Pitt provides greater clarity regarding how environmental, social and governance factors are applied in the investment decision-making process

The first-ever report on how the University of Pittsburgh incorporates environmental, social and governance (ESG) factors in the management of the University of Pittsburgh’s Consolidated Endowment Fund (CEF) has been published.

The report was developed pursuant to the University’s formal ESG Policy, which was adopted in March 2020, in order to provide greater clarity regarding how ESG factors are applied in the CEF’s investment decision-making process. The report also provides an update regarding the endowment’s fossil fuel exposure, in response to the recommendation of the Ad Hoc Committee on Fossil Fuels, convened by the University’s Board of Trustees.

ESG factors are now applied more comprehensively

While the report is new, Hari Sastry, senior vice chancellor and chief financial officer, said the investment approach is not.

“Many of the concepts now referred to as environment, social and governance factors have been incorporated in the investing practices of the endowment on a case-by-case basis since 1990. The ESG policy we now have provides us with a more consistent and comprehensive approach to evaluating investment opportunities for the endowment.”

Sastry explained that Pitt considers a range of ESG factors when evaluating investment risk that include energy efficiency, hazardous materials management, climate change, water and land management, data protection and privacy, human rights, labor standards, product safety, accounting and audit standards, bribery and corruption, business ethics and regulatory compliance.

The report also features qualitative case studies that reflect the impact of applying ESG factors in the investment decision-making process.

While the report includes more information regarding the specifics of CEF investments than has been provided in the past, Sastry acknowledged a major challenge.

“The investment industry currently lacks established quantitative measurement standards to evaluate ESG factors,” he said. As those standards are developed, Sastry said they will be reflected in future reports.

An update on fossil fuel exposure

As directed by the Ad Hoc Committee on Fossil Fuels, the report also includes an update on the endowment’s fossil fuel exposure. The total portfolio exposure to fossil fuels has decreased to 5.9% as of June 30, 2021, compared to 10% on June 30, 2015, and private holdings in fossil fuels are expected to reach zero by 2035.

Sastry added that the endowment has not made any new fossil fuel investments since the Ad Hoc Committee on Fossil Fuels report was issued.

The endowment benefits the University community

As the University’s largest financial asset, Sastry said it’s vital that endowment investments continue to support responsible business practices, since they are integral to producing strong investment outcomes.

“Our commitment to applying ESG factors to the CEF is steadfast, and the University has a more consistent and comprehensive approach to applying ESG factors than in the past,” Sastry said.

He further noted that the endowment supports financial aid, scholarships, faculty positions and research activities — and links past, current and future generations of University stakeholders, including students, faculty and staff.