As the CFO of WRI, I’m often asked how WRI invests its endowment with respect to sustainability. The short, simple answer is that we seek to proactively integrate sustainability considerations across our entire portfolio. But there’s also a longer, more nuanced explanation for this approach that’s hard to distill in a quick exchange. A new commentary by Giulia Christianson and Ariel Pinchot, Learning by Doing: Lessons from WRI’s Sustainable Investing Journey, captures the details of our approach, and perhaps more importantly, describes how we got here.
In 2014, WRI’s board officially decided to invest our nearly $40 million endowment in a sustainable manner. While we recognized that the process wouldn’t be easy, we knew it would bring tremendous value to the Institute.
Not only does sustainable investing align with our mission of facilitating a sustainable future, it’s also a smart investment approach. Prioritizing investments in companies that actively manage for material sustainability issues is a prudent strategy to mitigate risk and create value.
By candidly sharing the details of our experience, this commentary should help our peer organizations and others interested in different approaches to sustainable investing.
Distilling 4 years of learning into 4 takeaways
The lessons we’ve learned over the last four years are well documented in the commentary, but I wanted to take a moment here to share the lessons that really stood out for me. I believe these insights would have helped dispel early apprehensions when we first embarked on this journey.
1. It’s easy to get stuck at the beginning.
Setting out to change a complex diversified portfolio is a daunting task. It is easy to get overwhelmed or to get stuck at one of the many decision points. To help us move along, we established a Special Board Committee, comprised of board members, executive leadership and staff experts, who committed to digging into the issues and thoughtfully considering various options for the endowment. A dedicated staff member pulled together reading materials for the group ahead of each meeting to inform discussions. Bringing together diverse perspectives and levels of expertise helped build a collective understanding of the various approaches to sustainable investment and evaluate what made sense for WRI. It was this collaborative process that led to an actionable proposal, which the full board readily adopted as a mandate.
2. Where there’s a will, there’s a way – though that way may not be straightforward.
You can decide to invest sustainably, but what does that really mean? There is no single definition or standard for “sustainable” investing. We started by trying to understand and improve the ESG (environmental, social and governance) rating of our portfolio. It was a good first step, but we’ve since evolved far past this approach. Now, we’re working with our OCIO (Outsourced Chief Investment Officer) to thoughtfully select managers who systematically integrate ESG into their approach. To complement this, we’re also incorporating a private equity impact carveout that seeks to create positive impact by investing in solutions to environmental and social challenges.
3. There is no actual finish line.
Yes, we want to thoughtfully integrate ESG across all asset classes and we’ve already invested 70 percent of our entire portfolio in ESG integrated funds. But it’s not like we put our money somewhere permanently without further consideration. We want to continuously strengthen how we think about and measure sustainability in our investments, including how we evaluate and engage managers on supporting a low-carbon transition.
4. You can do well by doing good.
I understand that many investors have yet to embrace the benefits of sustainable investing as a prudent investment strategy. Risk is not something fiduciaries take lightly. But I think our experience thus far adds another success story to the growing evidence that sustainable investing does not cost returns. We track our Sharpe ratio, which is a measure of the portfolio’s risk-adjusted performance, and it’s tracking nearly identical to our benchmark. This demonstrates that, when implemented rigorously, sustainable investing can enhance risk mitigation and long-term performance.
A Journal, Not a Guidebook
The commentary documents our experiences so far. It is by no means meant to be a guidebook for others. But we do hope others might take some lessons from our experiences.
WRI is fortunate to have a Sustainable Investing Initiative, which conducts research focused on providing direct benefits to our work on our endowment. The Initiative, which aims to advance sustainable investing in the broader market, conducts cutting-edge research on relevant topics which keeps us well informed on the latest trends. But the benefits flow both ways. The research regularly draws on the lessons we gain as an asset owner. And we certainly aren’t proprietary with these insights. In fact, as part of its effort to advance the field, the Initiative has an explicit mandate to share our experience as an asset owner with others in the investment community. The commentary is just the latest way that the Initiative has done this.
I’m looking forward to continuing this journey with my colleagues and our partners. I have no doubt that together we’ll become increasingly adept at aligning our investments with the sustainable future we envision, and I expect our endowment performance and the investment market will continue to benefit in the process.