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̽��ֱ��Council welcomes the report from the . ̽��ֱ��report sets out unambiguously how the ̽��ֱ�� could dramatically enhance its role in addressing climate change. ̽��ֱ��Council greatly appreciates the DWG’s exhaustive efforts to take into account the diversity of views, including expressions of deep concern, and to pose questions about the ̽��ֱ��’s policies on investment, research, operational sustainability and engagement with industry and policy makers. ̽��ֱ��DWG report and this response, together with the  and a commitment to enhanced reporting for the Cambridge ̽��ֱ�� Endowment Fund (CUEF), mark a turning point in engagement of the ̽��ֱ��.

In alignment with the DWG report, the Council has agreed a three‐part strategy – the implementation of which will begin immediately – to help facilitate the transition to a global carbon neutral future. ̽��ֱ��three parts comprise: the implementation of a policy of considered divestment; a commitment to support further research into the emerging field of “environmental impact investment”; and the establishment of a Centre for a Carbon Neutral Future.

Considered divestment

There are two significant steps that the Council can – and will – take in relation to its investments to fight climate change. ̽��ֱ��first is to endorse the DWG’s proposal for the process of considered divestment. In relation to direct equity investments, as a matter of fact, the ̽��ֱ�� currently has few direct equity holdings of any type and none in the fossil fuel sector. ̽��ֱ�� ̽��ֱ�� has already committed that it will have no direct holdings in the most polluting industries, previously defined as thermal coal and tar sands. ̽��ֱ��Council has now agreed to extend this commitment such that any change to the current position – of no direct equity investment in the fossil fuel sector – must be referred back to the Council. In relation to indirect equity investments, for example through index or managed funds, the Council will continue its policy of keeping indirect investment in the most polluting industries to the bare minimum.

Mindful of its members’ fiduciary responsibilities, . ̽��ֱ��financial sustainability of the ̽��ֱ�� depends on strong returns from its investment strategies and the ability to benchmark these strategies against other investors. ̽��ֱ��CUEF has significantly outperformed its market benchmarks over the 10 years of its existence and so has significantly enhanced the ̽��ֱ��’s ability to pursue its mission. Those returns are a critical component of the financial resources that underpin research and education activities across the ̽��ֱ��, including the provision of some financial support for students and the enhancement of education and research facilities.

At this stage, the Council considers that pursuing a strategy that would insist on disengagement from any funds that have even small fossil fuel components, or that would require CUEF to step back from investments in alternative energy initiatives by global companies currently regarded as fossil fuel companies, would result in significant limitations on the CUEF’s ability to invest as successfully as in the past, with consequent reductions in the fundamental support provided by the endowment to the ̽��ֱ��’s core academic activities.

Environmental Impact Investment

̽��ֱ��second step which the Council has agreed to take is to encourage positive investments that generate measurable environmental benefits as well as financial returns. Done well, environmental impact investment can deliver direct environmental benefits. By demonstrating that attractive returns can be made in the sector, there can be a significant multiplier effect, drawing more companies and investors to similar investments. However, this sector is underdeveloped, with an uneven track record, both in terms of meaningful investments and returns. ̽��ֱ��Council is fully committed to enabling the ̽��ֱ�� to use its academic leadership to develop expertise in this emerging field, expertise which will not only help other investors but which it will then deploy in its own investment strategies.

As the first step towards this goal, the Investment Office will recruit an Environmental, Social and Governance (ESG) Officer. With the help of the ESG Officer, and advised by the Investment Board, the Investment Office will then carry out a thorough review of the existing funds and project opportunities that invest to achieve a genuine positive environmental impact. It will then invest where these opportunities deliver attractive risk‐adjusted returns consistent with the CUEF’s overarching investment objectives. Recruitment of the ESG Officer will begin immediately.

In parallel, the ̽��ֱ�� will commission research through the Centre for a Carbon Neutral Future (see below), supported by other areas in the ̽��ֱ�� and the Investment Office, to explore how environmental impact investing can help deliver further and faster change, and how the ̽��ֱ�� can best play a role in this developing area. In this way, the ̽��ֱ�� will be bringing together world‐class research on climate change and the technologies that will limit future temperature growth, with the ability to fund and co‐invest – speeding up implementation and generating good financial returns.

