July 30, 2012

Colleges No Longer in Vanguard of Social Investing

Study finds endowments absent from national and global investment networks

Going back to anti-apartheid campaigns in the 1970s and before, university endowments were early adopters of new policies and institutions to address social and environmental considerations in investment.

But at a time when mainstream investors are incorporating environmental, social and corporate governance factors into their allocation decisions, college and university endowments are no longer leaders in the institutional ESG investment space, according to a new study by the Investor Responsibility Research Center Institute and Tellus Institute, nonprofit organizations that research such investments.

“Our findings indicate that today’s endowments no longer are leaders in the institutional ESG investment arena,” Jon Lukomnik, the IRRC Institute’s executive director, said in a statement.

The report found that endowments’ primary form of ESG investing activity tends still to be single-issue negative screening of public-equity portfolios related to issues such as tobacco or targeted divestment from the Sudan.

The study also found that despite considerable focus on proxy-voting recommendations, many colleges are shifting investments from publicly traded securities to indirect investments in commingled vehicles and more illiquid investments in alternative asset classes.

As a result, traditional equity investing, including proxy voting, is a decreasing portion of many endowments, with endowments giving little consideration to ESG issues in non-public equity asset classes.

Researchers said that although many surveys and reporting mechanisms have emerged to gather information about sustainable and responsible endowment management, there is a widespread lack of independent verification of self-reported data.

Moreover, confusion exists about the semantics of ESG investing, resulting in problematic claims and misclassification of investments. Some colleges and universities claim to be making sustainable investments when those investments do not meet the standard definitions of such investments.

And despite the proliferation of surveys, ESG investment transparency remains poor. “Investment policies are remarkably opaque, even at some state-funded universities,” Lukomnik said.

He also noted that the educational community is largely absent from national and global institutional investment networks. “For example, not a single endowment is amongst the 900 signatories of the United Nations Principles for Responsible Investment, and only one is a member of the Council of Institutional Investors, the leading U.S. association of institutional investors,” he said.

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