Brown University Launches Sustainable Portfolio

Sustainable Investing Doesn't Require Sacrificing Returns

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It was a truly special and amazing experience teaching The Theory and Practice of Sustainable Investing this past semester at Brown University.

Led by the now graduated Sophie Purdom, an effort had taken hold on campus to do something positive about climate change, to move away from the negative approaches towards investment solutions.

As the press release states:

"Brown has launched an investment fund that gives donors who wish to support the University philanthropically a sustainability-focused giving option structured to invest in companies that meet high standards of environmental, social and governance practices.

The Brown University Sustainable Investment Fund (SIF) was established after a collaborative, student-initiated effort that included senior administrators, faculty, and students in an undergraduate investing course focused on sustainability-based investing. The Division of Advancement will promote the new option to donors as part of BrownTogether, the University’s $3 billion capital campaign launched in Fall 2015. As the SIF grows over time, its payouts will be used at the University administration’s discretion, yet with a bias toward sustainability projects. 

“We had two goals: to establish a giving option for the Brown community focused on sustainability and also to meet the imperative of achieving superior financial performance to fund the priorities of the University,” said Jane Dietze, managing director of Brown’s Investment Office. “The process to establish the fund engaged a wide cross-section of the Brown community, from alumni to students and faculty to senior leaders and members of the Corporation.

The resulting investment portfolio is fossil-fuel free and includes companies that meet high standards related to their environmental, social and governance practices.”

Unlike some common sustainability-focused investment options, the SIF will go beyond screening out investments in companies whose values do not align with the fund’s focus, Dietze said.

Instead, the fund’s managers will employ environmental, social and governance (ESG) investment standards to actively invest in companies that share ESG values.

And unlike most endowed funds at Brown — which typically require a $100,000 minimum investment — the Sustainable Investment Fund will welcome gifts of any size.

“This creates an option for donors to do good with their money at Brown and also beyond Brown,” said Sophie Purdom, a recent undergraduate of the class of 2016 and Investment Office intern who was instrumental in establishing the fund. “There’s no minimum investment required, so suddenly the endowment becomes accessible to anyone. The launch of this fund is a win for everyone and plants a stake in the ground for Brown as a leader in sustainable investing.”

To create the fund, the Investment Office, the Division of Advancement and faculty and students from a course titled Theory and Practice of Sustainable Investing pooled their expertise. The result complements Brown’s effort to promote sustainability on campus and beyond, as outlined in the University’s Building on Distinction strategic plan.

Fund driven by student initiative

The effort to establish a fund focused on ESG criteria was initiated by President Christina Paxson’s request in fall 2015 that the Investment Office explore investment options that would resonate with the desires of students and alumni to confirm their commitment to sustainability through donations to Brown.

Purdom was one of those students, and the planning for the Sustainable Investment Fund started in earnest when Purdom began an internship in the Investment Office. An environmental science concentrator focused on economics and policy, Purdom also served as president of the Socially Responsible Investment Fund, a student investment group.

“The concept originated in the idea that students, alumni, and others at Brown care so much about sustainability, and we could devise an investment tool to meet that need,” Purdom said. “But from a financial standpoint, we needed a method that made sense for Brown’s overall approach to investing.”

Brown’s investment model relies on external fund managers to select investments and manage funds. Due diligence conducted by Purdom and the Investment Office staff crystalized around the idea of identifying a manager for a standalone fund that would employ ESG values in selecting companies in which to invest.

Environmental considerations include pollution mitigation and renewable energy development; social considerations include workplace conditions, human rights and diversity; and governance practices seek to identify well-managed companies with robust checks and balances.

To complement the efforts of the Investment Office to identify an external fund manager, Purdom developed a syllabus for the Theory and Practice of Sustainable Investing class in partnership with Cary Krosinsky — an educator and advisor on sustainable investing who had recently worked with students at Yale — enlisting him to teach the course as an adjunct lecturer.

As part of their coursework, the 43 students enrolled in the course dived into the nuances of funds that negatively screen out companies vs. funds that actively seek to invest in companies that demonstrate ESG values. They wrote a fund tear sheet, suggested fund managers and pitched stocks to the Sustainable Investment Fund.

Among their recommendations was the Parnassus Endeavor Fund, which had emerged in the independent research conducted by the Investment Office as well. While the Investment Office maintains oversight of the Sustainable Investment Fund and will regularly review the performance of the external fund manager, the office selected Parnassus Endeavor Fund as the initial manager. 

Krosinsky said Brown’s focus on creating an investment option that didn’t sacrifice financial performance for the purpose of integrating sustainability set it apart from other universities.

“Brown is the only university in my experience that has built an integrated sustainable investment option for donors within its endowment with the full intention of seeking financial outperformance,” Krosinsky said. “Research shows that outperforming benchmarks is possible by adopting positive approaches to sustainability challenges. This was the goal throughout — to inform the Brown community and others that there is no inherent penalty for being involved with sustainability issues in investing. In fact, there can be a premium.

“I really think Brown has done something groundbreaking here.”

Purdom, who upon graduating is now working as an associate consultant at Bain & Company before she heads to Harvard Business School, said that by focusing simultaneously on ESG values and financial performance, the Sustainable Investment Fund effectively serves both donors and the University.

“This is new and cutting-edge,” she said. “We’re taking a leadership position on sustainability among our peer universities and putting our money where our mouth is."

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In addition to this class and new portfolio, we created a book on Sustainable Investing which will be out December 2016.  The overarching premise is the need for both sustainability and a business case and features the writings of some amazing Brown and Yale students we've been fortunate to work with.  

Also featured are writings from key practitioners such as Jeffrey Cherry, Nick Robins and Rory Sullivan as well as the Principles for Responsible Investment, and leading institutions such as Mirova and Norges Bank. 

Systems and systemic solutions are a focus, as are shifting definitions of fiduciary duty, as well as what's needed by region and by sector alongside new business model trends, and the outperformance of diverse organizations.  

As we saw at Brown, not only is there no need to give up financial returns, but outperformance can be achieved through sustainable investing and as the world moves to solve for climate change, financial success may well follow suit.

There is an opportunity for other universities to take note of the work of Brown towards applying this in some related way at their own institutions. 

For example, the Intentional Endowments Network has taken note of our work at Brown, featuring it prominently here.  

Along with connections and related work performed at Concordia University, Dickinson College and the University of California System, it's quite rewarding to be a part of this positive sustainable investing movement on university campuses.

Positive approaches, after all, are what resonates most.