The University of Michigan will invest $300 million of its short-term working capital in companies that maintain strong environmental, social and governance — or ESG — practices.
Additionally, the university will begin working closely with community banks in the cities where U-M has the largest footprint — Flint, Dearborn, Detroit and Ann Arbor — to deposit significant amounts and help spur local lending and other support for underserved communities.
President Santa J. Ono announced the updates in financial practices Nov. 17 as part of a wide-ranging Leadership Welcome in which the university’s new leader shared his early priorities for the university.
The transition to investing with local banks and companies with a proven track record of protecting the environment, acting socially responsible, and working transparently — while also providing a strong financial return — dovetails with the university’s priorities, including U-M’s commitment to diversity, equity and inclusion.
“When we talk about DEI, we don’t always think about university finances,” Ono said. “Yet ESG investing and supporting small, local banks are among the many ways we can work more strategically to reinforce and uphold our obligations to create a better and more just world.”
The move to more sustainable investing is a good fit for Ono, who leads the University Climate Change Coalition and was known for prioritizing sustainability efforts in his former role as president and vice chancellor at the University of British Columbia.
During his speech, Ono announced U-M will now serve as the lead institution for the UC3, which convenes 23 leading universities across North America to work toward climate action on campuses, in communities and at a global scale.
Earlier this year, U-M issued its first series of green bonds. The $300 million in proceeds generated by the bonds can only be used to fund “green” capital projects that support climate-related or environmental goals.
Separately, with its new ESG investing framework, U-M will rely on PFM Asset Management and metrics provided by Sustainalytics, a third-party ESG research firm. U-M plans to only invest in the debt securities of high-performing companies that meet a certain ESG rating threshold, according to university finance officials.
“With the capital the university has to invest, there is more we can do than just capture returns,” said Geoffrey Chatas, executive vice president and chief financial officer. “We can make a difference, and we can help others make a difference. We just need to find creative ways to use the tools we have. That’s what this is.”
The second new investment approach will see U-M strengthening ties with locally owned banks. Starting in Flint, Dearborn and Ann Arbor, with plans to expand the program to Detroit, the university will make long-term deposits with community banking partners.
The initiative, which will begin with dedicating tens of millions of dollars in deposits to local banks, will work to support the types of smaller financial institutions that are closely aligned with and understanding of the needs of their communities.
Initial deposits are being made with ELGA Credit Union in Flint, Dearborn Federal Savings Bank and Bank of Ann Arbor, with additional deposits expected in other financial institutions in the coming months. This initial phase of the program will center on forming depository relationships with banks most closely tied to their local communities.
The second phase will focus on working with the banks to develop programs that provide additional benefits to disadvantaged communities because of the university’s involvement through enhanced lending and community engagement.