Sustainable Investing at the University System of Maryland Foundation

University System of Maryland (USM) students have been driving change at The USM Foundation for several years. In 2013, students circulated a petition to divest from fossil fuels with nearly 600 signatures from students at Towson University, the University of Maryland, Baltimore County and other colleges. In response, in 2014, along with the United Nations, the USM Foundation was a seed investor in the iShares MSCI ACWI Low Carbon Target ETF.The ETF tracks the results of the MSCI ACWI Low Carbon Target Index and addresses two dimensions of carbon exposure – carbon emissions and fossil fuel reserves. The fund was designed for individuals and institutions interested in environmental sustainability without divestment and provides transparency to the carbon footprint of their investments. On January 29th, 2015 a member of the USM Foundation investment team rang the NYSE's closing bell to officially usher in the new fund’s ticker onto the exchange.

“Being able to address socially responsible concerns while maintaining our fiduciary standards is critical to our investment approach,” said Sam Gallo, Chief Investment Officer of the University System of Maryland Foundation. “The iShares MSCI ACWI Low Carbon Target ETF is a low-cost investment solution that allows us to maintain full exposure to global equities while incorporating a carbon exposure reduction strategy.”

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ESG Investing Trends: Common Approaches and Benchmarking

In this Q&A, Thomas Kuh and Paul Schutzman, Executive Directors at MSCI, discuss the significant ESG trends and developments that we should be aware of in 2017,  some of the ESG concerns, demands and questions they hear most frequently from asset owners in the US, and what first steps institutions that are grappling with how to approach ESG can take.

Thomas Kuh                                                         Paul Schutzman

Executive Director, MSCI                      Executive Director, MSCI          



1. Can you please explain your roles at MSCI for our IEN readers?

Paul: I lead our US Index Client Coverage team focusing on Asset Owners. We work with public and corporate defined benefit and defined contribution plans, endowments and foundations to help them understand and leverage MSCI Index offerings, methodologies, and use cases. The world of indexes has become more complex as we have incorporated new elements, such as risk factors and ESG data, into index construction. While benchmarks have long been essential to institutional investors’ approach to risk management and performance evaluation, the growth of passive strategies and the proliferation of index types have increased the need to keep asset owners well informed.

Tom: I work on ESG Indexes as a member of the global index product team at MSCI. This role involves supporting our Client Coverage team to help them license the indexes to clients for performance benchmarking and creation of passive products, and providing feedback on market trends to our product development team as they develop new indexes.


2. What are the significant ESG trends and developments that we should be aware of in 2017?

We are seeing strong momentum behind the ESG investing wave we have been experiencing over the past decade or so. The understanding of ESG and the implementation options are continuing to evolve. At MSCI we define the three main approaches to ESG investing as follows: 1) ESG integration; 2) values-based investing or exclusionary screening; and 3) impact investing.

Amongst our endowment and foundation clients specifically, we see increasing adoption of values-based approaches that prohibit investments in specific business-related activities that run contrary to an organization’s mission. We also see smaller sized but increasing allocations to impact investments that target market-level or concessionary returns, while supporting specific environmental and social goals. The most widespread growth has been in the area of ESG integration, in which ESG considerations and analysis are incorporated into portfolio construction with the goal of maximizing long-term risk/return objectives.

Part of what has enabled the depth of integration we are seeing is the degree to which the state of ESG research has matured. The quality and sophistication of ESG data is more advanced than ever. MSCI ESG Research’s 2017 ESG Trends to Watch paper highlights the historical relationship between ESG and risk-adjusted returns, suggesting that the conversation is shifting from “how” to use ESG to “where” to use ESG, given the diverse portfolio applications and nuances in data now available. Further, academic literature has suggested a link between material ESG factors and performance, such as this Harvard Business School study published in March 2015.


3. What are some of the ESG concerns, demands and questions you are hearing most frequently from asset owners in the US?

There are a range of questions around ESG coming from asset owners, reflecting the varying stages of ESG integration. There are still many questions that are definitional: What is ESG investing?  How can we articulate and incorporate ESG beliefs into our investment policies? With the term integration, for example, many asset owners aren’t sure where to get started or how to understand if their external managers are effectively incorporating ESG factors into their portfolios.  

We still have many asset owners with concerns about the potential impact on performance and their roles as fiduciaries and stewards of capital tasked with maximizing long-term returns. Often, a growing understanding of the determination of materiality, academic and practitioner research, as well as institutional support such as the DOL's Interpretive Bulletin in October 2015, is a start towards alleviating these concerns.

We now have a growing number of clients asking what their major portfolio exposures are to ESG risks. For example, are they able to measure and account for these exposures and do they have methods to manage around them? If we just think about public equity portfolios, how should ESG be combined with active or passive mandates? Should it be a separate allocation segment in the portfolio or should a standard approach be applied to all investments? These are all legitimate questions that don’t have a “one size fits all” answer but that require further exploration.


