College and university endowment fiduciaries can pursue mission-aligned strategies focused on ESG (environmental, social, and governance) investments without sacrificing financial returns, a new report from the Intentional Endowments Network, a peer-learning group for endowment professionals, argues.
The report, Financial Performance of Sustainable Investing: The State of the Field and Case Studies for Endowments (36 pages, PDF), found that endowment fiduciaries facing pressure to focus on sustainability and divest from fossil fuels increasingly are exploring ESG investments. Based on a literature review and case studies featuring Arizona State University; Becker College; California State University; College of the Atlantic; Hampshire College; North Carolina State University; the Rhode Island School of Design; Unity College; the University of New Hampshire; the University of California System; and Warren Wilson College, the report offers evidence that endowment fiduciaries can implement mission-aligned strategies that take a thoughtful approach to ESG, have a meaningful impact in driving positive change for stakeholders and communities, and maintain or improve investment performance. Indeed, the study points to a growing body of evidence from academics and practitioners supporting the contention that sustainable investing strategies perform as well as or better than more traditional investing approaches.
According to the report, endowments' and foundations' motivations for pursuing sustainable investment strategies include stakeholder calls to do so, a desire to align their investments with their mission, risk reduction, exploring new investment opportunities, and enhancing risk-adjusted returns.
"[T]he demographics and science are clear: our increasing demand on natural systems globally and increasing inequality threaten to undermine the sustainability of our relatively stable and complex global economy," the report's authors conclude. "As the growing body of research shows in aggregate, and individual investors' experiences bear out, the choice to incorporate ESG considerations can contribute to global progress without harming individual performance."
"These first university and college endowment case studies demonstrate that educational institutions can align their investments with their mission and meet or exceed their return and risk objectives," said Intentional Endowments Network managing director Alice DonnaSelva. "All of the eleven institutions have met or exceeded their spending plus inflation performance goals and all but one exceeded their benchmarks over relevant trailing time periods."