Several dozen educational endowments have stepped up and broadened their approach to sustainable investing in recent years, despite barriers that still discourage many of their counterparts from following suit.
The US SIF Foundation identified more than 80 educational institutions at the start of 2016 that were applying various environmental, social and governance (ESG) criteria to assets that collectively totaled $293bn.
Georges Dyer, a co-founder and principal of the Intentional Endowments Network (IEN), says that he has seen increased interest from universities and colleges in sustainable investing. Often, the gateway is through questions about fossil fuel divestment, and leads to ways the endowment can address ESG issues more broadly. Student movements, supported by organizations such as the Responsible Endowments Coalition, have played an important role. In addition, Dyer suggests that the involvement of larger, mainstream investment managers in creating ESG investment products has reassured trustees and piqued their interest.
A number of educational institutions in the past few years have established or implemented responsible investment policies, particularly around environmental issues. According to the US SIF Foundation’s Report on U.S. Sustainable, Responsible and Impact Investing Trends 2016, climate change has risen dramatically as an area of concern for educational institutions, with assets under management (AUM) affected increasing more than 320% between 2014 and 2016 to $43bn. In 2016, assets of $27bn were subject to fossil fuel restrictions, compared with just $135m in 2014 when we first tracked the issue.
Some highlights include:
- Hampshire College is widely credited as being the first college to divest from fossil fuels, which it accomplished in 2011.
- In 2014, Yale University added “climate awareness” to its investment strategy. By 2016, it had removed $10m of fossil fuel investments.
- The University of California divested $200m from companies involved in coal and oil sands projects in 2015.
- Columbia University announced in 2017 that it would divest from companies that earn at least 35% of their income from thermal coal production.
In addition to environmental concerns, social issues have also gained prominence among educational institutions. According to the Trends report, consideration of human rights affects $24bn in endowment assets, equal employment opportunity and diversity affects $12bn and prison-related issues affect $10bn.
Despite these developments, there are still hundreds of college and university endowments that do not appear to be engaged in any form of sustainable or responsible investing. Dyer of IEN explains several challenges these institutions face.
One is confusion about what SRI is and the various terminologies and acronyms in the field. Another is concern around financial performance, even with all the evidence showing that SRI investments have comparable returns to traditional investments. Questions around fiduciary duty also persist, with some trustees both unsure of whether SRI is permissible and skeptical of the motivations for SRI. Many consider it a political decision. Time constraints and competing priorities constitute another barrier. Furthermore, the majority of investment consultants and other intermediaries have not championed or facilitated SRI. Most do not have expertise in sustainable investing, and they are unfamiliar with the various products, vehicles, managers and impact metrics available.
Given these challenges, how can colleges and universities learn about and get started in SRI? Reviewing available educational resources is a first step. The Intentional Endowments Network, Responsible Endowments Coalition, Sustainable Endowments Institute and US SIF offer several materials, many freely available. Educational institutions can also see what other endowments are doing. Peer learning is also helpful. Educational institutions can become members of networks or participate in specific initiatives that suit their interests.
All educational institutions are different, and there is no “one size fits all” approach. Educational institutions can try different entry points to SRI– such as a one-off investment in a single ESG investment vehicle or joining a shareholder engagement led by other investors. The SRI industry is dynamic and evolving; educational institutions have the potential to play a bigger role in it.
Lisa Woll has been the CEO of US SIF and the US SIF Foundation since 2006.