It’s Time for Endowments to Lead the Finance Industry in Transparent Impact Investing

Georges Dyer

If there’s one key takeaway from the recent U.S. student protests at university campuses across the country, it’s that a new generation of engaged citizens don’t just want transparency. They are demanding it.

To give credit where it’s due, in recent years, many in higher education have made significant progress on sustainability and social impact, and colleges have positioned themselves as leaders in sustainability in their campus operations and in their messaging to attract students. But now, they really need to walk the walk—in terms of how they invest their endowments—and no longer have their endowments be opaque, mysterious, pools of capital.

Furthermore, the scale of the impact opportunity is immense. College and university endowments in the U.S. have combined assets under management of more than $830 billion. Educational institutions have tremendous social capital to leverage in terms of helping to shift the norms in the financial industry. Beyond academia, there are philanthropic foundations, health care institutions, museums and cultural institutions, religious organizations and environmental institutions that all have endowments with large amounts of capital invested—well more than $1 trillion in the U.S.

Chance to Effect Change

But what are the impacts of these investments? What will these impacts mean, not only for the kind of world we all live in, but also for the future profitability of these institutions’ own investments?

Endowments and foundations can forge a path to help the finance industry, at large, drive toward a future in which the measure of success in investing is found not only in the financial returns of one company or one portfolio, but the ability of the economy to thrive for all, including future generations.

Without this action, we are facing some dire, existential challenges—a poly-crisis that threatens the survival of our species, from extreme weather to increased extreme inequities, and these challenges pose threats not only to endowment portfolios (that are so critical to the success of their institutions), but also threaten the institutions themselves. Indeed, they threaten the very future that they hope their graduates, alumni and stakeholders will inherit and lead.

Fortunately, there are real investment opportunities in solutions across the multiple crises. For example, in addressing climate change, opportunities have been accelerated by legislation like the Inflation Reduction Act, along with other policies, innovation and market forces that support climate solutions. Investors can benefit from these, while helping to support and accelerate an energy transition that is fair and just.

For all the strides forward on sustainability that educational institutions have made in the last decade, there is still a lack of transparency around many endowments and, in some cases, even an unwillingness to be held accountable to their commitments. The Intentional Endowments Network recently announced the positive results of a pilot to test a new assessment, rating and benchmarking framework that enables endowments to measure their progress and earn recognition for their commitment to sustainable and impact investing: the Endowment Impact Benchmark.

Measuring Transparency

The EIB is a mechanism to drive transparency, identify and celebrate those that are leading, and demonstrate how they and their organizations are benefiting from such leadership. Participants submit answers to 32 questions about their sustainable and impact investing activities, organized around four pillars: strategy, management, governance and transparency. They provide evidence to substantiate their responses, which is then evaluated by BlueMark PBC, a third-party verifier with deep expertise in the impact field. Once verified, participants receive a rating (‘participant,’ bronze, silver, gold, platinum) along with customized feedback identifying areas for improvement. Participants are then able to benchmark their progress against that of aggregated data from their peers, within the four pillars of the EIB framework.

There are several specific benefits for participants in the EIB. First, it gives institutions the opportunity to get credit for the good work they have done in considering the impact of their investments. Second, it enables them to see where they stand in relation to their peers on this progress. Third, they receive direct feedback from experts in the field on how they can continue to improve.

Widespread Benefits

As fiduciaries, testing their own assumptions and hearing fresh perspectives from experts provides confidence in knowing whether or not their approach is in line with best practices and evolving trends. The EIB focuses on financially material environmental and social risks and opportunities. Ensuring that these risks and opportunities are effectively considered and managed helps protect capital and enhance financial returns, in both the short and long term. In doing so, endowment investors can see how the impact of their investing can more fully align with the core purpose of their institution.

Enrollment is now open for all endowments and foundations to participate in the EIB. We are seeing momentum to engage with the EIB from those pioneering true transparency in their reporting and from those who want to raise the bar and increase their ambition around mission-aligned and impact investing.

For institutions that wish to be aligned with best practice in the field, the benchmark is an invitation to engage in a “race to the top.” In these increasingly uncertain and unstable times, such a tool can ground impact investors and provide metrics, when stakeholders and students are demanding transparency above all else.

Georges Dyer is executive director of the Intentional Endowments Network.

 This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of ISS STOXX or its affiliates.