Creating an Intentionally Designed Endowment
Leaders from nearly 100 organizations gather to discuss strategies to reduce risk and increase returns while aligning endowment portfolio investing practices with organizational mission.
Over the past fifteen years, sustainability has increasingly become a strategic imperative for all organizations. On a crowded planet with complex challenges ranging from resource scarcity to climate change and income inequality to political unrest, there are a myriad of risks and opportunities that affect all aspects of an entity’s activities. Increasingly, endowed tax-exempt organizations are realizing that these dynamics extend to their investment portfolios.
On April 3-4, 2014, Second Nature and Hampshire College convened a group of high-level stakeholders to explore a wide variety of approaches to aligning higher education and foundation endowment investment portfolios with their institutional mission and environmental, social, and governance (ESG) goals. The report from the Intentionally Designed Endowment conference is now available. It captures the event outcomes and opportunities for moving forward:
The event offered a highly interactive format with experts in investment management, fiduciary responsibility, sustainability, and organizational change leadership. The gathering came at a critical time to support constructive processes at colleges and universities, foundations, and other non-profit endowed institutions in taking a holistic approach to sustainability investing. While the fossil fuel divestment movement has driven much of the increased focus on endowment investment practices, and many attendees had a specific interest in addressing climate change, this was not a divestment conference.
“Sustainability is the defining challenge of the 21st century, because it encompasses how we will avoid a catastrophic collapse of global civilization and provide a decent standard of living for everyone now and in the future,” said Dr. Anthony Cortese, Founder and Senior Fellow at Second Nature, and co-chair of the conference Steering Committee. “The impact of how the $450 billion in endowment funds of the nation’s higher education institutions is invested will be far larger than the actual dollar amount suggests. Society looks to higher education to solve current problems, anticipate future challenges, be thought leaders, develop innovative solutions, and model the action that we all must take to evolve in a positive direction.”
Major conclusions from the event included:
- Aligning investment policies with institutional mission and values is allowable within trustees’ fiduciary responsibility, and taking ESG risks into account may increasingly become a requirement of that fiduciary responsibility.
- There is a growing body of evidence that shows ESG strategies do not require accepting a lower rate of return on investments, and can help reduce risk.
- There is a need to help key decision makers in higher education, foundations, and other non-profit organizations become more knowledgeable about the role of endowments in fulfilling their missions and to improve their ability for productive dialogue on these issues.
Jonathan Lash, President of Hampshire College and co-chair for the conference Steering Committee said: “Climate change is an existential threat. Warming is creating physical and political risks, and future economic risks that markets have not yet priced. We are speeding down a path to catastrophic warming that will create massive suffering and foreclose options for future generations—for the very students we are educating. If we—institutions of learning—ignore urgent material evidence of risk of such magnitude, we surely send a powerful message to our students about how we perceive, and how we balance, present comfort against future survival. Changing investment policies is not the only way to respond to the threat of climate change, not even the most important, but I find it strange that many institutions make significant investments to reduce emissions, but have concluded that adjusting investment policy is off limits and should not even be considered.”
The report highlights that there was strong demand from participants to continue the conversation started at this event. Attendees also made specific commitments to action – both in terms of steps they will take at their own organizations and ways in which they will contribute to a collective effort.
By bringing together key stakeholders from a variety of sectors – including family foundations, colleges and universities, investment firms, non-profits, business, and government – an emerging network from this event has the catalytic potential to overcome some of the most persistent barriers and myths related to sustainable investing.
The momentum from this initial engagement will be built upon in the coming months. The network will expand to engage many more institutions, foster connections, host conversations, and provide key resources to support tangible and meaningful progress to help endowments explore opportunities for reducing risk and increasing returns through sustainable investing practices.
About the conference & organizing partners: The genesis of this conference stems from efforts Hampshire College and Second Nature have been helping to lead for many years to create a healthy, just, and sustainable society. Second Nature works to transform the higher education so that sustainability becomes a central goal – helping to advance new approaches to education, research, operations, and community service. It supports the American College & University Presidents’ Climate Commitment (www.ACUPCC.org) –a publicly transparent and accountable commitment by 682 colleges and universities in all 50 states and D.C. to become climate neutral in their operations and provide the education, research, and community engagement needed for the rest of society to do the same. Hampshire College has long been a leader with aligning investment practices with institutional values. The combination of the climate crisis and the student divestment movement has brought issues related to environmental, social, and governance (ESG) factors in investment practices to the fore. As a result, Hampshire and Second Nature were fielding questions from college, university, and other non-profit organization leaders about how to respond to these challenges. The conference was held in response to facilitate peer-to-peer learning and access to expert knowledge – both in terms of sustainable investing, and effectively engaging stakeholders and leading organizational change.