University of California, Merced
PA-9: Sustainable Investment

Congruent Ventures: clean tech investment firm which sources investment opportunities from throughout the UC system. Pattern Energy: a renewable power developer. TPG Rise Fund: impact investment fund specifically designed to address challenges identified by the UN’s Sustainable Development Goals. Aligned Intermediary: identifies climate infrastructure projects in clean energy, water infrastructure, sustainable agriculture and waste-to-value for long-term investors. Various public equity, real asset and real estate holdings in alternative fueling infrastructure development, stationary fuel cells, solar equipment, energy efficiency technologies, certified green buildings and sustainable water technologies.

“The Office of the Chief Investment Officer shall incorporate environmental sustainability, social responsibility, and governance (ESG) into the investment evaluation process as part of its overall risk assessment in its investments decision making. ESG factors are considered with the same weight as other material risk factors influencing investment decision making. The Office of the Chief Investment Officer uses a proprietary sustainability framework to provide core universal principles that inform the decisions and assist in the process of investment evaluation. The Office of the Chief Investment Officer manages the [endowment] consistent with these sustainability principles. The Framework can be found on the Office of the Chief Investment Officer website in the sustainability section.” Our Framework for Sustainable Investing can be found here: https://www.ucop.edu/investment-office/_files/sustainable-investment-framework.pdf

We approach sustainability both from a risk management and investment opportunity perspective. We believe that sustainability can help us increase our risk-adjusted returns over the long term by helping us manage long horizon risks. As part of the overall due diligence process and ongoing assessment every investment manager is reviewed and scored against the UC’s sustainability framework. With regard to investment managers, we engage in ongoing dialogue with our external managers to ensure they understand the priority we place on sustainability and to make sure we understand how they assess ESG risks and opportunities in their investment process. We have also added a description of our Sustainable Investing Framework into our standardized external manager contracts and communications, including specific information about securities that should not be purchased on our behalf. In 2017 the endowment made a $50 million commitment to Congruent Ventures, a clean energy seed-stage venture capital fund which sources investment opportunities from throughout the UC system. The endowment also made a $25 million investment in Pattern Energy, a renewable power company. In 2017 the endowment also made a $35 million investment in TPG Rise Impact Fund, TPG’s impact investment fund. In 2018 the endowment made additional investments in renewable assets through ManuLife, John Hancock and Goldman Sachs Asset Management. The UC also sold off a portfolio private market of upstream oil and gas holdings.

The endowment contracts with Institutional Investment Services (“ISS”) to manage our proxy voting. We use their SRI Guidelines (see links above) to vote sustainably on environmental and social issues. We share our proxy voting results on our website. https://www.ucop.edu/investment-office/sustainable-investment/active-ownership/index.html

In 2017 and 2018, the endowment engaged directly with corporations in our portfolio regarding gender and racial diversity on the Board of Directors. Specifically, we have written to every California-based company in our portfolio that does not have at least one woman on its board. We have asked for a dialogue with the Board’s Nominating & Governance Committees and, as a result, have spoken directly with dozens of companies over the past two years. Our specific recommendations to the Nominating & Governance Committees include incorporating procedures by which women and diverse racial and ethnic backgrounds are identified for consideration in every search for a board nominee (a practice commonly known as “the Rooney Rule,” after its successful use in the National Football League.)

The Office of the Chief Investment Officer applies a handful of negative screens to its investments, namely: companies doing business in the Sudan; companies that derive a significant amount of their revenue from thermal coal mining or extraction or from oil sands development and production; tobacco related businesses; fire arms manufacturers; and businesses which operate private prisons in the United States.

The UC Investment Office participates in a number of investor networks to engage in policy advocacy and to share best practices, including, e.g., Ceres Investor Network on Climate Change & Sustainability, the Investors & Indigenous Peoples Working Group (Yethiya), the UN Principles for Responsible Investment, the Intentional Endowments Network, the Council of Institutional Investors, the Task Force on Climate-related Financial Disclosures and the Thirty Percent Coalition. Influential investors from leading asset management firms, public pension funds, labor and socially-responsible investment funds, foundations, endowments and family offices make up the Ceres Investor Network. Ceres Investor Network members engage and collaborate on environmental, social, and governance issues to advance leading investment practices, corporate engagement strategies and policy solutions through working groups and shared learning opportunities, such as webinars and events. Ceres works with investors specifically to better manage carbon, water and supply chain risks, and ramp up global investments in clean energy and sustainable food and water systems. In addition, Ceres Investor Network members pressure stock exchanges and capital market regulators to improve climate and sustainability risk disclosure, and opportunities to advocate for stronger climate, clean energy and water policies at all levels of government. The Intentional Endowments Network is a peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy. The FSB Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force will consider the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. The work and recommendations of the Task Force will help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs. The United Nations-supported Principles for Responsible Investment is an international network of investors working together to put the six principles into practice. The California Collaborative for Climate Change Solutions is a partnership intended to accelerate the translation of research findings into practical climate solutions, to test innovative technologies through high-impact pilot projects, and to rapidly scale promising solutions to the national and global level. The Council on Institutional Investors is an international non-profit organization representing the voice of corporate governance, supporting effective corporate governance practices and strong shareowner rights. The Investors & Indigenous Peoples Working Group (Yethiya) focuses on four main areas: Indigenous Peoples' free, prior & informed consent (FPIC); Extractives industries impact on the environment and communities of Indigenous Peoples; Racist images, stereotypes, and cultural appropriation; and Corporate and investor support for Indian Country. The Thirty Percent Coalition, founded in 2011, is a pioneer advocating for diversity in the corporate boardroom. Our vision is for senior leadership and board of directors to reflect the gender, racial and ethnic diversity of the United States workforce. The mission of the Thirty Percent Coalition is to promote gender diversity, including women of color, on corporate boards.

https://www.30percentcoalition.org http://www.intentionalendowments.org/ https://www.fsb-tcfd.org/about/# https://www.unpri.org/ https://scripps.ucsd.edu/labs/ramanathan/california-collaborative-for-climate-change-solutions/ https://www.cii.org/index.asp https://317uqr1kb7ll3rigx81eqhk614y0-wpengine.netdna-ssl.com/wp-content/uploads/2018/04/IIPWG-Investors-Indigenous-Working-Group-Spring-2018-conference-flyer-3-15-2018-DRAFT-for-Susan-review.pdf