4. For institutions grappling with how to approach ESG, what do you commonly see as a first step taken and can you recommend any resources?

A common first step for institutions is to develop an ESG policy or to add a segment reflecting their philosophy on ESG within their investment policy.  This exercise often leads to questions about how to align the investment policy of an organization with its mission. From this exercise we often find that asset owners would like a more holistic understanding of their existing portfolio, including a baseline view of their ESG profile versus appropriate benchmarks and their peers.


Case Study: Carbon Portfolio Footprinting

While more holistic ESG portfolio analytics are available, in this case study we focus on carbon as many investors today are looking to understand their portfolio exposure to climate change. 

For the sample equity portfolio shown below, we analyze the securities in that portfolio in terms of the carbon emissions, fossil fuel reserves, and other carbon-related characteristics of the entities that issue those securities. We then compare this data to the performance of a portfolio replicating a market benchmarking (MSCI World Index) and a portfolio replicating a relevant ESG benchmark (MSCI World Low Carbon Target Index). 

MSCI ESG Research defines portfolio carbon footprint as the carbon emissions of a portfolio per $ million invested. For more information on MSCI ESG Research’s carbon tools visit or inquire at


5. How does MSCI and MSCI’s role relate to other key actors in the ESG ecosystem?

 MSCI, through MSCI ESG Research, is the largest ESG research provider by coverage and number of clients in the marketplace, serving asset owners, asset managers and consultants. Through MSCI ESG Ratings and research, risk analytics and indexes, MSCI provides a broad range of tools that are used to support all three approaches to ESG investing- integration, impact and values – and that are resources for trustees, investment committees, consultants and asset managers.

There is now an ecosystem that serves all sizes and types of asset owners from the largest public pension funds to modest sized endowments and foundations. MSCI provides ESG indexes that are used as benchmarks for active managers or as the basis for passive investment options. MSCI ESG Research also provides ESG research and ratings that are used by many active asset managers. 


Thank you both for your time and thoughtful answers to these questions!



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The Future of Investing is Impact Investing

(Originally posted on the U.S. Impact Investing Alliance website, available here. The Intentional Endowments Network is proud to sit on the Alliance's 8-member Industry Advisory Council of leading impact investing network organizations. Together the organizations on the Council represent over 800 members representing trillions of dollars of assets under management.)

By:  Darren Walker, President, Ford Foundation and Chair, U.S. Impact Investing Alliance

Fran Seegull, Executive Director, U.S. Impact Investing Alliance

The United Nations estimates that achieving its 17 Sustainable Development Goals by 2030 will require trillions of dollars. The global goals aren’t the only way to measure our challenges, but they do paint a clear picture: given the scale of the problems the world faces, it’s clear that traditional sources of capital, like government aid and philanthropy, simply won’t be enough.

That’s why we must reimagine how we invest. Increasingly, many of us have begun to consider the role of private capital, with billions of dollars now being allocated to impact investments each year. But this is just a small fraction of the total assets available, with global capital markets today valued at well over $200 trillion. If we redirected even a small portion of that sum towards new investments with positive social and environmental impact, we, quite literally, could change the world.

That is why we are thrilled to introduce the U.S. Impact Investing Alliance

The U.S. Impact Investing Alliance is a field building organization that works with partners across the American impact investing ecosystem. We’re working to transform finance by putting measurable social and environmental impact—alongside risk and financial return—at the core of every investment decision. And to make that vision a reality, we have developed a three-pillar strategy.

1. The Alliance will advocate for a policy environment that enables the impact investing industry to mature and grow. 

Already, the Alliance has benefited from the tremendous work done by our precursor organization, the U.S. National Advisory Board on Impact Investing. As documented in the report, “Private Capital Public Good,” the National Advisory Board was able to help catalyze energy into action, joining a number of existing advocates in pursuit of long-standing policy objectives.

Now, the Alliance looks to build on those successes as we continue to champion the cause of impact investing with federal policymakers. We will build on the momentum of recent policy advances— modernizing fiduciary duty, advancing outcomes-based funding, and empowering shareholder engagement—and we will seek out new opportunities to unlock impact capital.


2. The Alliance will mobilize the supply of impact capital, with an initial focus on institutional investors such as foundations and pension funds. 

To spur more impact investment, the Alliance will partner with existing organizations to help amplify their work, coordinate across networks where appropriate, and fill gaps where needed. We will continue to convene the Presidents’ Council on Impact Investing, which comprises the heads of 20 U.S. Foundations deeply committed to practicing and promoting impact investing. And we are excited to be launching the Industry Advisory Council, which brings together networks of committed impact investors to help guide and advance our mission.

