Colleges and universities whose endowments have embraced environmental, social, and governance investing and have divested fossil fuel holdings are not “sacrificing financial returns” for sustainability, a new report says.
“The bottom line is ESG investing and fossil-free investing have performed as well as or better than traditional approaches at early adopter U.S. colleges and universities,” says Alice DonnaSelva, managing director of the Intentional Endowments Network, which published the report.
The report is likely to fuel the growing appetite for ESG investing that led U.S. funds with a focus on sustainability to attract a record $20.6 billion of new assets last year, according to Morningstar data. Higher ed endowments are sizable and closely watched by institutional investors, with a collective market value of more than $542 billion, according to the U.S. Department of Education.
Colleges and universities are hearing growing calls from students and alumni to divest from fossil fuels and invest in more sustainable industries. In response, more than 500 institutions have committed to carbon neutrality and other sustainable initiatives on their campuses, said Georges Dyer, IEN’s co-founder and executive director, but “misperceptions” about financial performance have hindered efforts to extend these practices to their endowments.
The report profiles sustainable investment initiatives at 11 U.S. colleges and universities, ranging from the California State University system — which has committed to invest $1 billion in clean energy solutions — to smaller institutions including Becker College, one of the first colleges to approve an impact investment policy. While the findings don’t compare performance across all higher ed endowments, it found that each institution met or exceeded its own performance goals — and all but one exceeded benchmarks.
The California State University Foundation’s ESG investments, for example, saw preliminary gains of 75 basis points over their own benchmarks, with fees cut nearly in half — “two very big wins,” said CFO Aaron J. Moore.
These individual findings echo a broader 2019 survey by the National Association of College & University Business Officers (NACUBO), which found no overall performance differences between U.S. educational endowments that employ ESG strategies and those which do not.
“We are confident we can build a portfolio that doesn’t need to sacrifice returns to align with our mission,” added Jeff Mindlin, chief investment officer of the Arizona State University Foundation, which launched a $100 million sustainable impact pool last year that has outperformed its traditional counterparts in ASU’s portfolio.
Large investors outside higher ed are making similar moves. As of last fall, almost 200 foundations with assets totaling $24 billion had committed to divest from fossil fuels and invest in climate change solutions. The DivestInvest initiative estimates the combined assets of organizations and individuals who have made similar pledges at over $12.1 trillion.
These organizations are likely to see similar benefits: a literature review of more than 2,200 academic studies conducted by IEN found that “the business case for ESG investing is empirically very well-founded,” the report said, with 90% of the studies finding it matched or exceeded traditional performance benchmarks.
“The case is clear that such strategies do not require accepting lower returns,” DonnaSelva said. “Further, the case for reducing portfolio climate risk and stranded assets becomes ever stronger as consumer demand, regular trends and market forces push society towards a low-carbon economy.”