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ESG Investing

Officials are eyeing ethics-based investment strategy for OU endowment

The firm that manages OU’s $600 million+ endowment recently delivered a presentation to the OU Foundation Board of Trustees about ethics-based investment methods.


Each year, Ohio University lets a third-party firm manage its endowment — a pool of more than $600 million of investments. Where exactly those dollars are invested is largely unknown to the general public.

But if administrators take part in that firm’s ESG investing program, donors, students and faculty could know more about the way OU handles its investments.

Hirtle, Callaghan & Co. — the Pennsylvania-based firm that manages OU’s endowment —  delivered an educational presentation Feb. 12 to higher-ups within the OU Foundation about its recently developed “ESG Growth Strategy,” which aims to factor ethical considerations into an institution’s investment process.  

ESG: The Details

ESG stands for environmental, social and governance issues in investing.

So, to break that down:

  • Environmental: Do the firm’s operations harm the environment? How much?

  • Social: Is the firm’s product harmful to society? In what way?

  • Governance: How honest, forthright and transparent is the firm’s management?

OU applying ESG principles to its endowment would mean considering those standards before investing money donated to the university.

Shem Krey, president of OU’s Sustainable Investment Advisory Committee (SIAC), provided an example of a simple ESG analysis of The Walt Disney Company.

“They do pretty well on the ESG scale because, as a company, they don’t have a huge environmental impact. Their biggest thing would probably be, like, trash,” Krey said. “From a social standpoint, how they treat their employees would be a big deal. Then from a governance standpoint, do they pay their taxes? Do they follow legal regulations?”

In a meeting with OU students Feb. 12, Garrett Wilson, the investment specialist at Hirtle Callaghan who spearheads the firm’s ESG program, used the recent Volkswagen carbon emissions scandal to show how ESG can help investors.

He pointed out Volkswagen scored poorly on the governance metric long before the scandal broke, so an ESG investor likely would have avoided the massive loss Volkswagen shareholders experienced.

Put another way, ESG investing is less about “penalizing bad companies” and more about “rewarding good companies,” Wilson said.

ESG at Ohio University

The people in charge of OU’s endowment haven’t made a decision on whether they’d like to apply ESG values to some or all of the university’s roughly $600 million investment portfolio.

Stephen Golding, vice president for Finance and Administration at OU, said at the student meeting the university is “continuing the education process for (the OU Foundation board)” regarding ESG investing, adding the presentation was “part of a broader conversation that is taking place.”

A plan adopted by the university almost four years ago says the foundation should be “seek(ing) investments that promote sustainability, including sustainability industries, businesses selected for exemplary sustainability performance.”

Hirtle Callaghan’s ESG investment program is relatively new, however. It was rolled out in August 2015 and is specifically designed for endowment investment committees, Wilson said.

Though the foundation hasn’t reached a decision, Candice Casto, chief finance and investment officer for the OU Foundation, said in an email that some OU groups will continue to work on ESG-related projects.

Both the Student Equity Management Group and the Fixed Income Management Group currently manage “sustainable” investment portfolios totaling more than $1 million in university money, Krey said.

Guidelines for those sustainable portfolios are set by Krey and his organization, which was formed as a “direct response” to the passage of OU’s sustainability plan in 2012.

SIAC uses ESG ratings from investment analytics company MSCI to weed out bad companies for the student investment groups.

The Drawbacks

Companies aren’t legally required to disclose all of the information necessary to provide a full ESG analysis, and the ones that do are usually large, so ESG investors are often biased toward huge corporations out of necessity.

“(ESG is) easier to implement with larger names,” Wilson said. “Small caps are tough.”

Applying a form of socially responsible investing like ESG also usually translates to paying portfolio managers more, though Hirtle Callaghan’s ESG strategy claims to avoid that.

Hirtle Callaghan’s ESG strategy also doesn’t exclude whole industries from its portfolios. So even if OU applied ESG principles, it could still have money in oil or tobacco, for example.

“The factors are different for each industry,” Krey said. “So if you ranked Disney versus a chemical corporation, and like, ‘Hey, Disney doesn’t put out any chemicals, that means they’re great,’ you can’t rank that because that’s not their business.”

That could be seen as benefit to ESG — and Hirtle Callaghan pitched it as such — because it doesn’t completely handcuff portfolio managers. Rather, if they feel they must include some industry in a portfolio, they’ll at least be putting money into the most ethical chunk of that industry.

“You’re starting to see really, really smart people move into this space,” Wilson said. “This is not going to be a sleeve of investing down the road. It’s going to be a fiduciary responsibility.”


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