Increasing interest in investing with environmental and social considerations
The 2020 Sustainable, Responsible and Impact Investing Trends report by US SIF: The Forum for Sustainable and Responsible Investment found $17 trillion in US assets were invested with consideration of environmental, social and governance (ESG) issues in investment research, analysis and decision-making or with an active ownership strategy through shareholder engagement. This means that 1 in 3 dollars of the total US assets under professional management are using one or more of these strategies. Out of $12 trillion, US SIF found that educational institutions held $378 billion in assets which were subject to various ESG criteria. An increase of 19% from the $317 billion in 2018. These assets represent portfolios considering ESG issues in their investment research, analysis and decision making in addition to the assets represented by institutions that filed or co-filed shareholder resolution on ESG issues.
In 2020, climate change and carbon emissions were the leading ESG criteria. Conflict risk followed, which had been the top issue from 2010-2018. After conflict risk, the most prevalent social issue considered by educational institutions were human rights and equal employment opportunity and diversity. Consideration of sustainable natural resources and agriculture was also identified in the top five.
The 2020 NACUBO-TIAA Study of Endowments found that out of the 705 U.S. higher education endowments surveyed, 12-19% had incorporated ESG criteria in portfolio construction across asset classes. Endowments are most likely to integrate these criteria in their public equity portfolios.
Another key finding from the NACUBO 2020 report is that nearly two thirds of large endowments factor environmental, social and governance criteria into their investment manager due diligence and selection process. Other sustainable investing actions such as including ESG in the investment policy statement, having a chief sustainability officer, having a proxy voting committee, and participating in a ESG network have all increased since 2019.
IEN's own tracking of the field also found that as of August 2021:
- 102 US colleges and public university systems have an investment policy statement language addressing environmental, social, and governance considerations. Read more.
- 69 colleges and public university systems have signed on to at least one major commitment on sustainable investing, with most focusing on climate action including 18 in the US and 51 internationally. These commitments include the Principles of Responsible Investment (PRI), CDP, Ceres Investor Network on Climate Risk and Sustainability, Montreal Pledge and the Fossil Free Declaration organized by People & Planet in the UK.
- 99 US colleges and public university systems have established committees on investor responsibility. Read more.
- 206 colleges and public university systems have partially or fully divested from fossil fuels, private prisons and other harmful sectors including 79 in the US and 127 internationally. Read more.
- 11 colleges and public university systems have committed to net zero portfolios including 6 in the US and 5 internationally. A commitment to Net Zero means committing to transition the investment portfolio to net-zero GHG emissions by 2050. Read more.
Other Key Issues and Trends
- Investing in Diverse Managers: According to the 2020 NACUBO-TIAA report, only 6% of the 700+ institutions surveyed had a diversity and inclusion policy for hiring managers and largest endowments were more likely to have diverse managers in their portfolios. Read more about allocating to diverse managers.
- Shareholder Activism: The recent NACUBO report showed that endowments have not been exercising their rights as shareholders to engage businesses on sustainability concerns. In 2018, only 8–10% of the 802 higher education institutions surveyed answered that their managers vote proxies consistent with their sustainable investing policies. Read more about becoming an active shareholder.
- Community Investing: Higher education institutions also play a critical role in local economic development and are increasingly being asked to better serve and engage with their home communities. Currently, a very small percentage of educational institutions use their endowments to invest in their own campuses and surrounding communities. However, in the past few years, we have seen more examples of institutions investing in Community Development Financial Institutions (CDFIs) which are private financial institutions that increase access to financial services for low-income people and communities and offer endowments cash or fixed-income-like investments. Read more about investing in the community.