IEN REPORT: ESG INVESTING PERFORMS “AS WELL OR BETTER” THAN TRADITIONAL APPROACHES AT EARLY-ADOPTER U.S. COLLEGE, UNIVERSITY ENDOWMENTS
“Investing in ESG Pays Financially”: Based on 11 Institutional Track Records Ranging from 2012-Date, Intentional Endowments Network Finds Preliminary Results that Debunk Myth About ESG Performance
ANDOVER, MA. – February 19, 2020 – Is environmental, social and governance (ESG) investing a good or bad thing for the bottom lines of U.S. college and university endowments? A major new report from the Intentional Endowments Network (IEN) looks at nearly a dozen higher education institutions that are early adopters of ESG, fossil fuel divestment or other sustainable investment strategies and finds that fiduciaries are proceeding “without sacrificing financial returns.”
While some schools have had strategies in place for seven or more years, others cited in the IEN report are more recent adopters of ESG investing, which means that longer-term data will provide a clearer picture.
The IEN report, which is titled “Financial Performance of Sustainable Investing: The State of the Field and Case Studies for Endowments,” notes: “These case studies are not intended to be a comprehensive review, nor provide the definitive last word on this important area of study. But for endowment fiduciaries asking whether they can implement mission-aligned strategies without sacrificing financial returns, these examples demonstrate that it is possible to take a thoughtful approach to ESG factors, have a meaningful impact in driving positive change for institutions’ stakeholders and communities, and maintain or improve investment performance.”
The 11 schools reviewed in the IEN report are: Arizona State University, Tempe, AZ (with BlackRock); Becker College, Worcester, MA (with HIP Investor); California State University, Long Beach, CA (with Graystone Consulting); College of the Atlantic, Bar Harbor, ME (with Cambridge Associates); Hampshire College, Amherst, MA (with Prime Buchholz); North Carolina State University, Raleigh, NC; Rhode Island School of Design, Providence, RI (with Global Endowment Management); Unity College, Unity, ME (with Spinnaker Trust); University of New Hampshire, Durham, NH; University of California, Oakland, CA; and Warren Wilson College, Swananoa, NC.
The IEN report also reviews overall research about ESG investing performance. It cites one analysis based on a review of 2,200 academic studies that concluded “the business case for ESG investing is empirically very well founded,” with 90 percent of the studies finding ESG investing matched or exceeded traditional performance benchmarks.
Report co-author Georges Dyer, cofounder and executive director, IEN, said: “For the first time, we have a collection of real-world cases of college and university endowments implementing sustainable investing strategies and meeting their financial performance targets. This is what university and college endowment professionals need to see in order to proceed with confidence. It shows endowments large and small can invest for a low-carbon, sustainable future, in ways that reduce risk, enhance returns, and protect their reputations.”
Jeff Mindlin, chief investment officer, Arizona State University Foundation, said: “Arizona State University remains committed to taking a leadership role in addressing issues that pose a threat to our global community. The creation of this new Sustainable, Responsible, and Impact investment pool is another illustration of our commitment to that effort. While it’s been too short a timeframe to draw significant investment conclusions, we are encouraged by the initial outperformance of our Environmental, Social, and Governance strategies compared to their traditional counterparts, as well as the growing sophistication and availability of products in this space that allow us to build a portfolio that doesn’t need to sacrifice returns in order to align with our mission.”
Aaron J. Moore, CFO, California State University Foundation said: “We examined options for our endowment for several years and an ESG mandate best allowed us to align our investments with the university’s values without sacrificing returns. Preliminary results show us up 75 basis points over the benchmark with related fees cut nearly in half.”
Alice DonnaSelva, managing director, Intentional Endowments Network, said: “These first university and college endowment case studies demonstrate that educational institutions can align their investments with their mission and meet or exceed their return and risk objectives. All of the 11 institutions have met or exceeded their spending plus inflation performance goals and all but one exceeded their benchmarks over relevant trailing time periods.”
The following are three higher education endowment case studies cited in the report:
- Arizona State University: The ASU Foundation established a $100 million Sustainable, Responsible, and Impact investment pool in July 2019, which has outperformed non-ESG-oriented strategies since its launch.
- North Carolina State University: In 2012, NC State received a gift commitment of $50 million with the stipulation that it be invested in a "socially responsible fashion." The NC State investment team established an ESG investing strategy in a parallel fund through the NC State Foundation, which has outperformed both its benchmark, and the university’s larger endowment fund.
- University of California: The UC system was the first public university to sign the Principles for Responsible Investment in 2014, explicitly made ESG considerations part of its Investment Policy in 2018, set a 5-year goal to invest $1 billion in clean energy solutions by 2020, and announced in 2019 a commitment to “fossil fuel free” investing. 1-, 3-, and 5-year returns have outperformed its benchmarks.
And what about endowments grappling specifically with fossil fuel divestment?
As the report notes: “For many endowments, stakeholder calls for fossil fuel divestment have been a driving motivation for exploring sustainable investing strategies. As more investors commit to fossil fuel-free investing, and analysts continue to research these strategies and conduct back-tests, the case is clear that such strategies do not require accepting lower returns. Further, the case for reducing portfolio climate risk and stranded asset risk becomes ever stronger as consumer demands, regulatory trends, and market forces push society towards a low-carbon economy.”
The Intentional Endowments Network is a peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy. IEN has more than 165 network members including endowments, asset managers, investment consultants, nonprofit partners and individuals. www.intentionalendowments.org
CONTACT: Max Karlin, (703) 276-3255 and [email protected].
EDITOR’S NOTE: A streaming audio recording of the IEN news event is available here.