Investment in environmental, social and corporate governance by college and university endowments, an investment strategy those institutions pioneered in the 1970s with anti-apartheid campaigns, is less widespread than it may seem, a new study says.
Higher-education endowents, which represent over $400 billion in combined assets under management, also show a “general lack of transparency” in their practices in environmental, social and governance investing, or ESG, says the study, which was commissioned and funded by the Investor Responsibility Research Center Institute and conducted by Tellus Institute.
“Historically, endowments were groundbreaking institutional investors that addressed social and environmental considerations in their investments far earlier than others,” Jon Kukomnik, executive director of the IRRC Institute, says in a statement. “Our findings indicate that today’s endowments no longer are leaders in the institutional ESG investment arena.”
The study, “Environmental, Social and Governance Investing by College and University Endowments in the United States,” is based on an analysis of “sustainable” investing by education endowments, including the aggregation of”multiple survey data sets,” plus new primary research.
The main form of sustainable investing activity by higher-ed endowments tends to remain “single-issue negative screening” of public-equity portfolios such as tobacco or targeted divestment from the Sudan, the study says.
And while a growing number of surveys and reporting mechanisms have emerged in the last 10 years to obtain inforation about sustainable and responsible endowment management, it says, a “widespread lack of independent verification of self-reported data exists” and sustainable investment transparency “remains poor.”
Investment policies by college and university endowments are “remarkably opaque, even at some state-funded universities,” the study says.
The education community also is “largely is absent from the national and global institutional investment networks,” it says.
Not a single higher-education endowment is among the 900 signatories of the United Nations Principles for Responsible Investment, for example, and only one is a member of the Council of Institutional Investors, the leading U.S. association of institutional investors, the study says.
It also finds issues that relate to “confusion about ESG semantics.”
Some colleges and universities “claim to be making sustainable investments when those investments do not meet the standard definitions of such investments,” the study says.
Confusion about the semantics of sustainable investing has resulted in “problematic claims and misclassification of investments,” the study says.
And despite considerable focus on proxy-voting recommendations, an effort that encourages endowments to be more active and engaged shareholders by using their proxy power, many colleges are shifting investments from publicly-traded securities to “indirect investments in commingled vehicles and more opaque, illiquid investments in alternative asset classes,” the study says.
Traditional equity investing, including proxy voting, represents a decreasing portion of many endowments, it says.
“The endowment community exhibits a weak understanding of ESG investing strategies, trends, opportunities, and language,” the study says.
While sustainable investing is not widespread in the higher-ed endowment community, it says, some innovative investing programs could serve as models.
Those include Middlebury College and Dickinson College, which have invested in a Sustainability Investments Initiative that includes clean-tech investments, as well as the Omidyar Tufts Microfinance Fund at Tufts University.
And misperceptions about sustainable investing “open immense learning opportunities for the endowment community,” the study says, “though a much great openness to discussions of sustainable and responsible investing is needed.”
— Todd Cohen