May 7, 2014
By Gretchen Gregory
A new $4 million initiative funded by The Ohio University Foundation is the first of its kind to combine student’s working knowledge of investments with sustainable practices.
Two student-led groups that were created more than a decade ago to research and find suitable, sound investments for the foundation as well as provide an educational experience for OHIO students will now be assisted by a third group of students who will help identify the sustainable practices companies should follow in order to be included in an environmental, social, and governance-based model portfolio.
Representatives from the OHIO Student Equity Management Group (SEMG), focused on a portfolio of stock investments, and the Student Fixed Income Management Group (SFIMG), which manages a bond portfolio, will now work with the Student Investment Advisory Council (SIAC) to each create and manage model portfolios of select equity and fixed income investments that fit within SIAC’s Environmental, Social and Governance Investment Policy (ESG).
“Their role is to turn the sustainability priorities of the University into investment guidelines,” explained Ana Rosado Feger, SIAC faculty advisor. “SIAC is taking the University’s Climate Action Plan and Sustainability Plan into consideration when creating investment guidelines for these model portfolios. We want companies to be evaluated along environmental, social and governance dimensions as well as for their financial performance.”
Environmental guidelines could include conformance to environmental regulations, recycling rates, and emissions and pollution controls. Social guidelines could include a company’s practices with regard to human rights, consumer protection, and diversity, she noted. Governance guidelines could include labor relations, CEO and board member compensation along with transparency of company management structure.
“As far as we know, we are the first University to have both a fixed-income student investment group and an equity-based income student group managing ESG portfolios,” she noted.
Representatives from each group will create and present annual reports to the foundation, and results will be compared to traditional investment benchmarks, such as the Barclays US Aggregate Bond Fond and S&P 500, as well as appropriate ESG benchmarks, such as the iShares MSCI ESG ETF (KLD) and Barclays MSCI US Corporate Socially Responsible (SRI) Index.
“The goal is to begin the process of determining whether the financial performance of portfolio companies is enhanced when ESG criteria are added to the selection decision,” Feger noted. “It’s a change in philosophy when it comes to investing. What we’ve seen from the research is we may not see abnormal high returns, but we expect to demonstrate that the ESG model portfolio will get steadier returns over time. It really changes the mindset to a focus on the longer term.”
Finance students who represent SEMG and SFIMG are getting valuable experience as a result of the program, she noted, because they are learning to work with a client (SIAC) who chooses to prioritize environment, social, and governance matters in addition to financial performance. Students are learning how to work with and educate SIAC, whose members have specific portfolio guidelines but limited financial investment experience. Learning to manage the client relationship is a skill transferable to their future careers.
The Ohio University Foundation Investment Subcommittee has proposed that a portion of the ESG portfolio returns provide funding to complete investment outreach and education throughout the campus community through various means, including financial conferences for those involved in the project, training software and data feeds to increase access to ESG information, internship funds for students in the three groups, and campus programming in investing literacy, careers in investments and sustainability initiatives.
“The Ohio University Foundation Investment Subcommittee is excited about this new initiative and its goal is to create an opportunity for students from across the University with different interests to work together and then share their findings with the subcommittee so they can jointly learn more about the efficacy of ESG investments and help inform our investment strategies in the future,” said Stephen Golding, treasurer of The Ohio University Foundation.