Nonprofit investing survey: ESG, SRI, and sustainable investing

We checked in on nonprofit investment committees and investment staff on various investment strategies, challenges, and plans for this year. One key area is an important and growing investment strategy in today’s times: ESG/SRI/sustainable investing.

After a disruptive year, many institutional investors have started to think differently about how they invest. Current events can impact the economic value and underlying risks within the investments, putting pressure on investment committees and staff to incorporate investments that matter most to their mission. In fact, over 30% of poll participants said they already invest or plan to invest in SRI/ESG strategies this year. And 32% use impact investing to invest directly in companies/organizations that support their mission.

Fueled by change

Nonprofit investors realize that topics in today’s culture are key themes to consider when looking at ESG/sustainable options. The political environment led many investors to incorporate climate change themes into their strategies. The Black Lives Matter movement has opened doors for diversity and equality. Some organizations polled have even mandated an increase in exposure to outside investment managers that offer more diversity. 20% of polled participants said they plan to either reduce or eliminate fossil fuel exposure. And the COVID-19 pandemic initiated focus on work safety, women in the workforce and equal pay. Our global experiences in 2020 brought themes that have the opportunity to change how investment portfolios look moving forward, in a good way, focused on areas that are important to investors.

Beyond checking the box

With the continued popularity of ESG for institutional investors, it’s critical to make sure that your ESG managers are meeting your program goals and the requirements established in the Investment Policy Statement (IPS). 60% of polled nonprofits include screening criteria in their IPS. Investors genuinely want to make a difference and want their investment strategy to support the mission. To help address that, 93% of those surveyed said that an outside investment consultant or OCIO provider monitors the underlying managers.

Joining forces with a strategic partner when incorporating ESG strategies into your portfolio can bring access to new or emerging managers or asset classes that you may not have access to otherwise. Some OCIOs also have the ability to implement sustainable strategies through separate accounts, which can also be a reason why many nonprofits choose to work with an outside resource for their program.

Conclusion

Nonprofits are incorporating ESG into their investment strategies, and it’s not just to check the box. They truly want to their values heard and expressed in the portfolio through managers whose principles align with their own.

Supporting stats:

Does your organization currently invest in socially responsible/sustainable responsible investing (SRI) or environmental, social and governance (ESG) strategies?

• 15% – Yes
• 16% – No, but we plan to invest in 2021
• 69% – No

Who is responsible for monitoring underlying investment managers to ensure they meet the screening requirements?

• 67% – Investment consultant
• 27% – Outsourced/discretionary partner
• 7% – Internal team

Are you planning to reduce or eliminate fossil fuel exposure?

• 20% – Yes
• 80% – No

Has your organization mandated an increase in exposure to outside investment managers which offer more diversity?

• 7% – Yes
• 93% – No

What type of investment vehicle does your organization use or plan to use to implement SRI/ESG strategies?

• 24% – Direct securities
• 62% – Commingled funds/mutual funds
• 24% – Separate accounts
• 10% – Overlay
• 10% – Private
• 3% – Other

What asset classes do you currently use or plan to use to implement SRI and/or ESG in your investment portfolio?

• 85.71% – Domestic equity
• 57.14% – International equity
• 57.14% – Fixed income
• 7.14% – High yield
• 17.86% – Hedge funds
• 32.14% – Private equity
• 17.86% – Real estate

How does your organization currently implement or plan to implement SRI and/or ESG strategies?

• 39% – using a negative screen to limit holding certain securities
• 43% – using a positive screen to add/overweight securities with higher ESG rankings
• 14% – implementing ESG/SRI around a specific cause (ie global warming)
• 32% – using impact investing to invest directly in companies/organizations that support our mission
• 60% – include criteria in the investment policy statement

More results from the Nonprofit Investing Survey: 

• Governance and investment oversight
• Fundraising
• Asset allocation 
• Spending policy 

The SEI Nonprofit Management Research Panel completed a comprehensive survey of executives and investment committee members in North America to gauge their views on a numbers of critical components of their organization. The poll was completed by 102 participants, representing nonprofits with endowments ranging in size from $25 million to more than $1 billion. The poll was conducted in January 2021 and will be released in a series of chapters. No clients of SEI were polled.

This information is provided by SEI Investments Management Corporation (SIMC), a registered investment adviser and wholly owned subsidiary of SEI Investments Company (SEI). Investing involves risk including possible loss of principal. There can be no assurance that your investment objectives will be achieved nor that risk can be managed successfully. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds will decrease in value as interest rates rise. High yield bonds involve greater risks of default or downgrade and are more volatile than investment grade securities, due to the speculative nature of their investments.

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice. This information is for educational purposes only and should not be interpreted as legal opinion or advice.