Cambridge University asks managers of £5.9bn endowment to adopt ESG strategy

Leading university sets out new responsible investment approach in letter to managers

The University of Cambridge has written to the managers of its endowment fund – the largest of any UK educational institution – to ask that they incorporate an assessment of climate change risks into their investment decisions, while pledging to adhere to a long-term, ESG strategy in its investment decisions.

A letter from Vice-Chancellor Sir Leszek Borysiewicz and CIO Nick Cavalla to the external managers in control of its £5.9bn (€7.5bn) endowment fund asks for further consideration of long-term investment decisions. The University’s investment board also urges asset managers to “incorporate an assessment of climate change risks into their investment processes” and that it will continually seek to “question external managers on how they have interpreted these risk and reflected broader ESG considerations” into their operations.

The letter is included with the university’s updated Statement of Investment Responsibility and its working group’s report into investment responsibility, commissioned in May 2015 in order to reassess the endowment fund’s responsible policies.

Several recommendations are made in the report, including for the development of a model for engaging with fund managers and investee companies on ESG issues, and measures to allow for the monitoring and assessment of the outcomes of said processes. The working group also suggests that the University should exercise its voting rights as a shareholder on ESG matters where possible, and that it should consider integrating internal academic research to support its investment decisions.

The publication of both documents was overseen by a council chaired by John Shakeshaft, the former diplomat who chairs cleantech investment group Ludgate Environmental.

A number of industry figures also contributed evidence to the report’s research (see partial list below).

Though it is not clear to which institutions the letter has been sent – the University’s policy is not to identify either its fund managers or individual investments – it was made public this week, and is believed to have already been seen by many asset managers. The report reveals that 59% of the fund is held in equities, with 12% in private investments, 13% in hedge funds and 11% in real assets and property.The letter also reveals that the University’s Investment Office has also backed the construction of US solar assets and confirmed that the endowment fund has no exposure to coal or tar sands-related companies. Its authors point to the risks associated with future policy and regulatory changes that will likely “impact meaningfully on the economic returns of the least energy efficient and the most polluting industries”.

It also states that particular stocks or industries are unlikely to be excluded on principle the future and neither an appropriate ethical nor practical way forward adding that a “tokenistic approach” could instead be counterproductive. Instead, the intention is to pursue a “constructive process of engagement” where possible and to promote good stewardship.

Though its authors praise the work of organizations such as the CDP [Carbon Disclosure Project], the Institutional Investors Group on Climate Change and the PRI, they do not expect to become a formal member of these bodies.

Farhan Samanani, a member of the working group and spokesperson for the Positive Investment Cambridge pressure group, said that though the report marked an important step, there was still a lot of work to be done. “The success of this report depends largely on how it is implemented. Ideally we will see Cambridge use its tremendous research expertise to improve investors’ understanding of how to contribute to decarbonising the economy — and then put this research into practice.”

Selected contributors

Mohammed El-Erian Allianz
Lord Browne ex-BP CEO
James Bevan/Helen Wildsmith CCLA
Prof. Elroy Dimson London Business School
Sean Kidney Climate Bonds Initiative
Rob Lake consultant
David Pitt-Watson London Business School
David Swensen Yale
Janice Turner Association of Member Nominated Trustees