Promoting Socially Responsible Investment and Transparency
By: Joseph Allen, Research Assistant
Money is undoubtedly a tool of promotion – a necessary factor in effectively advancing a cause or change. Institutional endowments facilitate a unique discussion of this concept. The Michigan State University Center for Community and Economic Development (CCED) is currently participating in a fact-finding mission to understand how the university is enacting its strategic goals for sustainability and equity through endowment investment.
Michigan State University’s collective endowment, the Common Investment Fund (CIF), has an estimated value of just over $4 billion as of September 2021. This value is derived from the university’s many investments in private equities, global equities, hedge funds, and real assets. The purpose of investing endowment funds, as received through students and others, is to maintain and build their value. The generated income is partially used by the university to support the donor’s gifting intent (e.g., a scholarship), while the rest is reinvested to promote growth and protect against inflation. The official Investment Policy, as adopted by the MSU Board of Trustees, states that the investments made should “exhibit social conscience.” While this conscience is not explicitly defined in that policy, the MSU Strategic Plan states an intention to “develop and implement a long-term, comprehensive financial model and budget process that aligns resources with strategic priorities.” Achieving climate neutrality by 2050 and investment in Diversity, Equity, and Inclusion (DEI) efforts are two such goals outlined in the same plan.
The Current Push for Sustainable Investment
The methods for advancing the mission of educational institutions’ own social goals are not limited to divestment, or a withdrawal from poor investments that reflect negatively on the general social conscience of an institution. Policies can direct positive investment into diverse, return-generating fields that advance tenets of sustainability and community stewardship. Fostering socially responsible investment requires a framework of environmental, social, and governance (ESG) issues to be defined, in order to align values within the institution. Value-driven investments interpret long-term risk differently than other models by viewing ESG issues as components of market risk; for instance, energy-related investments may seek to reduce emissions due to the forecasted impact of greenhouse gases and global warming on future economic trends. The ongoing divestment from Russian companies in wake of the Ukraine invasion also represents how social risk can be impactful to investment. According to a 2021 endowment assessment conducted by the National Association of College and University Business Officers (NACUBO) and the Teachers Insurance and Annuity Association of America (TIAA), around 80% of college and university endowments have added ESG values into their investment policy. There is also growing confidence that socially responsible investing can outperform basic market returns and maintain the interest of students and stakeholders who share those reflected values.
The transparency of endowment investment is critical to understanding how values are incorporated. The Association for the Advancement of Sustainability in Higher Education, or AASHE, oversees a program known as the Sustainability Tracking, Assessment & Rating System™ (STARS), which allows colleges and universities to self-report on how many different facets of their operations have ensured sustainable practices are being upheld. MSU has achieved a Gold rating through this system, which is the second-highest tier; however, the university’s report includes no information on sustainable investment practices. Many platinum-rated institutions – the highest tier – such as Arizona State University, University of California Berkeley, and the University of New Hampshire have submitted information that demonstrates the increasingly common practice of value-driven investment. These universities have created separate endowment pools specifically targeted for investment in ESG frameworks which have been adopted by the governing financial bodies. Another common practice is some form of review or report regarding the conformance of investment practices with the universities’ values and the performance of ESG investments individually.
The Effort to Understand MSU Policy
In November of 2021, the University Council passed a resolution asking the MSU Board of Trustees “to create an investment task force to recommend… an endowment investment strategy that will align MSU’s endowment holdings with our social, economic, and environmental values as articulated in the MSU Strategic Plan.” The Board chose not to appoint this committee; as a result, the Ad Hoc University Sustainable Investment Working Group was formed. This group is made up of faculty, students, and community members that are interested in promoting socially responsible investment at MSU. The Working Group’s purpose so far has been to embark on a fact-finding mission both internally, as to Michigan State’s current investment policy and practices, and externally, to better understand the policy and practices of peer universities across the country.
The Ad Hoc Working Group is facilitated by the MSU Center for Community and Economic Development (CCED) Director, Dr. Rex LaMore. Other members from CCED include Associate Director John Melcher; Senior Research Assistant Emma Gilbert; and Research Assistant Joey Allen.
The Working Group developed a questionnaire to better understand how and where Michigan State invests its endowment funds, as well as the criteria used to define “social conscience.” On April 22nd, at the Board of Trustees meeting, LaMore approached the trustees during the period of public comment with the questionnaire. Immediately following LaMore, several representatives of the MSU Sunrise student group also spoke out in support of immediate divestment from fossil fuels.
The Working Group requested a response to the questionnaire by May 4th. Once the information solicited by the questionnaire is acquired, the Working Group will create a summary report of its findings and recommendations for next steps that will encourage sustainable investment practices at Michigan State.