Environmental, Social and Governance (ESG) Investment Considerations at Pitt
The University of Pittsburgh is committed to incorporating ESG factors in the management of the Consolidated Endowment Fund (CEF), the University's largest financial asset.
Since March 2020, the Office of Finance, which manages the CEF, has followed an ESG Policy for the CEF. The ESG Policy provides the University with a more consistent and comprehensive approach to evaluating investment opportunities.
To ensure Pitt’s ESG Policy was at the leading edge of practice among university endowment peers, the Office of Finance engaged an outside sustainable investment consultancy to advise in the policy’s development. As part of the ESG Policy development process, the Office of Finance reviewed ESG and/or socially responsible investment (SRI) policies published by a diverse group of 19 public and private peer universities, including those with similar endowment sizes.
The ESG Policy states the University’s commitment to “fully integrating ESG factors into the University’s decision-making processes, on the core belief that supporting responsible business practices also supports strong investment outcomes.”
Though ESG factors vary based on the type, industry, and scope of an investment, the ESG Policy outlines how the Office of Finance considers a range of factors when evaluating investment risk. Those factors could 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.
Inaugural ESG Report Launched
In March 2022, the University of Pittsburgh’s Office of Finance released the “Inaugural Consolidated Endowment Fund Environmental, Social and Governance Report.” The Fiscal Year 2021 report details how the University of Pittsburgh incorporates environmental, social, and governance (ESG) factors in the management of the University’s Consolidated Endowment Fund (CEF). The report “seeks to provide greater clarity regarding how ESG factors are applied in the [University’s] investment decision-making process as well as report on fossil fuel trends.”
A high-level overview of the report can be found in this Pittwire article.
In an effort to increase transparency regarding the CEF and the implementation of the ESG policy, the Office of Finance is meeting with key student organizations on a regular basis as well as speaking at various University forums to enhance overall awareness and improve dialogue on this important topic.
Fossil Fuel Trends
As directed by the Ad Hoc Committee on Fossil Fuels, the ESG report provides greater transparency regarding the fossil fuel trends of the CEF.
Portfolio exposure to fossil fuels decreased to 5.9% by June 30, 2021, compared to 10% on June 30, 2015. The University remains on track to meet the expectation of the Ad Hoc Committee on Fossil Fuels that private holdings in fossil fuels will decline to zero by the end of 2035.
The ESG report also provides additional detail regarding private holdings in fossil fuels.
University of Pittsburgh CEF Private Equity (Illiquid) Fossil Fuel Exposure Forecast
The illustration shows 4.5% in 2021 with a projected 0.0% by the year 2035
Actual illiquid fossil fuel exposures for 2019-21 are as of June 30 for each year. Forecast exposures are at the end of each future calendar year.
The value of the University’s private equity investments is expected to increase in the short term until 2023; as these investments reach their planned liquidation dates, they are expected to drop to zero by the end of 2035.
It’s important to note that the Office of Finance has not made any new fossil fuel investments since February 2021, when the Ad Hoc Committee on Fossil Fuels report was issued.
The CEF’s exposure to public fossil fuel extraction and production holdings was 1.4% as of June 30, 2021.
Fossil fuel exposure in the CEF’s public market holdings is expected to remain low as the exploration and production of fossil fuels are expected to continue to become less attractive over time.
Frequently Asked Questions
- Why was the release of the inaugural ESG report delayed?
While the University’s fiscal year ends on June 30th, it takes additional time to receive statements for the investments held by the endowment. In 2021, the University was also in the process of hiring a new chief investment officer. The combination of these factors resulted in a longer timeframe.
- Going forward, how frequently will the ESG report be published?
At this time, we are still working to establish a cadence. We look forward to input and will communicate any decisions on the timing for the next report.
- Why can’t Pitt divest from its fossil fuel holdings?
The Board of Trustees was clear that the University cannot apply a negative screen to endowment investments with respect to fossil fuels.
If the endowment divested from all fossil fuel holdings immediately, it would face a significant financial loss of between $75-$100 million in value. That loss would conflict with the purpose of the endowment, which is to support institutional financial aid, scholarships, faculty positions and research activities in perpetuity.
Pitt's 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 the end of 2035. Furthermore, the endowment has not made any new fossil fuel investments since February 2021, when the Ad Hoc Committee on Fossil Fuels report was issued.
- Coal and natural gas have been drivers of the economy of southwestern Pennsylvania for more than 100 years. Why is Pitt no longer investing in these resources?
The exploration and production of fossil fuels are expected to continue to become less attractive investment opportunities over time. Supporting responsible business practices is integral to producing strong investment outcomes.