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Whereas the previous few years have upended enterprise as traditional for establishments of upper schooling, the 2021 fiscal 12 months noticed the median endowment return 36.8 p.c — a stellar 12 months, at the very least per the slender measure of ROI.
For a way of scale, the 30 largest U.S. college endowments personal roughly $291 billion in whole belongings. That determine sits nearly midway between the whole belongings of CalPERS and CalSTRS, the 2 largest public pension schemes within the U.S. And it begs the query: How are these college endowment belongings being put to work to construct the sustainable society and financial system that their principals — present and future college students and college — will thrive in?
In public discourse, we most frequently see particulars about college endowments cross our radar when requires fossil fuels divestment develop loud sufficient from the scholar physique, though the efficacy of such an strategy is doubtful. And that’s coming from the vantage level of your author, who labored on UC Berkeley’s Fossil Free divestment marketing campaign a couple of decade in the past.
However there’s rather more to this dialog than the perennial “to divest or to interact” query. And when speaking about the way forward for sustainable finance, scale issues. Contemplate Harvard Administration Firm (HMC), the biggest educational endowment on the earth valued at $53.2 billion as of June. It noticed a $10 billion improve in fiscal 12 months 2021 and its whole worth is about $10 billion forward of Yale College’s endowment, the subsequent largest on the earth.
I checked in with Samantha McCafferty, director, sustainable investing at HMC, the place she’s been since 2011, to be taught extra in regards to the intersection of crimson and inexperienced at Harvard, and to dig deeper into the influential asset proprietor’s Sustainable Investing Coverage and broader strategy to ESG.
Learn on to learn the way HMC is navigating the net-zero transition. If there’s a voice within the sustainable finance and ESG investing area you’d wish to see amplified in The GreenFin Interview, recommend to me at [email protected].
Grant Harrison: You’re employed on compliance and sustainable investing on the Harvard Administration Firm (HMC), which manages Harvard’s endowment. What are you centered on in your day-to-day position, particularly because it pertains to the latter half of your title?
Samantha McCafferty: In my position at HMC, I assist the three parts of HMC’s sustainable investing program: ESG integration, the net-zero pledge and the prioritization of range, fairness and inclusion (DEI). Though associated, these initiatives are distinct and contain totally different initiatives and knowledge, so every day appears to be like totally different. A few of my obligations embody participating with corporations, working with knowledge suppliers, collaborating with different traders and supporting the work of a pair of college shareholder duty committees.
Harrison: One pillar of HMC’s three-pillared strategy to sustainable investing is ESG integration. Your Sustainable Investing Coverage states, “Related ESG components are those who HMC determines, in its sole discretion, have, or have the potential to have, a fabric impression on the monetary efficiency of an funding.” Might you inform us extra about what this dedication course of appears to be like like?
McCafferty: HMC takes a case-by-case strategy to evaluating ESG components in its funding decision-making course of. As a result of HMC primarily invests by exterior managers, we rely on our managers’ experience to determine related ESG components that would have a fabric impression on the monetary efficiency of the belongings they handle. HMC’s funding employees assesses exterior managers on a number of components, together with a supervisor’s strategy to ESG integration and willingness to interact in an ongoing dialogue on sustainability. HMC’s Sustainable Investing crew helps the funding crew, as wanted, in proactive discussions with managers and in responding to ESG-related issues as they come up.
We’re keenly conscious essentially the most materials long-term reductions in portfolio emissions will doubtless come from modifications in the true financial system. Technological enhancements, innovation and regulation will decide the emissions trajectories of many underlying belongings.
In our partnership with exterior managers, one space of explicit focus for HMC is elevating and prioritizing finest practices in DEI throughout the monetary trade. HMC believes that companies should appeal to and retain one of the best expertise from the broadest pool potential. Since we expect numerous groups make higher selections, we take significantly DEI as an necessary challenge at each the supervisor stage and of their portfolio corporations. HMC has been participating in broad outreach to our U.S. managers by standalone conversations relating to their strategy to DEI.
