ESG Investing

ESG Report Sends College Endowment Leaders Back to Class

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Unlike publicly held companies, higher education institutions tend to be discrete regarding their responsible investing initiatives. Few institutions publish an ESG report for public consumption; in contrast, 95% of S&P 500 Index companies offered data and insight into their ESG efforts in 2021.

However, 47.4% of college and university endowments incorporated responsible investing criteria in their investment manager assessments in 2021. This marks an increase from 39.6% in 2020, according to the most recent Study of Endowments from the National Association of College and University Business Officers (NACUBO) and asset manager TIAA.

On-campus perspectives on ESG appear to be evolving as schools as diverse as the University of Pittsburgh, Harvard University, and Haverford College demonstrate growing transparency in their approaches to responsible investing.

Digging for Deeper Due Diligence

University endowments were among the first institutional investors to begin accounting for ESG factors. Yet over time, heightened attention on the discipline has raised expectations for schools. For example, although the University of Pittsburgh started incorporating ESG elements in its due diligence efforts in 1990, the school did not enact a formal ESG policy until 2020.

As part of this new initiative, the school published its inaugural ESG report this spring to discuss its progress on various ESG-related activities. The report examines the University of Pittsburgh’s moves toward 0% exposure to fossil fuels—at 5.9% as of June 30, 2021—and details how the school intends to pursue broader ESG goals going forward. For example, its due diligence work on outside investment managers now features a series of ESG queries which probe more deeply into the working conditions, community impacts, and management decisions occurring at each portfolio company.

On the East Coast, Harvard University provides annual updates on its pledge to attain net-zero greenhouse gas emissions within its investment portfolio by 2050, as part of the endowment’s emphasis on climate matters. Harvard presses managers of public and private investment funds to improve carbon emissions data reporting on all holdings.

Haverford College, a school of about 1,400 students near Philadelphia, is meanwhile pursuing greater diversity, equity, and inclusion (DEI) among the investment management firms hired to invest their endowment. In its most recent update, Haverford noted that 41% of the investment firms in its endowment maintain formal DEI policies, allowing the school to hold those firms accountable for increasing BIPOC and female representation within firm ownership and senior investment roles. It also aims to elevate DEI matters in the investment managers’ internal processes and within their underlying portfolio companies.

The lack of standardized ESG reporting continues to curb the adoption of responsible investing practices.

Encountering Familiar ESG Reporting Issues

As with the broader ESG community, university and college endowment managers face limits to the consistency and reliability of the data they use.

The NACUBO-TIAA study concluded that the lack of standardized ESG reporting continues to curb the adoption of responsible investing practices. The Pittsburgh endowment report likewise identified “the availability of data across the entire range of ESG factors and an understanding of their financial impact” as a major challenge. Furthermore, Harvard’s endowment staff reported that measuring emissions among hedge fund strategies are not rooted in industry consensus, which makes progress more difficult to track.

Even so, trends in endowment investing that shed an exploratory light on universities’ objectives, accomplishments, and challenges place ESG-reporting institutions at the forefront of the industry’s commitment to greater transparency.

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