Working together, we can break down barriers in the public and private capital markets to promote collaboration and engage new investors. We believe it is possible to find impactful investments at scale globally and across asset classes, but doing so will require developing new strategies, tools, and allies across the industry.

3. The Alliance will bring together leaders across the ecosystem to help advance the impact investing movement.

 If we want to take advantage of the opportunity before us, the time to act is now. In the next 30 years, $40 trillion in wealth will transfer to women and millennials, two segments of the population that strongly believe in aligning their investments with their values. This represents a tremendous opportunity, and can serve as a call to action to those in the financial industry and beyond.
We need to communicate to every investor what it means to make impactful investments—and how they can join our movement. We need to move innovations to market with technologies and products that enable impact transparency. And we also need to refresh our understanding of what drives long- term value, especially as we move from the paradigm of maximizing shareholder value to one that seeks to maximize stakeholder value. Most of all, we need to recognize that while we’ve progressed a great deal, impact investing is still a nascent field—and we still have a lot to learn. But together, by supporting a powerful network of institutions, individuals, and ideas, and with careful experimentation and radical thinking, we can ensure that the impact investing movement will continue to grow.

The shift toward impact investing is already well underway. If we engage with government proactively, mobilize institutions to action, and empower bottom-up movement building for impact, we can unlock the potential of private capital to help address the world’s greatest problems.

Read the full press release on the Alliance, here.




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Intentional Endowments Network and Cambridge Associates Outline a Blueprint for Action for Investors Wishing to Uphold Aims of Paris Climate Agreement and Implement Environmental Factors Into Portfolios

Though the US government is no longer supporting the Paris Climate Agreement, many endowments, foundations, and other US institutions remain committed to aligning their investment policies with the goals of the international accord. In response, the Intentional Endowments Network and Cambridge Associates have outlined a blueprint for action for investors wishing to uphold the aims of Paris Climate Agreement and implement ESG factors into portfolios.

Specifically, we have outlined considerations for incorporating environmental, social, and governance (ESG) factors into the development of investment policy statements (IPS), as well as a blueprint for incorporating language around the Paris accord into an institution’s IPS. 

Articulating PurposePriorities, and Principles in a well-designed investment policy can help interested institutions effectively incorporate social and environmental concerns into their investment portfolios. As long-term investors, endowments should consider material ESG factors. In doing so, they can more closely align investments with institutional mission, values, and sustainability goals, while serving as models for the rest of society. 

Please read today’s full press release with more details at:  

Cambridge Associates and the Intentional Endowments Network Outline a Blueprint for Action for Investors Wishing to Uphold Aims of Paris Climate Agreement and Implement Environmental Factors Into Portfolios

To access the new resources, please visit: 



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Intentional Endowments Network Builds Momentum

Last year, 77 Founding Members launched IEN’s membership program. Founding Members included: Arizona State University Foundation, Becker College, California State University, Calvert Investments, Carleton College, Hampshire College, Hanley Foundation, Lane Community College, Lewis & Clark College, Litterman Family Foundation, Middlebury College, Portland State University, San Francisco State University Foundation, UBS Asset Management, University of Maine and University of Massachusetts Foundation.

Through the membership program, IEN facilitates connections with experts and peers to support administrators and trustees in enhancing their institutions’ approach to sustainable investment and addressing stakeholders’ concerns. Some of the major accomplishments of the Network over the past year included:

  • Producing several guides and resources to facilitate knowledge exchange and peer to peer networking

  • Hosting multiple events, which included a total of seven interactive, action-oriented forums for senior decision makers with partners around the country. Recent keynote speakers includeformer Treasury Secretary Hank Paulson, David Blood of Generation Management, Jeremy Coller of Coller Capital and the Farm Animal Investment Risk & Return (FAIRR) Initiative, Ira Ehrenpreis of DBL Partners, and Jagdeep Bachher, CIO of the University of California, Regents. 

Read more about IEN's membership program and Network accomplishments over the past year by reading the full press release here.



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Fiduciary Duty & Divestment at Unity College

In the fall of 2012, the Unity College Board of Trustees voted unanimously to divest from investments in fossil fuels, making the College the first institution of higher learning in the United States to divest. Stephen Mulkey, President of Unity College at the time of divestment, made the moral case for divestment to the college community in an open letter. “The colleges and universities of this nation have billions invested in fossil fuels. Like the funding of public campaigns to deny climate change, such investments are fundamentally unethical,” President Emeritus Mulkey wrote. “The Trustees have looked at the College’s finances in the context of our ethical obligation to our students, and they have chosen to make a stand.”

