A Look At Endowments And Responsible Investing

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The April 2015 Commonfund Study of Responsible Investing analyzes policies, practices and attitudes with respect to responsible investing among 200 U.S. colleges and universities of various sizes. The study included 123 private and 77 public institutions who have made a commitment or are considering a commitment to responsible investing. These educational institutions altogether have more than $88.8 billion in endowment assets as of June 30, 2014.

Understanding responsible investing

The idea of responsible investing has been around for quite a while, but the concept has evolved over time. Responsible investing in the 21st century is typically divided into four categories:

  1. Socially responsible investing (SRI) is a portfolio construction process that looks to avoid investments in stocks or industries using negative screening based on defined ethical guidelines.
  2. Environmental, social and governance (ESG) investing is an investment practice integrating the three ESG factors into fundamental investment analysis as much as they are material to investment performance.
  3. Impact investing is investing in projects, companies, funds or organizations to produce mission-related social, environmental or economic change as well as financial return.
  4. Divestment of fossil fuels is a screening strategy where investors exclude companies involved in fossil fuels from their investment portfolio.

Responsible Investing

Responsible investor “adopters” and “nonadopters”

Among the 200 participating institutions, 53 (26.5%) replied to the survey that they currently have an investment policy statement that refers to at least one of the four responsible investing practices discussed above. This group is referred to as the adopters of responsible investing. The remaining 147 schools are nonadopters or “institutions which, while they do not currently engage in any of the four practices, may have policies and procedures in place that relate to responsible investing, may have views on the topic, or may be considering future changes to their portfolio.”

Of note, slightly more than half of the adopters are faith-based institutions.

Responsible Investing

Details on 2015 Commonfund study

Among the 96% of study respondents who reported that they have a written investment policy statement, just 28% have policy statements that directly refer to one of the four responsible investing practices. Around 69% of this group (and 94% of non-adopters) said that their policy neither permits nor refers to one of the four responsible investing practices.

Forty participating institutions (and around three-quarters of the adopter group) reported using SRI screens. Close to 65% of this group are faith-based institutions. Among those who applied SRI principles, an average of 41% of endowment assets were screened.

Responsible Investing

A set of 17 adopters (8.5 percent of total study participants and one-third of the adopter group) said they integrated ESG factors into their investment decisions.

Finally, low rates of adoption with respect to impact investing and fossil fuel divestment were found in the Commonfund survey. In specific, impact investing was used by only five institutions (three private and two public) totaling only around 2.5% of total respondents and 9.4% of adopters.

See full report below.

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