Debate continues about whether responsible investing practices give up potential investment return and are therefore inconsistent with college trustees’ fiduciary responsibilities.
College endowments were early adopters of addresing social and environmental concerns through their investments, but have fallen out of the vanguard in recent years. Only about a quarter of endowments in a recent Commonfund Institute study said they practiced responsible investing. Fifteen percent of the respondents said fiduciary concerns were an impediment to more socially conscious strategies.
The study, released Friday, investigated policies, practices and attitudes with respect to responsible investing among 200 U.S. colleges and universities.
That sample made up 24% of the participants in the 2014 NACUBO-Commonfund Study of Endowments. The respondents comprised 123 private and 77 public institutions with a total of $89 billion in endowment assets as of June 30, 2014.
Commonfund said that in the absence of a completely standardized vocabulary of responsible investing, it had included participants that engaged in one of the following practices for purposes of the study:
- Socially responsible investing (SRI), which strives to avoid investments in certain stocks or industries through negative screens
- Environmental, social and governance investing, which involves integrating the three ESG factors into fundamental investment analysis
- Impact investing, whose goal is generating and measuring mission-related social, environmental or economic change alongside financial return
- Divestment of fossil fuels, an exclusionary screen strategy
Of the 200 institutions in the study, 53 were “adopters” of responsible investing practices.
The rest were “non-adopters.” They did not currently engage in any of the four practices, but may have had policies and procedures in place that related to responsible investing, or had views on the topic or were considering future changes to their portfolio.
Commonfund said these proportions of adopters versus non-adopters — 26.5% vs. 73.5% — may be indicative of the current state of responsible investing.
SRI was the most commonly used approach to responsible investing covered by the study, and ESG was a significant but distant second.
Use of impact investing and fossil fuel divestment among the institutions studied was negligible. Only five institutions engaged in the former and two in the latter.
The adopter group in the study contained proportionately more private than public institutions. Of the 53 adopter institutions, 42 were private and 11 were public. Among the 147 non-adopters, 81 were private and 66 were public.
Slightly more than half of the adopters — primarily those using SRI screens — were identifiable as faith-based institutions.
For many faith-based entities, fiduciary duty was balanced against, or redefined to include, the moral and ethical values that the institution sought to advance.
Investment Committees’ Understanding