̽��ֱ��Centre for a Carbon Neutral Future

̽��ֱ��Council strongly endorses the DWG report’s emphasis on the impact that the ̽��ֱ�� can achieve through academic leadership. To that end, the Council will implement the DWG’s recommendation to create a Centre for a Carbon Neutral Future that will bring together the many strands of research on sustainable energy taking place across the ̽��ֱ��. ̽��ֱ��Centre will provide a focal point for evidence‐based discussions on carbon policy between the ̽��ֱ��, the public, global business and government. It will concentrate on the transition from fossil fuels and help drive technological and social change. By engaging with forward‐thinking energy companies which are, themselves, moving in this direction, the Centre will provide academic leadership, across the sciences and social sciences, and amplify the ̽��ֱ��’s numerous contributions to climate change adaptation and mitigation. ̽��ֱ��energy‐ and policy‐related academic work undertaken by members of the ̽��ֱ��, together with the research the ̽��ֱ�� will lead on environmental impact investing (see above), will help to accelerate the transition.

In addition to proposing the creation of a Centre for a Carbon Neutral Future, the Council is committed, through its Carbon Reduction Strategy, to reducing energy use across the ̽��ֱ��; to replacing existing fossil fuel energy with renewable power wherever it is practicable; and to seeking ways to help staff and students to improve their individual commitments to protecting the environment.

Actions

̽��ֱ��Council acknowledges that action needs to be taken urgently; addressing these issues cannot wait. ̽��ֱ��Council has therefore agreed five actions which it will take immediately to implement or otherwise address the DWG’s recommendations. ̽��ֱ��Council has also agreed two further actions in response to the recommendations (achieving carbon neutrality across the ̽��ֱ��’s estate and using some of the funding from the forthcoming bond for projects focussing on environmental sustainability) but these will necessarily take longer to implement. Further information about each of these seven actions is set out below.

Immediate implementation

1.  ̽��ֱ��Council will undertake considered divestment (recommendations 1 and 2)

As a matter of fact, the ̽��ֱ�� currently has few direct equity holdings of any type and none in the fossil fuel sector. ̽��ֱ�� ̽��ֱ�� has already committed that it will have no direct holdings in the most polluting industries, previously defined as thermal coal and tar sands. ̽��ֱ��Council has now agreed to extend this commitment such that any change to the current position – of no direct equity investment in the fossil fuel sector – must be referred back to the Council.

In addition, the Council mandates the Investment Office to manage its portfolio to avoid funds in which anything more than negligible thermal coal or tar sands investments arise. It is inevitable in a diversified and indirectly managed investment portfolio that some exposure may appear in some funds and therefore it is not possible to demand absolute exclusion. However, exposure will be monitored by the Investment Office – and reported to the Council – to ensure that the proportion of the CUEF with such exposure remains negligible.

2.  ̽��ֱ��Council will play a leading role in developing the field of Environmental, Social and Governance (ESG) investment, focussing on Environmental Impact Investment (recommendations 3, 4, 8 and 9)

̽��ֱ��Council is supportive of the concept of ESG investment. However, it notes that it is a relatively immature field. ̽��ֱ��Council therefore is committed to enabling the ̽��ֱ�� to play a leading role specifically in the development of environmental impact investment. It will provide resource to establish a programme of research, to include the Investment Office, the Centre (see below) and other parts of the ̽��ֱ��, to determine how best to achieve the twin investment goals of positive environmental impact and attractive financial returns. ̽��ֱ��Council expects the research to be completed within 18 months (with progress reports in the interim). ̽��ֱ��Council will then act promptly on the outcome of the research in respect of an appropriate proportion of the ̽��ֱ��’s own funds.

As a complementary initiative, the Council will mandate the Investment Office to appoint an ESG Officer. ̽��ֱ��ESG Officer must be of sufficient stature to ensure that the ̽��ֱ�� is at the leading edge of developments in this field. ̽��ֱ��person appointed must be able to provide sophisticated advice to the Investment Office and to the Council. In particular, the ESG Officer will:

• ensure that environmental, social and governance risks are factored into valuation models;
• increase understanding of how fund managers treat ESG concerns in their investment processes;
• act as a liaison with the Centre for a Carbon Neutral Future in particular and other parts of the ̽��ֱ�� on ESG issues more broadly;
• work with the ̽��ֱ�� research programme to develop the concept and practice of “environmental impact investment”; and
• report regularly to the Council (see further below).

̽��ֱ��Council also confirms that it expects the ̽��ֱ�� to join one or more multiparty organisations such as the Institutional Investors Group on Climate Change (IIGCC) to ensure that the ̽��ֱ��’s voice is heard most effectively. ̽��ֱ��Council will ask the ESG Officer to make recommendations in this regard.

