The ANU will divest in seven resource and mining companies following an independent review.
The Council of the Australian National University has agreed to the proposal by vice-chancellor professor Ian Young to drop the multi-million dollar investments following an investigation by independent research organisation CAER.
The university will divest its holdings in Iluka Resources, Independence Group, Newcrest Mining, Sandfire Resources, Oil Search, Santos and Sirius Resources.
The $16 million divested stocks represent about 5.5 per cent of the university's Australian equity holdings and about 1 per cent of its total investment holdings.
The university has a full investment portfolio of about $1.3 billion.
The review was commissioned by the university as part of its Socially Responsible Investment Policy, which guides what assets should and should not be included in the university's investment portfolio.
Professor Young said the seven resource and mining companies were the lowest ranked against the social responsibility policy, which was introduced about nine months ago.
"The university engaged an external consultant which went through every one of the stocks that the university invests in and assessed their social responsibility," he said.
"These are largely companies that will be producing materials that probably have high CO2 emissions associated with them. Their track record hasn't been as good as some others in terms of their immediate impact on their local environment.
"They may well be companies where their governance criteria means they're not very transparent so, it's difficult to assess what they're doing and how open they are with how they carry out their business."
Meanwhile, the council has also agreed to outsource management of Australian equities using an enhanced index manager, similar to the process followed for overseas stocks and shares.
Domestic stocks and shares have previously been managed by a five-person inhouse investment office.
"With a relatively small office it's really not possible to have the expertise and backup needed for such a large investment portfolio," Professor Young said.
"We've made a decision to outsource that to a specialist organisation that will manage that on our behalf.
"It will take us some months to work through that process. The first thing we've got to do is determine a portfolio manager which we haven't done yet."
The investment office employees will still oversee the outsourced management of portfolios and will continue to work on term deposits and bonds.
The appointed domestic portfolio manager will also be required to follow the social responsibility policy.
Fossil Free ANU campaign spokeswoman Louis Klee questioned the university's continued investment in other fossil fuel companies including BHP Billiton, Rio Tinto, Woodside Petroleum and Wesfarmers.
He said a campaign-run referendum found 82 per cent of student participants in favour of ANU divesting in fossil fuels.
"Divesting from coal seam gas fracker Santos vindicates what we have been saying all along: the damage from these companies to our land, water and climate makes them irresponsible investments," he said.
"If the university is going to show real leadership, then they must stop all investments in the fossil fuel industry. Stanford University has committed to divest from coal, and the British Medical Association and the World Council of Churches have both divested from all fossil fuels this year."