Sustainable Investing of WRI’s Endowment
Our Investment Beliefs
As a long-term investor of this capital, we understand that sustainability risks and opportunities are material and directly impact business profitability over the long run. Therefore, companies that proactively manage for environmental, social and governance (ESG) issues are best positioned to survive – and thrive – in a resource-constrained world.
Given this understanding, WRI has committed to invest our endowment in a prudent manner that incorporates how companies manage ESG risks and opportunities, while achieving a market return. This approach will help maintain and increase our financial resources to provide continuous support to carry out our mission.
WRI has been a signatory to the Principles of Responsible Investment since 2016.
Our Sustainable Investment Strategy
WRI has partnered with an Outsourced Chief Investment Officer (OCIO) to manage our endowment and help implement our sustainable investment strategy.
Even before our commitment to sustainable investment, WRI faced challenges to effectively managing and overseeing our assets in-house. The added task of integrating ESG across the portfolio made it even more difficult, especially given the complex investment structure of the portfolio. An OCIO partnership, which the latest research shows to be best practice for a smaller endowment like ours, has helped resolve these issues. The partnership has brought a dedicated and accountable staff to facilitate a more nimble, strategic investment operation.
In collaboration with our OCIO partner, WRI uses a tailored approach to proactively integrate sustainability across our endowment portfolio. We follow a three-part framework that structures the portfolio to minimize exposure to sustainability risks, while optimizing the opportunities of a changing world.
- Prioritize companies with best-in-class sustainability performance: To minimize exposure to various climate and sustainability risks, we include managers with a best-in-class environmental, social, and governance (ESG) performance within in our equities portfolio. This means we select managers that minimize investments in companies with poor environmental records and favor investments in companies that are helping to solve the world's environmental problems. This allows us to achieve a broadly diversified portfolio while managing for potential downside risks.
- Select managers with strong competency for ESG integration: To ensure our entire portfolio reflects the material reality of a rapidly changing world and accounts for broad sustainability risks and opportunities, we strive to identify and select managers that demonstrate best practices on ESG competencies. These are managers who not only understand sustainable issues, but are equipped to evaluate the potential impact on a portfolio and make decisions accordingly. Our OCIO uses the following framework to evaluate potential managers along ESG competence:
- Firm Ethos: commitment to ESG and sustainable practices in its business management
- ESG Philosophy: commitment to sustainability as core to the firm's investment philosophy
- Process: formal incorporation of ESG factors into the investment process, with the objective of enhancing risk-adjusted returns.
- Team & Resources: presence and quality of dedicated team and resources for integrating ESG into the investment process.
- Engagement: record of active engagement with portfolio companies on ESG themes.
- Allocate capital to solutions: To capitalize on potential opportunities associated with climate change and other sustainability issues, we have designated 15 percent of WRI's portfolio to a private equity "impact" carve-out to proactively invest in companies that target environmental and social solutions – including, for example, renewable energy development.
WRI's goal is to integrate ESG considerations across the entire portfolio, ultimately deploying all of our endowment capital to sustainable investments (or neutral investments, in the case of Treasury Inflation-Indexed Securities). An important aspect of this goal will be to maintain competitive returns, as it is our hope to demonstrate that a sustainable investing approach can help asset owners preserve and grow their financial resources.
Sharing our Endowment Experience
We have published a detailed account of our endowment journey from 2013 to 2018 in the WRI Commentary, "Learning By Doing: Lessons from WRI's Sustainable Investing Journey".
In addition, we will periodically update this section to include key documents that may serve as a reference or resource to other organizations. These are not intended to serve as guidance, but rather as examples of different elements of a sustainable investment strategy.
Beyond WRI's Endowment
WRI's journey to sustainable investing stems from the Institute's belief that sustainability risks and opportunities are material and directly impact business profitability over the long term. We believe that our journey – coupled with WRI research – is relevant to all investors looking to secure their financial resources over the long term.
WRI's Sustainable Investing Initiative uses WRI's investment experience, data, research and convening power to advance sustainable investing in the mainstream investor marketplace. We collaborate with institutional investors and other market participants to inform, develop, and promote widespread adoption of sustainable investments strategies.
Through this initiative, WRI is working toward a future where all investors consider sustainability as part of fundamental decision-making and where global markets incorporate company sustainability performance into valuation. To learn more about this work, see our Sustainable Investing Initiative.
For more information contact Giulia Christianson.