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Is performance investing with a purpose a fad or the future? AU is putting its money on the latter.
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A new, first-of-its-kind course challenges 35 students from across campus to achieve sustainable gains through sustainable investments in environmental, social, and governance (ESG) funds. The Board of Trustees will invest 1 percent of AU’s endowment—about $9 million, based on current market values—in ESG funds recommended by the class, cotaught by finance professors Randy Nordby and Timothy Timura, both Chartered Financial Analysts (CFAs).
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“At American University, we take experiential learning and sustainability to the next level,” says President Sylvia Burwell of AU, which in 2018 became the nation’s first carbon neutral university and, two years later, divested itself of all fossil fuels. “By connecting our students to the university’s endowment investment process, we are combining [their] passions with our expert facultyÌęto support our educational and financial goals.”
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ESG funds, which are expected to reach $1 trillion by 2030, according to CNBC, “are becoming a tidal wave in the industry,” Timura says. “People are investing for performance—but with a purpose.”Ìę
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According to McKinsey, the E in ESG—environmental criteria—encompasses carbon emissions and climate change and includes the energy a company takes in and the waste it discharges, the resources it consumes, and the consequences for living beings. S—social criteria—focuses on the firm’s relationships, reputation, and the communities where it does business, along with labor relations and issues of diversity and inclusion. And G—governance—comprises the internal system of practices, controls, and procedures a company adopts to govern itself, make effective decisions, comply with laws, and meet the needs of external stakeholders.Ìę
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“Years ago, people were saying, ‘I want to save the planet, but I’ve got to make money,’” says Nordby, a veteran of Calvert Investments, which pioneered socially responsible mutual funds. “But today, ESG is blossoming, and to me, it just feels better. It’s wonderful to make a profit, but it’s even more wonderful to make a profit and do something positive for the community and society.”Ìę
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Students will use data and resources from Morningstar and the CFA Institute, which offers an ESG certification, and work in consultation with AU’s financial advisor, Cliffwater, to evaluate money managers and alternative investments and make recommendations to trustees on the finance committee. And while the decision to buy or sell ultimately sits with the board, “students are going to be right in the middle of the conversation,” Timura says. “That speaks to the confidence the university has in the caliber of our students.”Ìę
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“Creating ongoing engagement with our students and providing hands-on opportunities to help shape the university’s future is a hallmark of the AU experience,” says trustee Jeff Sine, SIS/BA ’76, who chairs the board’s finance committee. “Using endowment resources not only supports the program but also furthers our overall commitment to sustainable investing.”ÌęÌę
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Spirited debate and rigorous research are at the heart of the course, which will be offered every semester beginning this fall. “We will not get up there for three hours and lecture,” Timura says. ”It’s learning by doing.”Ìę
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Students—who applied for the class—represent myriad schools, majors, and passions, which is illustrative of the interdisciplinary nature of ESG investing. “There are many voices that are forming the E, the S, and the łÒ,” Nordby says. “If all the students were finance majors, we would really be limiting the conversation.”
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“When we met with some of the students, they were afraid this was going to be another portfolio optimization course that [relies on] advanced mathematics and statistics,” Timura says. “And while there has to be some discussion of portfolio theory and investment analysis, the financial perspective isn’t sufficient on its own. We really are looking to students for their expertise and knowledge on a variety of issues: political, social, environmental.”Ìę
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No matter their major, alumni of the class are expected to emerge with rĂ©sumĂ©s that rise to the top of the pile. All but one of the companies in the Standard and Poor’s 500 have a sustainability department, Nordby says, and investment in ESG funds soared to a record $400 billion in 2021—up 33 percent from the previous year, according to Barron's.Ìę
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“ESG is here to stay,” Timura says, “and our students are helping to blaze the trail. In an interview for a job or an internship, they’re not just going to show transcripts, they’re going to have a real track record—and that’s powerful. This really is a once-in-a-lifetime opportunity for students that’s going to make them incredibly competitive when they graduate.”
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When it comes to experiential learning and sustainable investing at AU, it’s a bull market.ÌęÌę