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A Cambridge-led coalition of UK universities has warned banks and asset managers they are prepared to shift billions of pounds into greener institutions unless the financial providers accelerate their net zero plans and end the financing of new fossil fuel projects.
On Thursday, 21 universities that collectively manage more than £5bn of cash and investments sent a formal request for proposals to financial institutions, asking them to create new environmentally friendly types of deposit accounts and money market funds.
The universities, which include among others Oxford, Edinburgh, Leeds, University College London and the London School of Economics, are pushing for the development of novel financial products that will ensure their money does not contribute, even tangentially, to the financing of new oil, coal or gas projects.
“Building new infrastructure, such as coal and gas-fired plants and pipelines, locks in demand for fossil fuel for decades,” said Anthony Odgers, chief financial officer of the University of Cambridge. “We care about people using our money [to do this]. We want to have a real-world impact.”
Universities are under pressure from students and staff to cut ties to companies exacerbating climate change.
Cambridge has pledged to divest its £4bn endowment from all direct and indirect investments in fossil fuels by 2030, while Oxford has come under fire from students for continued indirect exposure to fossil fuels in its £6bn fund.
The coalition’s request sets out a much tougher standard on climate issues than is commonly applied. On top of asking for a “green” stock and bond portfolio, it is demanding that financial institutions align at group level with the International Energy Agency’s scenario in which global emissions hit net zero by 2050, which includes no new financing of fossil fuel supply beyond that already committed in 2021.
“The treasurers in this group all share a common goal, which is to manage money in a way that doesn’t contribute to the financing of fossil fuel expansion and to find something that aligns with the IEA Net Zero Emissions Scenario,” said Heather Davis, head of group treasury at Cambridge. “That is lacking in the cash space at present.”
By the end of the month, banks and asset managers interested in creating the products must answer questions on the proportion of their financing that goes towards the fossil fuel sector, as well as provide details of how executive pay is linked to hitting targets, lobbying and stewardship policies.
Few, if any, major lenders currently meet the terms of the bid, Odgers acknowledged. Building societies, which have more of a focus on saving and lending than capital markets, are the most likely candidates to meet the stringent requirements, he added.
“The large high street banks, this is not an easy ask for them . . . [but] we would hope that they would be able to become eligible over time”, Odgers said.
Among the world’s top 100 banks by assets, only France’s La Banque Postale would meet the terms of the proposal, while no top 100 asset manager would, according to analysis by Reclaim Finance.
At first the scope will be small as the new deposit accounts, money market funds and debt funds are developed, with the initial tranche of money estimated to be in the “hundreds of millions of pounds”, Davis and Odgers said. The universities hope billions will eventually be invested.
The FT in December reported that Cambridge university had warned Barclays it was considering cutting ties with the bank over its fossil fuel financing.
Barclays has since updated its climate policy to stop fossil fuel project financing, following pledges from rivals such as HSBC and France’s Société Générale. They have, however, kept up lucrative ties to energy majors that are exploring for new fossil fuels, through corporate loans or by helping them raise money in the bond markets.
Lara Cuvelier, a sustainable investment campaigner with Reclaim Finance, said the universities’ initiative showed a “real understanding of climate issues”. “While this requirement should be common sense and is based on the latest science, only a handful of financial institutions globally would fit the bill.”
