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More colleges investing with impact

Endowments supporting sustainability without sacrificing returns
University Business, August 2015
A biomass plant opened on Middlebury’s campus in 2009, marking a significant step toward the college’s pledge to become carbon neutral by 2016.
A biomass plant opened on Middlebury’s campus in 2009, marking a significant step toward the college’s pledge to become carbon neutral by 2016.

Fossil fuel and private prison divestment may make the biggest headlines when it comes to how colleges invest endowment funds—but it’s not actually that common a practice.

A growing number of colleges and universities now seek bigger impacts—and substantial financial returns—with a strategy known as “ESG.” Schools invest in companies that match the institution’s ideals about Environmental issues, Social responsibility and corporate Governance, according to a first-of-its-kind report released this spring by Commonfund, NACUBO and the Association of Governing Boards of Universities and Colleges.

“With ESG, you don’t have to give up any returns,” says William Jarvis, managing director of the Commonfund Institute. “ESG is about inclusiveness, about finding best-in-class companies that can be completely aligned with your traditional portfolio—and studies seem to show performance can be the same or better.”

Some 17 of the 200 institutions surveyed in a Commonfund Institute study released earlier this year practice some form of ESG. Yet only three schools reported divesting from fossil fuels.

A leading example of an ESG investor is Vermont’s Middlebury College, which began its sustainable investment initiative in 2010. The ESG portion of Middlebury’s $1.1 billion endowment has increased from $8 million to $50 million since 2015. The goal: Generate long-term environmental, social and economic value, says Patrick Norton, Middlebury’s treasurer and vice president for finance.

Without mentioning specific companies, Norton says Middlebury has invested in clean energy and clean water ventures. The college has also given $150,000 of its endowment to a student club that invests in sustainable initiatives. The club hasn’t lost any money so far, Norton adds.

“We’re not just filling a bucket full of sustainable investments and letting the chips fall where they may,” Norton says. “All of those investments go through strict due diligence because they have to be high-quality companies. We didn’t want to sacrifice returns.”

That returns concern and a lack of reliable guidance are the main reasons institutions hesitate on these kinds of investments, says Jarvis.

About one quarter of colleges and universities studied by Commonfund said they practiced some form of responsible investing, and nearly 80 percent of those schools are private. Many faith-based institutions continue to practice “socially responsible investment,” in which they exclude certain investments based on moral or ethical standards.

Responsible investment and divestment may have a bigger impact on enrollment in years to come.

“Millennials are demanding that their managers and consultants develop investment strategies for them that incorporate people and planet,” says Marcie Smith, executive director of the Responsible Endowments Coalition, an organization that guides institutions in making investments that promote sustainability, equity and human rights.

“You can make a good bet that the idea that you can better align your investments with your values or your politics isn’t going away,” she says. “The pressure to consider the social, environmental and economic impact of one’s investments is only growing.”

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