College endowments lose top grades in sustainable investments
By Robert Kropp, GreenBiz.com, July 23, 2012
“College and university endowments no longer lead the practice of sustainable investment. In fact, as a new report from the IRRC Institute and the Tellus Institute points out, many if not most endowments now lag behind the mainstream institutional investors, whose uptake of environmental, social, and corporate governance (ESG) investment criteria is growing.
Titled “Environmental, Social and Governance Investing by College and University Endowments in the United States: Social Responsibility, Sustainability, and Stakeholder Relations,” the report presents findings that are ‘counterintuitive,’ according to the IRRC Institute executive director Jon Lukomnik.
‘Historically, endowments were groundbreaking institutional investors that addressed social and environmental considerations in their investments far earlier than others,’ Lukomnik said. ‘Our findings indicate that today’s endowment no longer are leaders in the institutional ESG investment arena.’
College and university endowments control about $400 billion in assets. However, the report found that a widely practiced and standardized conceptualization among endowments of sustainable and responsible investments was lacking. An understanding of sustainable and community investments was also missing.
Moreover, when ESG criteria were applied, endowments most commonly restricted them to ‘single-issue negative screening of public-equity portfolios,’ instead of adopting the positive, or best-in-class, screening of corporations that is increasingly the strategy of choice among sustainable investors, the report found.
Endowments also persist in their concentration on proxy-voting recommendations, although, as the report points out, many have shifted their investments from equitities to alternative asset classes where proxy voting is less significant.
There was a time when colleges and universities in the U.S. were among the leading institutions in adopting ESG criteria in their investments. For instance, their endowments took a leading role in the divestment campaign to end apartheid in South Africa. The involvement of students in shareowner advocacy is another example.
Another indication of the failure of endowments to keep up with an increasingly sophisticated industry is the absence of these institutions as signatories to major institutional networks. Not a single endowment is a member of the United Nations’ Principles of Responsible Investment (PRI), and only one is a member of the Council of Institutional Investors (CII).
The report also found that endowments’ transparency among ESG investments remained ‘paricularly poor.’
‘Colleges are regularly self-reporting unverifiable data about their ESG investment policies and practices, which upon investigation prove to be overstated,’ the report concluded.”
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