Align Endowment with Institutional Mission

An institution may choose to adopt sustainable investment practices across the whole portfolio or to stage in different facets of an intentionally designed endowment.  While the concept of the intentionally designed endowment includes integrating material ESG and/or values-related factors into the investment process across all investments in all asset classes, there are several initial steps endowments might take to begin the process, learn, and build on over time.

A.  Exploratory Steps

An institution may choose to adopt sustainable investment practices across the whole portfolio or to stage in different facets of an intentionally designed endowment.  While the concept of the intentionally designed endowment includes integrating material ESG factors into the investment process across all investments in all asset classes, there are several initial steps endowments might take to begin the process, learn, and build on over time.

Create a sustainable investing “sleeve” or “ESG donor pool"

Endowments might consider carving out a specific amount or percentage of the portfolio for sustainable investing. Such a pool can capitalize on the increasing demand by donors who want their funds invested sustainably.

Learn from Peers

Allocate a % of the portfolio to specific impact or to a manager with ESG expertise

The network has created a non-comprehensive list of sustainable investment products in each asset class that (1) incorporate ESG factors, (2) apply exclusions or (3) focus on a specific impact.

Find Investment Options

Engage: proxy voting, shareholder resolutions and investor statements

There are several forms of shareholder engagement that endowments can undertake to address material investment risks, improve corporate sustainability performance and support policies that move society towards sustainability.

Learn more

Start a student-managed ESG fund

Student-managed funds promote student leadership and benefits both students - by providing practice and experiential education - and endowments - by providing research and new ideas.

Learn more

Launch a green revolving loan fund for your campus.

Green Revolving Loan Funds (GRFs) are self-managed revolving funds that finance energy efficiency improvements on campus, achieving reductions in operating expenses and greenhouse gas emissions, while regenerating funds for future projects.

Learn more

 Work with diverse asset managers 

Integrate asset management firms owned by women and people of color into your manager search process.

Invest in the local community

Explore opportunities with the risk/return characteristics of fixed income and cash that have a positive impact on the local community.

 

B.  Toward a More Comprehensive, Whole Portfolio Approach

As demand for sustainability solutions in society grows, so do investment opportunities. Increasingly, there are attractive investments designed to generate market-rate returns available. Endowments may already have such investments in their portfolio, whether or not they are marketed or identified as ‘impact investments. 

To view a panel presentation on how to construct a sustainable investing portfolio without sacrificing financial returns, watch Stories from Advisors: Constructing Mission-Aligned Portfolios that Perform

Institutional investors may decide to divest from specific companies or industries, to proactively integrate environmental, social and governance (ESG) factors into investment decisions, or provide equity or debt capital to companies whose products or services advance solutions to today's environmental and social challenges.  Often institutional investors choose to do a combination of the three.

1.  Align: Risk- and/or values-based divestment 

Some colleges and universities decide to divest from specific companies, industries, products, services or countries. The choice to divest can be motivated by concerns about future risks to the business model or by the belief that the company, product or service is antithetical to the mission of the college.   Most recently the foci for higher education divestment has been fossil fuel investments, weapons, private prison management companies, and palm oil/deforestation related companies.

2.  Integrate: ESG integration across the portfolio

Demand for the incorporation of environmental, social and governance factors is growing.  The Principals for Responsible Investment (PRI) is a leading proponent of a more comprehensive approach to investing in global markets that incorporates ESG factors to reduce risk and enhance returns.  Additionally, investors who experienced the financial crisis of 2008 and who see inherent risks in the capital system from climate change and a growing wealth gap, seek a different approach to investment, and investment managers are responding to the demand with growing ESG expertise.

3.  Impact: Investing with a twin focus on specific environmental or societal impact and financial risk/return.

Comprehensive sustainable investing strategy in an endowment can include divestment, ESG integration, engagement and thematic impact investing.  With thematic impact investing, endowments can more specifically focus such investments on solutions that are aligned with their institution's mission.

 


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