Studies have shown that environmental, social and governance investing provides equal or better returns compared with non-ESG funds, but now the Intentional Endowments Network has the track records from 11 colleges and universities that have moved their endowments to ESG, at this point largely focusing on climate change.
The new IEN study, Financial Performance of Sustainable Investing: The State of the Field and Case Studies for Endowments, includes “real studies of college pensions” and investment performance since adopting sustainable investing strategies, said George Dyer, IEN co-founder and executive director, in a news conference, and shows that not only did endowment funds have better performance than their benchmarks, but with lower costs and fees. The case studies also can provide fiduciaries a way to implement “mission-aligned strategies without sacrificing financial returns,” the study stated.
The study included big schools, such the University of California and California State University systems and Arizona State University, as well as smaller schools such as Becker College and College of the Atlantic. All 11 of the schools “have met or exceeded their spending plus inflation performance goals and all but one exceeded their benchmarks over relevant trailing time periods,” said the IEN’s managing director, Alice DonnaSelva.
For example, Aaron J. Moore, CFO of California State University Foundation, stated that when school officials saw student advocacy of climate change action, the foundation began a conversation with Greystone Consulting (part of Morgan Stanley) in 2013, and the five-year discussion focused on several points: 1) what changes made to endowment structure would mean for returns, 2) what products were available, 3) what options were they most interested in pursuing, e.g. ESG or impact, and 4) how values of the foundation aligned with CSU’s.
They decided to focus on ESG investing, he said. Their first and only divestiture was to remove thermal coal-related companies from the portfolio. This, he said, was because they felt more “proactive” in investing rather than continually divesting. They also decided to move the $33 million portfolio in sections, starting with equities and then fixed income. He said alternatives “didn’t have enough choice” in products to make changes. He stated that “preliminary results show us up 75 basis points over the benchmark with related fees cut nearly by half.”
Also moving to ESG is the University of California system, which was the first public university to sign the Principles for Responsible Investment in 2014 and made ESG investing a part of its investment policy in 2018, with a plan to invest $1 billion in clean energy solutions by 2020.