American college and university endowments have a weak understanding of environmental, social and governance (ESG) investing strategies, trends and opportunities, according to a report by the Tellus Institute.
US college and university endowments manage a combined US$400bn in assets, and had historically been “sustainable investing pioneers”, but have lagged in recent years in three areas of examination – “1) the incorporation of ESG criteria into endowment management; 2) shareholder advocacy and active-ownership initiatives; and 3) the governance and transparency of ESG investment decision-making,” according to the report. The report, “Environmental, Social and Governance Investing by College and University Endowments in the United States: Social Responsibility, Sustainability, and Stakeholder Relations,” was commissioned and funded by the Investor Responsibility Research Center Institute (IRRCI).
“The findings are somewhat counter intuitive to what one would expect from the university community,” said Jon Lukomnik, IRRC Institute executive director. “Historically, endowments were ground-breaking institutional investors that addressed social and environmental considerations in their investments far earlier than others. Our findings indicate that today’s endowments no longer are leaders in the institutional ESG investment arena.”
The report found that endowments’ primary forms of ESG investing tend to be around single-issue negative screening of listed equity portfolios around issues such as tobacco, “sin stocks”, and targeted divestment from the Sudan.
The report also found that while, generally, institutional investors are focusing on proxy-voting recommendations, tertiary institutions’ endowments are moving their investments from listed securities to indirect investments in commingled vehicles and more opaque investments in alternative asset classes, which means that proxy voting is a decreasing portion of endowments’ activities.
There is also confusion at endowments about the semantics of ESG investing and ESG investment transparency “remains poor” at endowments, the report notes.
“We also found a general lack of transparency on ESG practices,” Lukomnik said. “Investment policies are remarkably opaque, even at some state-funded universities. We also find that the educational community largely is absent from the national and global institutional investment networks. For example, not a single endowment is amongst the 900 signatories of the United Nations Principles for Responsible Investment, and only one is a member of the Council of Institutional Investors, the leading US association of institutional investors.”
The report did cite some innovative ESG investment programmes, including Middlebury and Dickinson Colleges, which have invested in a Sustainability Investments Initiative that includes clean tech investments, as well as the Omidyar Tufts Microfinance Fund at Tufts University.