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
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
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.