Pitt’s Consolidated Endowment Fund ESG Report

Highlights from the University’s first report on how environmental, social, and governance (ESG) factors are applied in the investment decision-making process.

The University of Pittsburgh’s Office of Finance has released the first “Inaugural Consolidated Endowment Fund Environmental, Social and Governance Report.”  The Fiscal Year 2021 report details how the University of Pittsburgh incorporates environmental, social, and governance (ESG) factors in the management of the University’s Consolidated Endowment Fund (CEF). The report “seeks to provide greater clarity regarding how ESG factors are applied in the [University’s] investment decision-making process as well as report on fossil fuel trends as requested by the [Board of Trustees’] Ad Hoc Committee” on Fossil Fuels in their 2021 report and reflecting the University’s ESG Policy, adopted in March 2020.

Some key points in the FY21 CEF ESG Report:

  • The CEF supports financial aid (36%), scholarships (11%) , faculty positions (31%) , and research activities.
  • When investing its endowment funds, Pitt considers a range of ESG factors, including:  energy efficiency, hazardous materials management, climate change, natural resource management, human rights, labor standards, product safety, business ethics, regulatory compliance, and more.
    • Greater ESG data availability in public and private investments is needed, and Pitt is “monitoring the formation of the International Sustainability Standards Board,” which will “help to align the disclosure expectations of corporate issuers so that investors (including Pitt) can have access to enhanced and standardized ESG data to better inform decision making.”
    • 4 case studies showcase examples of how Pitt is implementing ESG factors in investment decision-making, focused on: employee health and well-being,  air pollution, stranded fossil fuel assets, and business ethics (p. 13-16)
    • The availability of data across the entire range of ESG factors was only available for a portion of the CEF for FY21.
  • The University’s private holdings in fossil fuels are still expected to reach zero by 2035 (as originally stated in the 2021 Ad Hoc Committee report)

    • The total portfolio exposure to fossil fuels in the Consolidated Endowment Fund was 10% in FY15, and has decreased to 5.9% in FY21.
    • Per the figure below, fossil fuel exposure in private equity is expected to go up through 2023 before it quickly decreases to under 1% by 2030, tailing off to zero by 2035.
    • Pitt has not made any new fossil fuel investments since February 2021.
  • The Office of Finance is committed to:
    • Launching an ESG section of the CFO’s website.
    • Expanding and deepening the University’s ESG reporting
    • Exploring sustainable investments that “could enhance risk-adjusted financial returns while advancing sustainable impacts. Per option 4 of the Ad Hoc Committee on Fossil Fuels report …this exploration will include financially attractive
      investments that also help to reduce, avoid, and eliminate greenhouse gas emissions”
    • Joining collaborative ESG initiatives in addition to existing “participation in the Big Plus Roundtable (formerly Big Ten Network) and COO Peer Network. ESG is an active topic of discussion in these forums.”

Read the full Pittwire story.

History

The FY21 CEF ESG Report is the latest chapter in Pitt’s environmental and social responsible investing (SRI) journey, which dates back to the 1970s, when the Board of Trustees’ Investment Committee (IC) added a “Social Responsibility” section to its governing documents; this section incorporated ESG considerations (positive screens) into the Endowment’s management, but restricted utilization of non-financial considerations (negative screens) to the Endowment – unless agreed upon by the full Board of Trustees.  Pitt’s Board of Trustees has applied a negative screen to the Endowment once, for South African apartheid — and that investing restriction was removed in 1994 following the end of apartheid in South Africa.

In 2014, the Fossil Free Pitt Coalition began asking the University to directly address its fossil fuel investments.

In January 2018, Chancellor Gallagher created a Socially Responsible Investment (SRI) Committee of faculty, students, and staff “to investigate and provide a foundation of facts that could be used by the University to explore socially responsible investment (SRI) strategies that may be suitable for consideration for the University’s endowment.” The seating of this SRI Committee achieved 1 of the 61 goals of the Pitt Sustainability Plan: “Form a committee or task force to consider socially responsible investing, to be composed of faculty, staff, student and administration representatives.”  The 2018-19 SRI Committee “met numerous times, conducted a literature search on relevant topics, collected data on SRI funds and their relative performance and costs, analyzed stated SRI practices of a limited set of other universities with large endowments, and solicited the views of the University of Pittsburgh’s community and stakeholders through two open forums and a public online forum.” In April 2109, the SRI Committee presented its report to the Chancellor.

In August 2019, Chancellor Gallagher directed the Office of Finance to 1) Develop ESG criteria and present it to the Board’s Investment Committee; 2) Establish a approach for “screening and presenting proposed investment exclusions” to the Board; and 3) Expand and leverage the University’s long-term sustainability plan.

In February 2020, Pitt’s Board adopted an SRI Screening Process.

In March 2020, the University released its ESG Policy.

In June 2020, Pitt’s Board of Trustees activated the SRI Screening Process and created the 2020-21 Board of Trustees Ad Hoc Committee on Fossil Fuels, to provide a report on “options on whether, to what extent, and via what methods the University, in its Endowment, should consider divestment from fossil fuels in existing and/or future investments;” all Ad Hoc Committee members were University Board members.  The 2021 report of the Ad Hoc Committee on Fossil Fuels was adopted in full by the Board of Trustees in February 2021, including the following options for future action:

  1. Actively choose to not apply a negative screen to the Endowment with respect to fossil fuels.
  2. Support the University’s existing ESG Policy and direct the University to apply ESG considerations to every investment decision.
  3. Support the Board’s Investment Committee in monitoring expectations that the Endowment’s private investments in fossil fuels will go to zero by the end of 2035, while continue to pursue strong “risk-adjusted financial returns”
  4. Direct the Board’s Investment Committee to develop and implement a strategy to seek investments that help reduce, avoid, and eliminate greenhouse emissions.
  5. Direct the University to provide greater transparency regarding the Endowment generally, as well as in its fossil fuel investment trends.
  6. Support the University in publishing its first annual public ESG Report in 2021, which will address ESG considerations generally as well as fossil fuel investments
  7. Support “regular, clear, and accessible University communication, education, and engagement” about the Endowment’s “status, trends, and current and future fossil fuel exposure…including an annual update to the Board and University community.”

There is currently no separate SRI or ESG Committee at the University.  All CEF decision-making is governed by the Investment Committee (which has Trustee, faculty, staff, and student members), which “provides oversight and guidance to the Chief Investment Officer regarding the management of the University endowment.” (2021 Ad Hoc Report)