In 2021 UVIMCO Embraced ESG Investing. How Has That Worked Out?

by James A. Bacon

A University of Virginia student group, UVA Apartheid Divest, is petitioning to hold a referendum demanding that the University of Virginia Investment Management Company (UVIMCO) divest itself of investments in corporations implicated by Israel’s “apartheid” regime.

The petition brings attention to the practice of socially responsible investing adopted by UVIMCO, which manages an endowment portfolio of roughly $14 billion for the university and affiliated organizations. States the website: “UVIMCO promotes ESG [environmental, social and governance] integration across its portfolio and with its investment managers.”

UVIMCO doesn’t invest in individual securities. It puts its money in the hands of money managers… who invest in individual securities. Rather than picking stocks, UVIMCO picks money managers. As part of that process, UVIMCO evaluates a prospective manager’s ability to incorporate ESG priorities into its investment practices.

According to UVIMCO’s 2023 Investor Responsibility Report, the fund takes into account factors ranging from “arms trade” and “child labor” to “diversity and inclusion,” “use of harmful materials,” and “workers’ protection.”

As a practical matter, however, UVIMCO’s primary focus is climate change. It has invested $1.5 billion in public companies with “science-based, net-zero targets”; another $215 million in renewable power, innovative climate technologies, reforestation and carbon markets; and another $135 million in climate solutions such as clean technologies, renewable power, electric vehicle batteries, and sustainable waste management. All told, those investments equate to 12% of the market value of the portfolio.

The fund has committed to the ambitious target of transitioning the University’s endowment portfolio to “net-zero by 2050.” Net-zero refers to the goal of reducing the net output of carbon dioxide emissions to zero.

We believe that investments in climate solutions that help to mitigate the systemic risks of climate change will generate long-term returns for UVIMCO. Between 2021 and 2023, UVIMCO committed $215 million to climate solutions investments, including renewable power, innovative climate technologies, reforestation, and carbon markets.

However, ESG investing, once the rage on Wall Street, has come under scrutiny in recent years as fossil-fuel companies have out-performed market averages and renewable energy companies have under-performed. After several years of explosive growth, ESG funds experienced a net outflow of dollars in 2o23.

A big challenge for UVIMCO will be developing a means to measure the carbon intensity of its investment portfolio. Its Investor Responsibility Framework, released in March 2022, promised to develop metrics for using an ESG lens backed by quantitative and qualitative research in time for its 2022 ESG report. By 2023, that goal still was proving elusive. States the report:

Over the last year, we considerably deepened our understanding of how to best achieve net-zero through emissions reduction, manager engagement, and investments in climate solutions. Looking ahead, we will continue to review and consider improvements in data quality and availability, advocate for enhanced emissions disclosure by managers and companies, analyze our public equity carbon footprint for benchmarking, and reassess our ability to set interim portfolio emissions targets in spring 2024.

The report provides no analysis of whether its ESG emphasis has boosted or diminished its return on investment.

The fund’s  performance compared to peer institutions over five years, 10 years, and 20 years has been superb.

But 2023 was a bust. States the website: “Fiscal year 2023 was challenging for diversified institutional portfolios with significant allocations to private investments. UVIMCO’s Long Term Pool gained 2% and underperformed the 12.3% return generated by its policy portfolio.”

Hmmm. UVIMCO out-performs its peers by wide margins for 20 years. Then it allocates 12% of its portfolio according to environmentally sustainable criteria. Then it massively under-performs — by 10 percentage points. An unrelated coincidence? A one-year blip? Perhaps brighter financial minds than mine can shed light.

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John Hunt, MD
4 months ago

History repeats. In the 1980’s the push was on to divest from South Africa. Every front page article in the weekly newspaper of my alma mater (not UVA) was about that issue for two years or so. Then, the college divested from corporations doing business in South Africa (giving up any vote or control over those corporations), and after one celebratory article, the South African apartheid issue and the people suffering under it never was raised in the newspaper. The next big issue to occupy the brainwashed student body was the strike at the local college hotel, and trying to get Ralph Nader’s funding as an automatic part of the tuition bill. So the college gave up any control, cashed in their chips, and the students felt all good about themselves, and then moved on to stupid things. At least Apartheid was a real and bad thing.. Climate change is mostly a fabrication.

walter smith
walter smith
4 months ago

Virtue-signaling with fiduciary money should be easily understood as a no-no.
South Africa sure is better, right?
And betraying the Shah of Iran has sure worked out well for the whole world, right?
This investing virtue signal hurts UVA, and the virtue signal source hurts the world.
The “science” behind “climate change” is highly doubtful. The Covid policies should have been a clue to maybe have some skepticism of our “experts.”
How about the models that have been in existence for a decade or more cannot replicate the last 10 years of observed data? Does that cause any skepticism in this religion?
It has also corrupted scientific research with the quest for federal grants.

But this aspect should be easy – UVIMCO is violating its fiduciary duty to virtue signal. And then we point to the BOV. The BOV represents the citizens of the Commonwealth. The BOV should step in. So should the AG.

I really don’t get it. Fiduciary duty 101…