Recent investments in renewable energy and fuel will prompt considerable reductions in greenhouse gas emissions associated with the University of Michigan endowment.
Avoided emissions from U-M investments are on track to exceed the total amount of greenhouse gases produced by the Ann Arbor campus in 2023.
Furthermore, university investment managers anticipate the endowment reducing more than half of the emissions produced by portfolio investments by the end of the decade, if not sooner.
In a presentation to the Board of Regents on Dec. 8, Chief Investment Officer Erik Lundberg shared the university’s progress toward reaching a “net-zero” carbon footprint for its investment portfolio by 2050.
Achieving net-zero emissions for the university’s endowment means balancing greenhouse gas emissions linked to U-M assets with emissions reductions from investments in environmentally beneficial infrastructure, such as carbon capture, renewable energy and fuels, and through companies with environmentally friendly technologies.
“U-M has quickly become the most active endowment in higher education when it comes to investing in sustainable energy strategies,” said Lundberg, adding that U-M has invested $420 million in sustainable energy over the past two years. “There are several additional attractive investments in the pipeline.”
U-M became the first public university in the nation to discontinue direct investments in companies that are the largest contributors to greenhouse gases and commit to a net-zero investment portfolio when regents voted to do so in March 2021.
In his presentation, Lundberg also reported that investment managers have transitioned the university’s public equities portfolio to an ex-fossil fuels index that excludes companies named on the Carbon Underground 200, a list of top coal, oil and gas companies.
The progress report on sustainable investing was part of a broader presentation on U-M’s long-term investment portfolio, which grew 2.1% in the last fiscal year.
The performance of the portfolio, which consists mostly of the endowment, was the highest for universities with large endowments.
The average return for a college and university endowment was -6.6% last year, according to Cambridge Associates, an investment consulting firm that serves colleges, universities and large institutional investors.
The U-M endowment climbed $325 million during FY ’22 to a market value of $17.3 billion as of June 30. Distributions from the endowment to support the mission of the university increased 7.6% to $434 million, marking the 25th consecutive year of increases in endowment distributions.
Also at their meeting, regents unanimously approved an updated model portfolio, which provides percentage targets for how much of the university’s long-term portfolio it allocates to each individual asset class.
The approved model portfolio for the year ahead consists of 30% venture and private equity, 20% equities, 18% absolute return, 10% fixed income, 10% real estate, 10% natural resources and 2% cash. The allocation to natural resources — up from 8% in the prior model portfolio — is meant to accommodate rapid growth in energy transition investments.
Within each category there is an acceptable range to allow for modest shifts throughout the year. The board also has the flexibility to adjust the ranges as new investment opportunities arise.
(Note: This article has been revised from its original version to remove use of the phrase “carbon offsets.”)