ESG Investing

University Endowments Look beyond Divestment

University endowments have made headlines for divesting from controversial industries like fossil fuels. Responding to long-standing campaigns by activists as well as growing pressure from students and alumni, schools such as Cornell University and George Washington University have exited direct investments in oil and gas or divested from the industry altogether.

However, some critics charge that divestment ultimately hampers an endowment fund’s influence over company decisions and activities. Some schools have baked this consideration into their broader environmental, social, and governance (ESG) strategies, opting to address climate change and other areas of concern by combining divestment with sustainable investments and direct engagement with companies.

Embracing ESG Investments

US university endowments of all sizes have adopted ESG investment frameworks over the last several years with the aim of mitigating risks and creating impact through their portfolio design. By 2018, 249 out of 802 higher education endowments surveyed by the Forum for Sustainable and Responsible Investment had either adopted a sustainable investment policy or included some sustainable investments in their portfolio. All told, endowment assets subject to ESG factors total $317 billion.

Endowment portfolios integrating ESG contain a wide range of asset classes, as flagship case studies from the Intentional Endowments Network (IEN) show. For example, Becker College decided in 2017 to reallocate its endowment to be 100% ESG-aligned. Its portfolio includes mutual funds, exchange-traded funds, and separately managed accounts. This approach has reaped positive results, with the college reporting that the endowment has experienced faster growth than before the change. Unity College has also allocated all of its endowment to sustainable investing; it invests its portfolio in equities, fixed income, and alternative investments, as well as cash.

Endowment funds have also prioritized innovation—in 2017, Pitzer College launched the first fossil fuel–free global equity index fund that uses ESG strategies.

Some critics charge that divestment ultimately hampers an endowment fund’s influence over company decisions and activities.

Promoting Shareholder Advocacy

In order to more effectively pressure companies to improve their sustainability performance and support strong ESG policies, endowments have also turned to shareholder engagement strategies. Their activities include proxy voting, filing shareholder resolutions, signing public investor letters or statements, and engaging in private dialogue with portfolio companies.

For example, in 2019 Warren Wilson College began engagement in active ownership by taking such steps as investing in US equities through separately managed accounts. This allowed them to enter into dialogue, file resolutions, and vote proxies with portfolio companies. The school also established an advisory committee, uniting various campus stakeholders to build consensus on responsible investing policies.

While Harvard University has thus far chosen not to divest from fossil fuels, the school serves as a co-lead investor with the United Nations–backed Principles for Responsible Investment (PRI), a global investor network committed to integrating ESG considerations into investment practices and ownership policies. That effort is focused on engaging corporations that publicly support climate risk legislation while privately lobbying against it. Harvard has also participated in PRI’s work in encouraging energy and utility companies to improve their management of methane emissions.