3.  ̽��ֱ��Council will enhance reporting about the CUEF (recommendations 5, 6 and 7)

̽��ֱ��Investment Office will report to the Council on an annual basis. This will include a report from the ESG Officer on engagement with fund managers and, crucially, on current research into the immature but fast developing market for environmental impact investing. If they so request, Council members will also be invited annually to a seminar on the work of the Investment Office.

̽��ֱ��Council has instructed the Investment Office, with additional resources from the ̽��ֱ��, to enhance significantly its public reporting, including on the ̽��ֱ��’s website, so as to make information much more readily accessible.

4. ̽��ֱ��Council will establish a Centre for a Carbon Neutral Future (recommendations 10, 11 and 12)

̽��ֱ��Council asks the General Board, which has already endorsed the proposal in principle, to consider in detail, and by the end of Michaelmas Term 2018, how the ̽��ֱ�� can establish and develop a Centre for a Carbon Neutral Future. ̽��ֱ��detailed proposal must clearly define the objectives of the Centre and must include provision for developing a high‐ level dialogue directed at policy makers and industry leaders. It must also explain how the Centre will co‐ordinate and, where appropriate, integrate existing activity across the ̽��ֱ�� to ensure maximum impact; how the ̽��ֱ�� will, through teaching and research, drive technological change; and how the ̽��ֱ��’s role as a leader in sustainability will, as a consequence of these initiatives, be amplified. ̽��ֱ��Council confirms it will provide additional resource for the Centre, subject to the approval by the General Board and the Council of a viable academic and financial plan for the Centre.

5. ̽��ֱ��Council fully commits to reducing the carbon consumption of the ̽��ֱ�� (recommendations 17, 18 and 19)

̽��ֱ��Council understands that the measures it will adopt in response to the DWG report are only part of an overall strategy moving the ̽��ֱ�� towards greater sustainability. It strongly encourages the Environmental Sustainability Strategy Committee (ESSC) to propose stronger initiatives to reduce the carbon consumption of the ̽��ֱ��. These might include initiatives such as the creation of an internal carbon tax, more aggressive energy saving measures in relation to lighting, heating etc, and the establishement of a green suppliers’ strategy.

In addition, the Council will promote voluntary targets for the ̽��ֱ��’s staff and students to improve environmental actions and will develop a more proactive and integrated communication strategy that consistently reports on, encourages and, where possible, facilitates the uptake of environmental initiatives across the ̽��ֱ��.

Medium term implementation

6. ̽��ֱ��Council has committed to carbon neutrality across the ̽��ֱ�� estate by 2050 and aspires to bring this date forward (recommendations 13, 14 and 15)

̽��ֱ��Council has already committed to ensuring that the ̽��ֱ��’s operations will become carbon neutral. However, the timing of when that can be achieved and the costs of doing so will need to be carefully considered. While wishing to be ambitious, the Council also wants to base any commitment on evidence of capability. ̽��ֱ��Carbon Reduction Strategy, developed by the ESSC and very recently approved by the Council, commits to carbon neutrality by 2050. ̽��ֱ��Council now asks the ESSC to consider bringing this target forward to 2040, carefully considering the cost and other implications (including for its interim targets).

̽��ֱ��Council is also committed:

• to harnessing existing and future research in renewables and to making better use of the ̽��ֱ��’s estate, while recognising that the long‐term financial implications also need to be taken into account; and
• to continuing to explore renewable solutions to replace existing fossil fuel‐driven energy wherever it is practicable, including generation on or near site, and asks the ESSC to continue to pursue this aim

̽��ֱ��Council therefore charges the ESSC to develop concrete plans of action to further these objectives. ̽��ֱ��plans should be presented to Council by the end of the next academic year.

7. ̽��ֱ��Council has received authority from Regent House to raise up to £600m in the bond markets for revenue‐generating projects. ̽��ֱ��Council will use a proportion of the additional funding for environmental sustainability projects (recommendation 16) that meet the other approved conditions for expenditure

These projects could be in renewable energy generation or in energy efficiency where the project company takes a proportion of the cost savings it has achieved as its revenues. In making this commitment, the Council notes the imperative of ensuring that suitable governance and business cases are in place to ensure that there is a financial as well as, where appropriate, a carbon return on funds invested from the bond.

Recommendations of the DWG Report

Recommendation 1: Direct Equity Investment: “ ̽��ֱ��Investment Office should be mandated to invest in a manner consistent with a carbon neutral future in any directly held equities. This should include, but is not limited to, undertaking as a matter of policy not to invest in carbon intensive tar sands or thermal coal.”

