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The university council's policy change mirrors a pledge to divest from fossil fuel investments made by the Otago University Foundation Trust in 2015.
A University of Otago spokeswoman said the university had never invested in fossil fuels, and yesterday's decision aligned the council's ethical investment statement more closely to that of the foundation trust.
''The University Investment Policy was due for review this year and consequently this afternoon council considered and approved amendments to the policy.
''The policy was split more appropriately into policy and procedures and the ethical investment statement aligned with that of the Foundation Trust.''
Fossil Free Otago University spokesperson Charlie Montague said the group was proud the university had listened to the views of a number of staff and students.
''The University of Otago Council's decision today to adopt the same policy, makes the university free of fossil fuel investments.
''Otago is now the second university in New Zealand to commit to being 'fossil free'
''Today Otago put its money where its mouth is.''
Prior to the policy change yesterday the group participated in a playful protest in which they tugged on a rope of paper to represent the university's struggle to change its investment policy.
On Monday, members of the group stood naked in front of the University of Otago clock tower to ''dare'' the university to divest.
The group had called on the university to change its ethical investment policy so it explicitly excluded the possibility of fossil fuel investments since early 2015, Montague said.
In a media release signed by 28 University of Otago staff, department of preventive and social medicine senior lecturer Dr Alex Macmillan said the decision was a ''win for the climate''.
''Staff and students of the University of Otago can now be proud that the university is investing its funds in ways that avoid products we know are extremely harmful to current and future wellbeing.''
The new policy would also prevent direct investment in the production or distribution of alcohol, tobacco or munitions, she said.