legal standard required by the University Act.

The preceding points apply to UBC’s endowment generally.

The case for divestment is even stronger for UBC charitable trust funds with specific purposes related to health promotion, environmental protection, poverty alleviation or other priorities that will be compromised by climate change.

A 2015 legal opinion by a leading lawyer in the UK, where trust law is similar to ours, concluded that fossil fuel investments may be impermissible for such trusts since they conflict with the trusts’ purposes. The same report concluded that fossil fuel investment might also be impermissible if it alienates the trust’s beneficiaries — especially UBC students and faculty, in our case — or otherwise impedes achievement of the trust’s objectives and lacks financial justification.

Dozens of universities, most in jurisdictions with laws very similar to ours, have joined the fossil fuel divestment movement. It beggars belief that all of them are acting on bad legal advice.

Professor Stepan Wood is the Canada Research Chair in Law, Society & Sustainability and Director of the Centre for Law & the Environment at the Peter A. Allard School of Law. A longer version of this comment was published on the Centre’s blog.