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July 19, 2012
College Endowments Lagging in Sustainable Investment
    by Robert Kropp

Once leaders in sustainable investment and shareowner advocacy, college and university endowments now lag behind many mainstream institutions in the uptake of environmental, social, and corporate governance investment criteria.

There was a time when colleges and universities in the US were among the leading institutions in adopting environmental, social, and corporate governance (ESG) criteria in their investments. Their endowments took a leading role in the divestment campaign to end apartheid in South Africa, for instance. The involvement of students in shareowner advocacy was another example.

Today, college and university endowments no longer take leading roles in 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 mainstream institutional investors, whose uptake of ESG investment criteria is growing.

Entitled 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, according to IRRC Institute executive director Jon Lukomnik, "counter intuitive."

"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 endowments no longer are leaders in the institutional ESG investment arena."

College and university endowments control about $400 billion in assets. However, "There is not yet a standardized conceptualization among endowments of sustainable and responsible investment activities that are widely practiced by others actors in the capital markets," the report found. Understanding of sustainable and community investment were particularly lacking.

Moreover, when ESG criteria are applied, endowments most commonly restrict 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.

Endowments also persist in their concentration on proxy-voting recommendations, although, as the report points out, many have shifted their investments from equities to alternative asset classes, where proxy voting is less significant.

Another indication of the failure of endowments to keep up with an increasingly sophisticated industry is the absence among them of signatories to major institutional networks. Not a single endowment is a member of the United Nations' Principles for Responsible Investment (PRI), and only one is a member of the Council of Institutional Investors (CII).

Finally, "transparency of ESG investments remains particularly poor" among endowments, the report found. "Colleges are regularly self-reporting unverifiable data about their ESG investment policies and practices, which upon investigation prove to be overstated."

On the other hand, "Small-scale experimentation is occurring at the margins in areas such as microfinance investment, student-run SRI funds, green revolving loan funds, and shareholder advocacy." Such initiatives are usually undertaken, the report observed, as a result of the diverse groups of stakeholders to which endowments must answer.

A webinar at which the report's findings will be discussed is scheduled for July 25th.


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