Aligning Mission & Values with ESG Investing

Posted December 14th, 2017

By Pamela Kohlberg, Chair of the Investment Committee

Environmental conservation and education are at the core of the Arboretum’s mission. The Board of Directors wishes to reflect these values in the investments held directly by the endowment.

With this statement of purpose in 2013, the PHA Board of Directors began research on an ESG (Environmental/Social/ Governance) investment strategy for the endowment fund. ESG investing denotes an investment philosophy that targets, in addition to financial returns on the investment, a double or triple bottom line return, also tracking impacts in environmental, social benefits, and corporate governance in the companies and funds in the portfolio. Environmental, social, and corporate governance criteria are incorporated into the investment screen, in addition to goals of generating long-term competitive financial returns and minimizing risk.

Competitive Returns: There was a time when many assumed that it was not possible to achieve ESG goals and generate returns competitive with single bottom line investment strategies focusing only on financial metrics. Over the past decade, the ESG investment trend, with related strategies called purpose-driven, mission-driven, or socially responsible investing, has been adopted by numerous foundation endowments. According to a 2014 article by Lisa Woll in the HuffPost, data suggests that several hundred foundations are practicing sustainable and responsible investment (SRI) as a way to ensure greater alignment with their goals and mission, including the Rockefeller Foundation, the Nathan Cummings Foundation, and the Wallace Global Fund, to name a few.

Leveraging the Other 95% of the Endowment: Foundation leaders had begun to reflect that while their mission focused overall on “serving the public good,” just 5% of the endowment returns funded operations or grants dedicated to these goals, but the companies and sectors with whom they were invested might be at cross purposes with this mission. The investment strategy with the remaining 95% of the endowment, in companies promoting better use of natural resources (in the case of PHA) enhances progress toward the environmental conservation mission.

With this pivot, the major corpus of the endowment is also working to achieve environmental and social sustainability and good governance practices. After a 4-year journey of research, analysis, and realignment, the PHA’s investment portfolio strategy has integrated ESG principles, with continued competitive financial performance.