Virginia universities are putting billions in endowment funds into climate-friendly investments
As Virginia Wesleyan University has grown in recent years, so has its focus on the environment.
That includes a new environmental sciences facility with a green roof and solar panels as well as an official set of environmental guiding principles, “which stated that everything that we did at the institution would place an emphasis on the environment,” said President Scott Miller.
Now, the school is also betting on those principles with its financial future.
Virginia Wesleyan is one of many colleges in the Commonwealth and around the country turning to the investing framework known as ESG – environmental, social and corporate governance. It’s a method of screening investments to prioritize values like environmental sustainability and equitable pay for employees.
The Virginia Beach college has now invested its $120 million endowment using an ESG strategy.
The concept goes back decades, even centuries in some forms. But social pressure and real-world risk have spurred a surge among higher education institutions.
Academic institutions rely on endowments as a long-term source of funding, for either general operations or specific programs. Colleges and universities put their financial assets into an endowment that they can then grow and access over time, rather than in one sitting.
Georges Dyer helps schools learn about and transition to sustainable investing as co-founder and executive director of the nonprofit Intentional Endowments Network.
He said they’ve seen pretty steep growth in both interest and adoption.
“A lot of colleges and universities are getting questions or pressure from students or alumni or other stakeholders around how their endowments are invested.”
What is ESG and its role in higher education
Investing with ESG principles is not just born of goodwill. Climate change poses immediate and long-term financial risks to many institutions.
At least 80% of the world’s largest companies reported exposure to physical or market transition risks associated with climate change, according to a 2019 report from S&P Global.
The modern ESG concept was first named in a 2004 report from the United Nations that proposed applying environmental, society and governance principles to financial asset management.
Committing to the framework can mean a range of things, such as investing in companies that focus on biodiversity, social justice or improving world food systems, Dyer said.
“There's different opinions and approaches on how best to integrate it into an investment process,” he said. “It can get quite complicated. And I don't think (it’s) one size fits all.”
Many people immediately think of divesting from fossil fuel companies, which is one popular strategy.
Others argue that traditional energy companies are an important part of the transition to renewable energy, and decide to invest in companies that are working on pieces like electric vehicle batteries.
Dyer started the Intentional Endowments Network about a decade ago when the fossil fuel divestment movement, largely driven by students, “took off on a lot of these campuses.”
At the time, it was challenging to find endowments that had policy statements including sustainable investments, he said. Now, there are hundreds.
“Most, if not all endowments are at least having the conversation now,” he said. “It's a much more mainstream part of the conversation.”
A 2022 report from the National Association of College and University Business Officers found that 86% of nearly 700 higher education institutions surveyed now include a commitment to ESG in their investment policies, though it’s unclear exactly what that means campus to campus.
It isn’t always straightforward. ESG has become politicized, which can complicate decisions for higher education officials. Florida passed a bill this year that bars public institutions and local governments from considering ESG in vendor procurements or bond issuances.
In a statement celebrating the legislation, Republican Gov. Ron DeSantis called ESG “a worldwide effort to inject woke political ideology across the financial sector.”
But Dyer said he hasn’t seen many of IEN’s members reverse course as a result of the controversies. In many cases, it positively drives reflection around the space, he said.
Universities are well-positioned to utilize ESG because they often already invest in sustainability in other ways, such as academic research and energy efficiency on campus, he added.
“It was a more natural jump to, okay, how does the endowment investing align with all this work we've been doing?”
Virginia Wesleyan: An ESG case study
Virginia Wesleyan’s road to sustainable investing started nearly a decade ago, said President Miller.
A donor came forward wanting to advance the school’s environmental agenda, and funded the 44,000-square-foot Greer Environmental Sciences Center. It offers different curriculum tracks that all interact with environmental studies.
Then the university adopted its environmental guiding principles.
“Everything we do on campus, the environment is embedded in the policy and practice,” Miller said. “That’s the key that set the stage for how our endowment was managed.”
Early in the coronavirus pandemic, the university received a large anonymous donation that came with a restriction – it had to be invested in an environmentally friendly way.
Virginia Wesleyan’s Board of Trustees hired Baltimore-based Brown Advisory to do so, with an initial injection of $80 million. In the following months, Miller said, the board was inspired to do more and ended up bringing the total to $120 million.
He said he’s proud “we’re leaders rather than followers when it comes to this topic.”
The school also put a focus on engaging students in the process.
Senior Rowan Stuart, who studies business, psychology and communication at the Batten Honors College, was part of a national student competition to pitch an investment in a publicly traded company with a strategy focused on the climate crisis and systemic inequities.
Virginia Wesleyan’s team chose Ford Motor Company – a “very controversial” pick when looking at sustainability, Stuart noted. But his group outlined a plan for how Ford could be a good investment in the electric vehicle space – and won the competition.
Stuart said he’s always been interested in investing, but wasn’t previously familiar with the concept of ESG.
“Of course with traditional investment, the mindset is always going to be one thing, and it’s ‘how much money can I make from this?’’’ Stuart said. “Where ESG investing differs is you have that same idea where you want to make sure that you're making money, but the most important part of it is … you're using it to improve issues you care about.”
A donor has now given Virginia Wesleyan another $50,000 for students to create their own investment fund.
Stuart said he thinks that gives students more opportunity to have a voice than traditional methods like protesting or petition writing.
“You're giving students who may not have much money of their own … they now have this opportunity to engage with these companies and say, ‘We want to see this change.’”
Elsewhere in the Commonwealth
The University of Virginia has also made a strong commitment to ESG investing – with a whopping $13.4 billion in funding that’s managed by an independent company under UVA’s Board of Directors.
The company considers ESG at all stages of the investment process, according to its 2023 investor responsibility statement – particularly prioritizing decarbonization and climate solutions.
They’ve committed to transitioning the university’s endowment to a net-zero carbon emissions portfolio by 2050.
UVA invested $1.5 billion in public companies with net-zero targets and more than $215 million in solutions including renewable power, reforestation and carbon markets, according to this year’s report.
“There is a growing opportunity to invest in climate solutions, which will positively impact long-term performance,” the company wrote.
The Old Dominion University Foundation uses ESG principles for investing the Norfolk school’s endowment, according to an emailed statement to WHRO.
“While the primary focus of the Foundation is to meet its investment objectives in support of the current and future programs of Old Dominion University, it is also aware of public concerns regarding its investments,” they wrote.
ODU’s investment committee and consultant “will attempt to reconcile the divergent issues of Responsible Investing and maximum return on investment.”