Asset Management CultureMay 5, 2021

Utah Endowment Considers Realignment Toward Sustainability

University’s Academic Senate approves recommendations to shift portfolio to ‘positive sustainability investments.’

Reported by Michael Katz

The University of Utah’s Academic Senate has approved an ad hoc committee’s proposal to realign the university’s endowment “toward positive sustainability investments,” which includes implementing eight recommendations.

The first recommendation is for the endowment to divest from the companies on the so-called “Carbon Underground,” or CU200 list, which includes the 200 companies with the highest amount of fossil fuel reserves. The committee said this would be easy to implement because it only requires investment staff members and advisers to check from a pre-approved list of companies, “yet it encompasses those companies responsible for a very significant percentage of fossil fuel production.”

The second recommendation calls for selling all private equity holdings from companies in the oil and gas production, refining, and distribution industries within 10 years. The committee said it decided on a longer time frame for private equity investments because most or all such investments in the endowment pool are under long-term contracts, and the university would incur potentially millions of dollars in penalties if it withdrew early.

The committee’s third recommendation is for the university to reinvest the divested funds in positive sustainable investments.

“The overall recommendation is to shift the university’s current energy-related investments to companies that reduce emissions of greenhouse gases,” the committee said in its report. “This recommendation will ensure that funds freed up pursuant to other recommendations are not simply reinvested into other designated fossil fuel investments.”

The fourth recommendation offered by the committee is that the university should retain fund managers that will advocate for pro-sustainability company policies. The committee said an alternative strategy to divesting from fossil-fuel or greenhouse gas-producing companies is to use the university’s voting shares to influence their sustainability policies through shareholder actions.

“This would be prohibitively labor-intensive for university personnel and would not likely succeed given the small percentage of shares in any given company held in the university’s portfolio,” the report said. “However, several prominent fund managers, and an expected emergence of new ones, are utilizing those strategies on behalf of groups of investors whose collective shares may be large enough to succeed in those efforts.”

The committee’s fifth recommendation is for the university to update its investment pool guidelines to reflect the ad hoc committee’s recommendations. It said that because the recommendations reflect a significant departure from past practices, incorporating them in the investment pool guidelines will provide the investment office “with appropriate instructions on how to exercise their responsibilities and insulate them from any claims that they are not exercising their fiduciary obligations to the university properly.”

The sixth recommendation is for the university to make regular progress reports on its divestment actions.

“These recommendations are instrumental in implementing important university policies on climate change and sustainability,” the report said. “It will be useful to obtain information on feasibility and efficacy of these recommendations as they are implemented, so that any modifications or improvements can be considered.”

The seventh recommendation is to add the university’s chief sustainability officer to the school’s investment advisory committee to assist in the execution of the ad hoc committee’s recommendations.

And the eighth and final recommendation is for the university to establish a transition management team to help manage “unintended consequences” from the endowments’ realignment. The report calls for a transition management team to monitor whether any negative impacts of realignment occur and recommend ways to mitigate those impacts.

The university’s Board of Trustees will now take the recommendations up for consideration.