The Board of Trustees, keeping true to their fiduciary duty to the College, wanted assurances that fossil fuel divestment would bring an appropriate return to the endowment-- and so far there has been no negative impact. “Over the past five years, the portfolio has met or exceeded market benchmarks despite the shift away from fossil fuel holdings,” stated a 2013 article updating the community on the progress of fossil fuel divestment. “Our investment performance was in no way negatively impacted by this strategy.” Catching up with President Emeritus Mulkey five years later, we discussed how fiduciary duty considerations played into the initial conversations to divest.

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Transforming Investing for a Climate Safe Future - Plenary Panel at the 2017 Second Nature Summit

While at the Second Nature 2017 Presidential Climate Leadership Summit this February, members of the Intentional Endowments Network held a plenary panel focused on aligning higher education endowment investments with climate leadership goals. Speakers discussed the investment risks and opportunities posed by climate change, what the higher education sector can do in this area, and trends in business and the finance industry related to climate. 

Panel Speakers: 

  • Wim Wiewel, President, Portland State University
  • Bob Litterman, Chairman of the Risk Committee, Kepos Capital; Board Chair, Commonfund; Board Member, WWF
  • Geeta Aiyer, President, Boston Common Asset Management
  • Seren Pendleton-Knoll, Program Director, UC Berkeley Haas School of Business Center for Responsible Business 

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Reflecting on 2016 and Looking Ahead - Update on the Intentional Endowments Network

Dear IEN members and friends,

Thank you for being a part of the Intentional Endowments Network. As we move toward implementing our 2017 priorities – of growing the network and advancing intentionally designed endowments – we’d like to take a moment and provide you with an update on an active and productive 2016.

The threats of climate change, toxins, extreme wealth inequality, oppression, human rights violations, water scarcity, breakdown in trust, loss of topsoil, failed states, political instability, and other sustainability challenges represent risks to investments in all sectors. Understanding the short- and long-term risks and opportunities of these trends is essential for prudent endowment management. Joining the conversation on these topics also serves as a tremendous leadership opportunity for endowed institutions.

The potential for a bright future is very much alive. Sustainability leadership from higher education foundations, corporations, social entrepreneurs, non-profits, and cities is inspiring and opening up new possibilities.

Perhaps most hopeful is the continued growth in investment capital aligning for positive social and environmental impact. Data from US SIF: The Forum for Sustainable and Responsible Investment shows assets in some form of Sustainable, Responsible, or Impact (SRI) investment strategy grew another 33% from 2014 to 2016 to account for 22% of all US institutionally invested funds. This is a continuation of a strong, accelerating trajectory since they started their survey in 1995.

Growing interest in SRI/ESG investing at endowments is widespread – it seems there is activity and conversations at just about every institution – and we expect to see interest and conversations translate to action more and more over the next two years.

With this background, we are pleased to share below the highlights of our work together in 2016, supporting alignment of endowment portfolios with the institutional mission, values, and sustainability goals:  

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Strategies for Investing in a Climate-Safe Future

By: Ken Locklin, Director, Impax Asset Management

Conventional wisdom can be seductive.  Pundits are quick to predict that even the slightest shift in public policy breezes augur for imminent, wholesale change in direction.  But, as fiduciaries we are called upon to make investment decisions grounded in reality, and based on rigorous, rational analysis.  Reality is typically more resilient, and not necessarily deflected by policy zephyrs.

One reality that investors and policy makers alike face is the increasing impact of climate change.  It increasingly impacts our physical world and significantly heightens investment risk.  While these impacts impose challenges for investors in general, they simultaneously offer compelling opportunities for investors in climate solutions.

The incoming administration campaigned as pro-coal, climate change sceptics.  But against these political headwinds, we see more powerful economic forces at work. The underlying drivers advancing many environmental technologies are increasingly beyond most regulatory intervention. And consumers are progressively seeking more sustainable products and services.

The broader environmental markets sector is in fact composed of 30 discrete sub-sectors.  In our estimation, opportunities in all of those sub-sectors are set to expand as the broader economy inevitably responds to the challenges of climate change.

The new Administration appears to be all for lightening the burden of unnecessary regulation for American businesses, while reducing corporate taxes.  Such changes could provide general economic uplift for all US investors.  Rollbacks of more fundamental environmental laws such as the Clean Air and Clean Water Acts would prove more difficult, bolstered as they are by settled law and judicial precedent.  There does not appear to be broad Congressional support for significant legislative shifts of this sort, and unwinding these laws cannot be undertaken by Executive action alone. 

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Navigating the Sustainable Investment Landscape: A New Paper by WRI

A new paper by World Resources Institute finds strong interest and opportunities and key barriers for sustainable investing within the US institutional investor marketplace. 

A survey of over 100 investment professionals shows that institutional investors - including pensions, foundations, universities, and NGOs - are increasingly considering the material importance of environmental, social, and governance (ESG) factors in constructing their portfolios. Stakeholder pressure and economic drivers are making sustainability an issue that long-term investors simply cannot ignore.

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