Universities are no longer simply institutions of learning. Over the past 50 years, they have also become important players in global financial markets. They have become institutional investors.
Universities have to decide what to do with the pension fund contributions of their staff. They also receive large monetary donations from alumni and other private donors. This money – millions, sometimes billions of dollars – goes into university investment funds. These can be managed internally or delegated to investment managers.
Harvard University in the US has the biggest endowment fund in the world with $32.7 billion, while university endowment funds in the UK hold between £2.5 million and £1 billion. Pension funds in the US and UK are even more substantial. For example, the California University pension fund boasts more than $70 billion.
University funds in southern Africa are much smaller, but some are still significant. According to our calculations, the universities with the largest endowments are all in South Africa, with the top five representing a little less than $1 billion (R13.4 billion) collectively. The pension funds of the top 10 universities in the region come to around $3.6 billion.
The question of how universities choose to invest all this money is increasingly coming under scrutiny. In the US, Europe, Australia and New Zealand universities’ pension funds and endowment funds are starting to align their investment portfolios with the social concerns of their students and staff.
Putting assets to work for a better world
In the 1970s student and staff activists at US universities put serious pressure on their managements to stop investing in companies involved in the Vietnam war or, later on, in apartheid South Africa.
Today climate change is the issue that’s increasingly dominating the activist agenda on university campuses. Since 2012, 350.org, a climate change activist movement, has been pushing for total disinvestment from fossil fuels – with some significant victories. Student activists in the US have also called successfully for disinvestment from prisons.
In 2005 the UN established a responsible investment coalition called the Principles for Responsible Investment. Signatories pledge to invest according to six principles, aiming to achieve long-term sustainable investment returns and benefits for society as a whole. So far over 1000 investment managers have signed up, making it the biggest coalition of this kind in the world.
A few academic institutions have signed up too. Harvard’s $35 billion University Endowment Scheme joined in 2014. And at least four retirement funds, endowment funds or foundations linked to tertiary education institutions in the US and Europe signed up this year. As was the case with Harvard, this has often happened under pressure from student activists.
Progress at South African universities
So far no universities in South Africa or Africa have signed the principles. But there are signs that the idea of responsible investment is starting to gain some traction – especially within the heightened activism at South African universities.
For example, the South African fossil-free disinvestment campaign has made significant progress at the University of Cape Town. After a four-year campaign, the university’s convocation of alumni and students this year voted to support a motion to disinvest from fossil fuels.
The Rhodes Must Fall movement also brought the issue of workers’ exploitation into focus. It accused leadership at the University of Cape Town of having blood on its hands for being invested in Lonmin at the time of the Marikana Massacre.
This was closely followed by nationwide Fees Must Fall protests. Protesters called on government to provide free education for all. In doing so, they challenged the idea that universities should operate as businesses according to free market principles. They also challenged the role of the university in society by calling for decolonisation of the institution.
Since then the University of Cape Town’s council has agreed to design a responsible investment policy. This makes it the first known southern African university to do so.
For this movement to truly take off in southern Africa’s universities, there needs to be a paradigm shift at the level of university management.
As stressed by the University of California, becoming a responsible investor is not about giving up on financial returns. Rather it’s about finding ways to achieve these while addressing societal challenges and opportunities. A responsible investor can decide to disinvest from environmentally and socially harmful sectors, but also to support new investment opportunities such as renewable energy.
An institutional investor that takes its responsibility towards future generations seriously should reflect on its values to take informed decisions on how financial returns can be better achieved. Fortunately it’s becoming easier to do this thanks to a surge in innovative investment strategies and funds that seek to achieve both good financial returns and positive social impacts. The African Investing for Impact Barometer – a research project that we run for the Bertha Centre for Social Innovation and Entrepreneurship at the UCT Graduate School of Business – charts the rise of opportunities like this and shows that impact investing on the continent is booming.
This trend, combined with activism, can persuade universities to become more proactive, creative and responsible investors.
Student and staff activists have clearly begun to interrogate the links between social and environmental issues and their universities’ investment choices. For university management, these questions present an opportunity to think about how their investment portfolios can be used to address the social concerns of their students and staff. Universities – being both institutional investors and places of education – can ultimately find improved investment solutions that create a more sustainable future for the generations of learners to come.
Stephanie Giamporcaro, Associate professor UCT GSB / Readership Responsible and Sustainable Finance NTU NBS, University of Cape Town and Xolisa Dhlamini, PhD Candidate and Bertha Scholar and Researcher, UCT Graduate School of Business, University of Cape Town