[dropcap]C[/dropcap]limate change is one of the most urgent challenges of our time. It requires bold action from all corners of society, including institutions of higher learning like the University of Toronto.

President Meric Gertler’s response to the report from the Ad Hoc Committee on Divestment From Fossil Fuels and the petition from the student group Toronto 350.org embraces this idea. In particular, we acknowledge the significance of the President’s calls on the university to: bring to bear its research and educational prowess on the challenge of moving towards a sustainable and low carbon society; launch a clean-tech entrepreneurship challenge and help bring our research to the community; use our campuses as ‘test beds’ for environmental and sustainability research; join the growing carbon disclosure and transparency movement; and require the university to incorporate environmental, social, and governance (ESG) factors into assessing fiduciary risk and evaluating investment decisions. These are positive measures and we share President Gertler’s ambition for the University of Toronto to be a leader on climate change and sustainability.

At the same time, respecting the tradition of open academic discourse, we argue that the university should go further. The strategy of targeted divestment articulated in our report – what has become known as the Toronto Principle – goes beyond the measures in the President’s response, and if adopted, would establish the university’s role as a clear and principled leader on climate change and sustainability.

What is the Toronto Principle?

The starting point is the principle, enshrined in its own policy, that the university should not invest in activities that cause social injury. While this may have been an unambiguous guide for previous divestments from tobacco and apartheid, it is evident that fossil fuels are currently necessary, and do good as well as harm. The proposal is therefore to target specific behaviors of fossil fuel companies rather than the entire sector. Specifically, the university should divest from:

“firms whose actions blatantly disregard the international effort to limit the rise in average global temperatures to not more than 1.5 C. These are fossil fuels companies whose actions are irreconcilable with achieving internationally agreed goals, inordinately contributing to social injury and greatly increasing the likelihood of catastrophic global consequences;”

Examples of such firms include fossil fuel companies that engage in aggressive (and ultimately unnecessary) extraction and exploration, for instance in the arctic and tar sands, and companies that deliberately spread disinformation on climate science.

Of course, the university operates in a restricted regulatory and policy framework and its fiduciary duties rightly constrain the investment and divestment actions it may pursue. As the President points out, the ESG-based approach he has advanced may well “produce outcomes consistent with the specific guidelines recommended” by our Committee. As he writes, “my expectation is that such investments – properly assessed – would indeed be deemed undesirable from the perspective of ESG-related factors.” If this is correct, and the Committee believes it may be, then the President’s proposal would amount to de facto divestment, in line with what we have recommended.

However, promoting the university’s long-term best financial interest is not a justification for divestment; it is a condition any divestment action must respect. The reason to divest from the blatant disregarders is that it is wrong for the university to participate in and contribute to their socially injurious activities. The Toronto Principle maintains that such investments should be dropped not only because they are bad investments, but also because such investments are morally wrong.

This is not a subtle point. The essence of the Toronto Principle is the contention that it is wrong for the University through its investments to participate in and contribute to socially injurious activities that offer society no indispensable benefits that currently cannot reasonably be gained in any other way. Social injury, as the university’s policy makes clear, should guide our divestment decisions. Considering long-term investment risk and ESG factors is good investment practice, but it is not the extent of the university’s responsibility under the Toronto Principle.

The university policy that our committee’s work was founded upon asks us to consider the social injury that arises from the corporate behavior under scrutiny. While not all such behavior in the fossil fuel sector reaches this bar, it is possible to make judgments about behavior that does. When fossil fuel companies engage in environmentally aggressive extraction, for example, or spread disinformation, they are contributing to socially injurious activities that offer society no indispensable benefits that currently cannot reasonably be gained in any other way.

The university should not participate in or contribute to such behavior through its investments. There may be other examples and the criteria may change over time as the world learns what is necessary to transform itself towards sustainability and a low carbon future.

Incorporating environmental, social, and governance criteria into the university investment decisions and signing on to the Carbon Disclosure Project and the Montréal Carbon Pledge are important and positive steps. However, respectfully, they are only partial steps towards leadership on climate change and sustainability because they frame the issue as one entirely of fiduciary risk.

Yes, it would be good if the corporations listed as examples in our report were screened out by these criteria. But that is, in some ways, beside the point. After all, what if the ESG analysis found that such companies were neither more nor less risky than alternative investments?

The question is not whether climate change makes investments riskier in a fiduciary sense and thus excludable from the university’s investment portfolios. The question is whether the university should be investing in companies that are causing egregious social injury when alternative investments could also meet the University’s fiduciary duties. ESG principles and disclosure initiatives cannot provide guidance on this more important question. The Toronto Principle provides such guidance and, further, it is a means for the University of Toronto to lead and have an impact that goes far beyond the financial influence of our investment decisions. It is a principle that we believe the University should adopt.


Select former member of the Ad Hoc Committee on Divestment from Fossil Fuels:

Professor Peter Burns

Mr. Graham Coulter

Professor Andrew Green

Professor Matthew Hoffmann

Professor Arthur Hosios

Professor Bryan Karney

Professor Mohan Matthen

Professor Barbara Sherwood Lollar

Ms. Rita O’Brien