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Could Endowment ESG Performance Hold Lessons for Retail Advisors?

Several endowments reported that their total returns actually increased after incorporating sustainable investing strategies into their approach, according to a new report from the Intentional Endowments Network.

Environmental, social and corporate governance performance can often yield greater returns for endowments than traditional investments, according to a new report from the Intentional Endowments Network, and the benefits of ESG performance can offer guidance for advisors working with retail and institutional clients.

“As the growing body of research shows in aggregate, and individual investors’ experiences bear out, the choice to incorporate ESG considerations can contribute to global progress without harming individual performance,” the report read.

The report analyzed prior research while inquiring with a number of universities about how their respective endowments' performances fared when applying ESG strategies as opposed to conventional investment approaches.

In the case of Becker College, in June 2017 the institution’s leadership approved of investing its $5.4 million endowment in ESG-aligned mutual funds, ETFs and separately managed accounts, offering a clear before-and-after picture of how an ESG focus could affect returns.

The report’s authors analyzed the endowment’s performance in the year prior to June 30, 2017 (before the school’s ESG strategy was implemented) and compared it with the year prior to Nov. 30, 2019 (after implementation). The authors found that the college benefited from a 1% boost on total returns from its endowment portfolio. Similarly, other colleges and universities in the report, including North Carolina State University and the University of California, also had higher returns on their investments after incorporating ESG strategies into their portfolio management.

“This growing body of knowledge challenges the persistent assumption that sustainable investing necessarily means accepting lower returns,” the report read. 

While institutional investors have largely been responsible for the growth in sustainable investing, retail clients are increasingly interested in incorporating ESG approaches into their own investments. With this increase in interest comes a need for advisors to become more educated about ESG opportunities and strategies. For example, the Money Management Institute is developing new online programs for advisors who want to learn more about how to broach ESG topics with clients, and to better discern whether a particular product or option is truly sustainable.

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