With the Ontario government mandating a 10 per cent tuition decrease over the next two academic years, universities will look to new ways of funding in order to avoid making cuts that could detract from the student experience.
These new ways of funding for school activities can mean anything from private research contracts to investments in different industries.
While tuition fees and government grants are the primary means of revenue for schools, over the past few years, universities’ investments in businesses have gained more attention.
Student groups have raised concerns over tuition fees being invested in controversial industries, such as fossil fuel extraction or weapons manufacturing.
Breaking down university corporate investment
Though the ways in which universities across Canada go about investing their money are diverse, each school begins their corporate ventures by collecting and maintaining an endowment fund.
This fund represents financial assets that are donated to a university with the intention of being invested according to both the investors’ and school’s preferences and policies.
University investments are funded by an endowment fund maintained by each school. Each school collects endowments from donors who will have a say in how a school will invest that money.
Maciek Kon, director of quantitative analysis and strategic research at the Investment Management Trust of the University of British Columbia, described the university’s approach to how their endowment is looked after.
“The University of British Columbia created a stand-alone company with the responsibility of investing the money the university has in the endowment. Some other universities, often for the reason of scale, manage the endowment within the treasury function of the university.”
According to Carleton University’s 2018-2019 budget, finances are handled by the finance and administration division of the Board of Governors.
This includes decisions on how much money is to be invested and how much money is reserved to support the exponential growth of the endowment, which is, according to Kon, a major aspect of ethical university financing.
“In investing money for endowments, we have this overreaching concept of intergenerational equity,” he said. “We have to take into account not only the wishes of the current generation, but also the wishes of the generations that will come long after [today’s classes] graduate.”
While the traditional investor might be focused on investing over the lifetime, the university investor is interested in investing forever, added Kon, meaning more emphasis on long-term investments.
External investment managers are hired to decide on the specifics of which companies the university invests in.
Schools will commonly invest in stocks, bonds, and real estate.
According to Kon, real estate tends to be the most profitable for long-term investors. Rather than “making a bet whether [property] prices will go up and down,” they are able to rely on a steady stream of returns such as rent payments.
Infrastructure, such as hydropower plants and hospitals, is also a popular pick among university investors.
“These investments serve a very positive social function,” said Kon. He added that infrastructure investments drive universities to ethical investing to obtain as many shares as they can.
However, as interest in sustainable infrastructure becomes too large and investment prices are bidding higher than their revenue, universities and other investors can be faced with a declining rate of return.
Show me the money
Total revenue from investing can vary greatly from university to university, said Kon, though investment returns in Canada rarely reach past five percent of the total annual revenue.
Carleton University projected that its budgeted interest income, “generated from cash investments, endowments, and interest charged to ancillaries for internal loans,” would make up only two per cent of this year’s total revenue, equating to $8.25 million of the overall $505 million.
However, the budget also said the $100 million equity fund that had been invested in 2015 has yielded “higher than expected results.”
In the University of Toronto (U of T) 2018-2019 budget, the U of T—which has the largest endowment in Canada at $2.38 billion—expects to make less than two per cent of its annual revenue from both long- and short-term investments by the end of 2019.
Controversy over money matters
While Canadian universities have been investing in a wide range of industries and companies since endowments were first established, involvement in fossil fuel extraction has created tension between students and university investment faculty for the past decade.
Fossil Free Guelph, a student activist group at the University of Guelph (U of G), has campaigned for the past five years to push for school divestment from companies such as TransCanada and Suncor due to concerns over environmental conservatism and Indigenous rights.
Divestment refers to the choice of refusing to fund a corporation or industry.
“The point of divestment isn’t to cripple the fossil fuel industry financially, because in the grand scheme of things, that won’t happen,” said Aidan Brushett, a member of Fossil Free Guelph. “The purpose is to send a very strong message and to strip these fossil fuel companies of their social license.”
According to The Ontarion, the U of G created a working group on responsible investing following calls for divestment, putting forward seven recommendations in April 2015 on how the environmental standards of the school’s investment portfolio could be improved.
In 2016, the U of G implemented the Special Action Policy (SAP), allowing stakeholders to raise concerns about university investments. Fossil Free Guelph used the SAP in 2017 to put forward a request to divest from the fossil fuel industry.
The Board of Governors had put off making a final decision on the matter until January 2018, when they ultimately decided not to divest. Instead, they decided to reduce their carbon footprint by 10 per cent over the next two years.
Fossil Free Guelph is not the first divestment campaign to be rejected by its university.
In 2016, Divest McGill, a student activist group at McGill University, submitted a request for the school to divest from the fossil fuel industry as well, according to a report from McGill’s Board of Governors. In response, McGill’s Board of Governors rejected the request, maintaining that “series of energy management initiatives” and numerous donations to studies in sustainable resources far outweighed the consequences of the school’s investments.
Counteracting environmentally-damaging investments with pledges to environmental research has been a common trend among universities who have yet to divest entirely, including the University of British Columbia and the University of Guelph.
Brushett said the U of G’s commitment to a 10 per cent reduction in the school’s carbon footprint “isn’t divestment” and is certainly not enough. However, despite Université Laval being the only Canadian school to have entirely divested from the fossil fuel industry, Brushett remains hopeful in accomplishing Fossil Free Guelph’s divestment goals.
“The movement has been growing, and the university has taken a step in the right direction. As movements like Fossil Free Guelph build around Canada, I think it could definitely ripple outwards,” he said.
Outside the formal debate
Aside from the discussions had between divestment groups and investment faculty, student opinion varies regarding university corporate investment.
Tristan Janicki, a Carleton cognitive computing student, said he didn’t mind universities investing their endowment funds in corporate endeavours, even those that involve fossil fuel extraction, citing the industry’s importance to the world economy.
“I would also like to point out that owning the stock of a company is not necessarily an endorsement,” he said. “Despite fossil fuel companies by and large being unethical profit-obsessed organizations that have repeatedly lied to the public, they are a huge part of the world order and provide relatively safe and time-tested investment vehicles.”
Elizabeth Kidd, a Carleton global and international studies student, said she supports university corporate investment as a sustainable form of third-stream revenue, as both corporations and post-secondary institutions benefit from the relationship. However, since corporate investment is such a large part of how universities manage their endowments, she takes issue with the fact that Canadian schools are involved in controversial industries.
“If universities choose to invest in energy, it should be renewable energy resources, like solar or wind, rather than fossil fuels,” she said.
To Janicki, corporate investment can provide universities with sustainable revenue as long as endowment funds are invested following cautionary standards, and transparency is practiced by university investment managers when addressed by the public.
“If the university were to invest in something we the students deemed unethical, then we should be able to know about it so that we may choose to withhold payments or switch universities at our discretion.”
Image by Jasmine Foong