Recommendation 2: Indirect Investment: “ ̽��ֱ�� ̽��ֱ�� should expect that no investment in thermal coal or tar sands be made by any party with whom it invests.”

Recommendation 3: Environmental, Social and Governance: “There should be the allocation of a part of the ̽��ֱ��’s indirectly held investment into dedicated environmental, social and governance (ESG) funds consistent with a carbon neutral future. We recommend that 10% of indirect investment should be placed with funds embracing ESG and rising through a determined and deliberate move towards a greater emphasis on assessable environmentally responsible funds in the relatively short term; the Investment Board to set out a timetable for this process to be reported to Council.”

Recommendation 4: United Nations Principles for Responsible Investment (UNPRI): “ ̽��ֱ�� ̽��ֱ�� should commit to the UN Principles of Responsible Investment.”

Recommendation 5: Reporting to the Council: “ ̽��ֱ��Investment Office should, as recommended by ACBELA, regularly report to Council on how environmental and social concerns are incorporated and reflected in investment management practice and include how fund managers have executed the ̽��ֱ��’s investment policies.”

Recommendation 6: Transparency and Public Reporting: “ ̽��ֱ��transparency of the investment processes of the Investment Office should be increased e.g. by the introduction of an informative website. An annual report, including information on environmental and social concerns, and the manner in which ESG is accountably reflected in the portfolio should be reported to Council. An appropriate update should be published for the Regent House and provided on the ̽��ֱ��’s website.”

Recommendation 7: Behaviours: “ ̽��ֱ��Council should consider, at least annually, the relative weight of ESG investments in investment returns and against performance benchmarks in accordance with their fiduciary responsibilities.”

Recommendation 8: Resource: “Additional resource should be provided to the Investment Office to permit the employment of a person to provide research engagement with fund managers and to engage with relevant researchers to provide coherent and authoritative positions on investment assets.”

Recommendation 9: Investor Engagement with Industry: “ ̽��ֱ�� ̽��ֱ�� should join the Institutional Investors Group on Climate Change (IIGCC) or an alternative equivalent grouping, as soon as possible, to ensure it lends its voice and authority in engagement with industry, even where it holds funds indirectly.”

Research and Policy

Recommendation 10: Leadership and Co‐ordination: “ ̽��ֱ�� ̽��ֱ�� should establish a Centre for a carbon neutral future which will bring together the disparate areas of research on energy production and use, climate, sustainability (and other associated fields as appropriate) as well as policy. Additionally the Centre should seek to collaborate with partners on appropriate campaigns to change climate policy.”

Recommendation 11: Research and Policy Communication: “A proactive communication strategy should be developed to support the promotion of research and policy work being done towards a carbon neutral future across the ̽��ֱ�� and appropriate resourcing should be provided to enable maximisation of the impact of this work.”

Recommendation 12: Dialogue and Advice: “An integrated and high level dialogue should be developed, directed at policy makers and industry leaders, and coordinated by the new Centre in collaboration with the Institute for Public Policy.”

̽��ֱ�� ̽��ֱ��’s Estate and Operations

Recommendation 13: ̽��ֱ��Estate: “ ̽��ֱ�� ̽��ֱ�� should commit to be carbon neutral by 2040.”

Recommendation 14: Implementing Targets: “To ensure the ̽��ֱ�� achieves its 2040 goal, the Environmental Sustainability Strategy Committee should be mandated to agree and implement the necessary targets. It should report directly to Council regularly on the determination and implementation of interim targets towards this goal.”

Recommendation 15: Renewable Energy Sources: “ ̽��ֱ�� ̽��ֱ�� should source 100% of its energy from renewable sources by 2030.”

Recommendation 16: Green Bond: “ ̽��ֱ�� ̽��ֱ�� should consider issuing a Green Bond to fund its environment and climate actions. For example, to fund the purchase and development of alternative renewable energy sources to supply electricity to the ̽��ֱ��’s buildings in line with recommendation 15.”

Recommendation 17: Individual Actions: “ ̽��ֱ�� ̽��ֱ�� should agree and implement targets for the ̽��ֱ��’s staff and students to improve environmental actions.”

Recommendation 18: Reporting Progress: “ ̽��ֱ�� ̽��ֱ�� should have a more proactive and integrated communication strategy that both consistently reports on and encourages the uptake of environmental initiatives across the ̽��ֱ��.”

Recommendation 19: Sharing and Dissemination: “ ̽��ֱ��new Centre should be equipped with the necessary resource to seek out and create opportunities for sharing learning, disseminating information and promoting collaboration between the ̽��ֱ��’s researchers and the estates’ division.”