Op-Ed: Sustainability and the Endowment: Striving for a Positive Net Impact

The concept of sustainability needs little introduction. The word, in its broadest conception, conceives of a movement devoted to pursuing policies and livelihoods that preserve the Earth and its resources. Recently, the push for sustainability has been a motivating force for the nationwide fossil fuel divestment campaign, started by Bill McKibben of 350.org, a cause that the Student Environmental Action Coalition (SEAC) has taken up on our own campus through engaging the UNH Foundation on the issue. The conversation regarding our endowment, however, is not as black-and-white as some spectators may seem to think. 

As students, faculty, administration, alumni and other stakeholders of the UNH community will explore and discuss at the March 4 campus dialogue, “Investing for a Sustainable Future,” it appears that “sustainability” does not have to be pursued solely through divestment; rather, there is a significant and growing activity in the area of sustainable investing, or “ESG Best-in-Class” investing, which incorporates Environmental, Social and Governance factors into investment decisions in an attempt to achieve more accurate valuation. Vitally, it appears to be a false choice to pit sustainable investing against fiduciary responsibility; numerous research studies suggest that there is not financial penalty – and there may even be a premium – associated with ESG investing compared to funds invested without regard to sustainability factors. The exploration of this alternative option to divestment has particularly intrigued a group of students belonging to Net Impact UNH, an emerging student organization.

Net Impact is an international organization that seeks to use the power of business to drive social and environmental change. The UNH chapter was chartered in 2011 by former Carsey Social Innovation Interns to support members’ desires for careers that benefit People and Planet without sacrificing Profit. 

Recently, Net Impact formed the Responsible Endowment Committee to explore whether the UNH endowment could be invested in line with the university’s sustainability values, while also meeting the Foundation Board’s fiduciary duty to maximize return. The Committee has since been commissioned to research the viability of a sustainable investment strategy and, after securing the Foundation’s endorsement, has been working with the Foundation Treasurer to research ESG investing performance, benchmark peer institutions, and interview UNH stakeholders. The Committee then hopes to report its findings to the Foundation Board on June 1 regarding the feasibility of pursuing sustainable investment without the caveat of divestment.

This is not to say that one approach is better than the other. Widespread endowment divestment from the South African apartheid in the 1980s garnered considerable international praise, and many New England colleges have already endorsed some form of divestment from fossil fuels. Most notable is Hampshire College, which, along with UNH, contracts with Prime Buchholz, a Portsmouth-based investment advisor tasked with allocating both schools’ endowment funds in various asset classes. 

The ESG investment industry has likewise seen growth and success over the past few decades. Portsmouth-based investment advisor Pax World Management launched the first such socially responsible mutual fund in 1971 and since then the industry has taken off. Supplementing this growth is the United Nations Principles for Responsible Investment, a pledge by asset managers around the world to integrate ESG factors into their investment decisions. In total, signatories are responsible for managing nearly 10 percent of the world’s investment capital, or nearly $30 trillion. The pledge includes a range of ESG criteria from reducing energy usage and CO₂ emissions to ensuring that a company has strong anti-bribery policies in place. 

When it comes to the UNH endowment, a fundamental priority for its key decision makers is ensuring that they meet their fiduciary responsibility to the university’s donors. A sustainable investment strategy takes such fiduciary concerns into account by not excluding particular sectors from a portfolio and thus maintaining diversification, a traditional tactic for any balanced portfolio. Strategically different from divestment, sustainable investment not only helps mitigate negative externalities through rewarding companies with sustainable business practices, but also, as many studies suggest, can actually reduce regulatory, litigation and reputational risk and increase overall shareholder value. One such Deutsche Bank report found a positive correlation between strong corporate commitment to ESG and lower costs of capital in addition to above-market returns.  Likewise, a recent Merrill Lynch White Paper indicates that overall values-based equity performance can consistently outpace the S&P 500 as is demonstrated by the FTSE4 Good Global, a European stock index comprised of all highly rated ESG securities. Thus, perhaps the Foundation need not sacrifice values for financial performance; ESG investment may have the potential to meet both of these needs. Whichever side of the debate you sit on, Net Impact encourages the UNH community to attend the campus dialogue on March 4 to listen to and discuss all possible solutions to answering this vital question.