Harrison: HMC’s Sustainable Investing Coverage features a give attention to stewardship, stating, “Considerate engagement is an efficient technique of … encouraging corporations to enhance their ESG efficiency, thereby enhancing the worth of the funding.” How does this engagement take form in no matter element you’ll be able to share?
McCafferty: HMC primarily engages with corporations by collaborative engagements with different traders. Many of the endowment is invested by externally managed commingled funds, that means HMC isn’t a direct shareholder in lots of corporations. This makes collaborative engagements the simplest method for HMC to interact with the true financial system.
HMC has met with corporations on a number of subjects, together with methane emission-reducing practices, net-zero methods, firm reporting and alignment with established requirements such because the TCFD [Task Force on Climate-related Financial Disclosures] and company climate-related governance.
As a collaborating investor in Local weather Motion 100+, we take part in firm engagements with vitality and utility corporations. HMC participates within the CDP’s annual Non-Disclosure Marketing campaign, which immediately engages with high-impact corporations to enhance reporting associated to local weather change, forests and water safety. We additionally participated within the 2021 CDP Science-Based mostly Targets marketing campaign and [Sustainability Accounting Standards Board] investor-company dialogues.
In June, HMC submitted a letter in response to the Safety and Change Fee’s request for public touch upon local weather disclosures encouraging the SEC to undertake a principles-based strategy to local weather change-related disclosures. Extra lately, we submitted feedback to the Environmental Safety Company in assist of sturdy methane regulation.
Harrison: HMC launched its 2022 Local weather Report final week — what on this 12 months’s report stands out that you simply’d like to spotlight?
McCafferty: Since Harvard College introduced the net-zero pledge in April 2020, HMC has put important effort and assets in direction of setting the endowment on a path to attain net-zero GHG by 2050.
I believe a number of the major highlights of the report embody each the place now we have been profitable and the place we nonetheless have work to do. Now we have made substantial progress in our plans for HMC’s operations to attain carbon neutrality for fiscal 12 months 2022 and in our funding exercise centered on local weather transition.
HMC’s funding employees assesses exterior managers on a number of components, together with a supervisor’s strategy to ESG integration and willingness to interact in an ongoing dialogue on sustainability.
The report additionally highlights the vital want for emissions-related knowledge from our exterior managers and for the event of trade carbon accounting requirements for various funding methods.
Harrison: The third pillar of HMC’s sustainable investing technique is to make the endowment portfolio net-zero by 2050 — a primary for U.S. larger schooling endowment. Are you able to share extra about HMC’s net-zero journey so far, and what you see on the horizon, each alternatives and pace bumps?
McCafferty: We began off our net-zero journey by talking with different traders who made related commitments and exterior managers relating to their local weather knowledge, reviewing supplies developed by the handful of net-zero alliances, and researching current carbon accounting requirements for funding portfolios. We fastidiously examined out there emissions knowledge and metrics and partnered with a number one knowledge aggregator.
HMC has set the endowment on a path to web zero. First steps included creating a method to put money into, and speed up, the local weather transition. On the similar time, avoiding direct funding in fossil fuels and any new funding in personal fairness funds centered on exploration and manufacturing. We’ve been inspired to look at the growth of current high-quality managers into local weather associated funding exercise. Such exercise validates the rising alternative in local weather transition investing.
As we make HMC’s operations carbon impartial, now we have gained extra perception and data into emissions calculations and understanding the marketplace for offsets, significantly for prime quality carbon elimination. We can draw from this expertise in our work to decarbonize the endowment portfolio.
The important thing challenges we face in calculating endowment portfolio emissions, establishing a baseline and setting targets are knowledge entry and nascent carbon accounting methodologies for funding portfolios. We’re working with our exterior managers and knowledge suppliers to deal with each these two challenges.
Lastly, I might word we’re keenly conscious essentially the most materials long-term reductions in portfolio emissions will doubtless come from modifications in the true financial system. Technological enhancements, innovation and regulation will decide the emissions trajectories of many underlying belongings. That is the place collaborative engagements, resembling Local weather Motion 100+, and funding in transformative applied sciences will play a key half in reaching the net-zero aim.