But UK’s second biggest university by endowment says it will not bow to campaigners’ demands for full divestment from fossil fuels

The University of Oxford has ruled out future investments in coal and tar sands from its multi-billion pound endowment, but said it would not divest from all fossil fuels as demanded by thousands of students, academics and alumni.

Campaigners welcomed the move as a victory for the fast-growing fossil fuel divestment campaign, as it was the first time the university had made clear its position on the issue.

“Many world leaders have studied under Oxford University’s spires,” said Andrew Taylor, at campaign group People & Planet. “They should be taking notes today. The lesson is: it’s time to phase out coal and axe tar sands.”

The university, one of the world’s oldest and most prestigious, follows over 200 other organisations who have banned some investments in fossil fuels because of their role in driving climate change.

However, Oxford University said it does not hold any direct investments in coal and tar sands and its announcement on Monday contained little on new investment policies.

The university’s failure to commit to divestment from all fossil fuel companies means 70 alumni, including green energy entrepreneur Jeremy Leggett and journalist George Monbiot, will be handing back their Oxford University degrees on Saturday.

Sunniva Taylor, an Oxford alumnus said: “With the decision today the university has taken step forward, but not a big enough one. I, with others, have decided to hand back my degree, in protest.”

Oxford’s decision came on the same day that the University of Cambridge announced a wide-ranging investigation of its own investment policies. The two universities are by far richest in the UK and hold global esteem, with campaigners hoping their choices will influence other investors.

Oxford decided to exclude companies involved the most polluting fossil fuels – coal and tar sands – from its direct investments. “It has demonstrated that universities can carry out their academic mission while also acting with moral integrity in their investment choices,” said Felix Pinkert, a lecturer in philosophy at Oxford.

However, companies held via mixed investment funds are exempted.

Professor Andrew Hamilton, vice-chancellor of Oxford university, said: “We see the main purpose of our investment fund as generating the financial resources to support our academic purpose. However, our investment managers take a long-term view and take into account global risks, including climate change, when considering what investments to make.”

A series of analyses have shown that current reserves of coal, oil and gas are several times greater than can be burned whilst limiting climate change to the internationally agreed limit of 2C.

The fast-growing, UN-backed divestment campaign argues that the business models of fossil fuel companies, which continue to spend billions on searching for new reserves, are endangering the climate.The campaign also argues many fossil fuel assets could become worthless if the world’s governments act to curb global warming, a risk taken seriously by the World Bank and the Bank of England.

Many universities have divested, including Stanford, Syracuse and Glasgow, as have with faith groups like the Church of England and philanthropic funds such as the Rockefeller Brother fund, which was founded on oil wealth. The Guardian is running a campaign asking the world’s largest health charities, the Gates Foundation and Wellcome Trust, to divest and the Guardian Media Group has divested its own £800m fund, the largest to date.

“Oxford is the ultimate long-term investor with a large amount of capital held in perpetuity. As a result, its endowment is naturally going to be concerned about long-term risks like climate change. It is a credit to the endowment that it doesn’t have any direct investments in coal and tar sands,” said Ben Caldecott, director of the Stranded Assets Programme at the University of Oxford.

“Today’s announcement confirming that Oxford will avoid all such investments in the future is a good risk-based decision that puts it on par with other leading universities, such as Stanford.”

Some institutions have argued that holding shares allows them to engage with managers over changes their companies and Oxford University has now decided that its investment committee will report annually on its engagement. The university also said it would give a full breakdown of its investments in specific sectors and revealed that 3% of its endowment was in energy. More than half of the energy investments are in exploration and extraction.