Honor Fell: “Positioning the fund to prosper in a future net-zero economy is the key pillar that we have to achieve.”


7 Feb 2024

The sustainable investment officer at the Cambridge University Endowment Fund tells Andrew Holt about the issues she has with some asset managers, investing for the next 800 years and being comfortable about being uncomfortable.

The sustainable investment officer at the Cambridge University Endowment Fund tells Andrew Holt about the issues she has with some asset managers, investing for the next 800 years and being comfortable about being uncomfortable.

How important are sustainable investing and ESG to the Cambridge University Endowment Fund?

We are focused on sustainability. The purpose of the endowment is to deliver world-class sustainable investment performance. It comes down to our purpose as an organisation, which is to deliver income in a way that is sustainable.

We specifically talk about a sustainable economy as one that is well governed from an environmental and social perspective for the long term.

We are focused on sustainability, rather than just the ESG label. It is our purpose and mission, but it is also important for the university and our wider stakeholders.

So sustainable investment is baked into everything you do?

It is central to everything we do. We do not have a sustainability or impact investment bucket. We have a sustainable investment strategy across all asset classes and all of our activities. It is fully integrated into all of our investments.

What has the endowment invested in?

The fund has a dedicated team of 18 people and we invest across asset classes globally, but through asset managers. Everything we do is through third-party managers. We have no direct investments.

Sustainability needs to be part of the interaction when we select a new [asset manager] partner, to make sure they are aligned with our sustainability goals, in particular, climate change. We then monitor how they put those sustainable policies into practice. We are up front with managers about this.

Analysis has highlighted a disconnect between asset owners and asset managers when it comes to sustainability, with asset managers being somewhat off the pace on the issue. Is that your experience?

We rate all our mangers on sustainability, in terms of good governance, their policies and processes, what they do in the portfolio and implementation.
In our portfolio we have asset managers who are doing a fantastic job and asset managers where we have identified areas for improvement.

We make sure every time we make an investment we see evidence among the senior management investment team that they are aligned with our vision around sustainability. European managers are more forward thinking and advanced in terms of sustainable investment and decarbonisation. There is more work to do with US-based managers. It is though not a hard and fast rule.

We typically work with small, boutique-type managers as well. 
One thing we have done, which is quite unique, is to create an executive education course, in partnership with The Cambridge Institute for Sustainability Leadership, which we encourage our partners to attend.

What are your asset managers failing on?

A common issue is that sometimes they do not apply the sustainability policy consistently. We may see them being great in some areas or with some companies, but this is not applied elsewhere.

We hold a lot of data on high emitters and ask an asset manager why they are holding such a company. The asset manager may reply that they have different data to us. We then dig into it together and the asset manager engages with the company on this specific issue.

The other failing is not fully explaining to us what they do and how they approach it.

What is your net-zero strategy?

Climate change within the sustainability investment policy is key. Positioning the fund to prosper in a future net-zero economy is the key pillar that we have to achieve. The headline is an ambition for the fund to be net zero of greenhouse gas emissions by 2038.

One of our commitments is reducing fossil fuels as soon as possible, or by 2030, and to look for investments in renewable energy to build a low-carbon economy. We have found some interesting investment opportunities there.

We have three implementation pillars, which are investing for net zero, engaging to drive the transition and reporting back with transparency and accountability to our stakeholders.

How do you keep all of your stakeholders happy with your sustainable investment strategy and net-zero ambitions?

Our team came into place after 2020 and it was at that point we put the current strategy in place. So it is just over three years old. We did a huge amount of engagement with stakeholders at that point, so had a lot of input into it.

A key part of our ongoing strategy is engaging with our stakeholders in a variety of formats: through our website, annual reports, town hall meetings and a governance body that represents the stakeholders.

What has been the biggest challenge your fund has faced from a sustainability investment perspective?

The biggest challenge of our model is that we invest with third-party fund managers, so from that perspective there is a level of disintermediation. And if we are engaging with a manager it can take time for changes to be made, which can be a challenge with pooled vehicles.

Within those pooled investments have you had any sustainable investment surprises?

We haven’t had any real issues within the portfolio. But what I would say is when you go through all the different language fund managers use to describe what they do, different organisations use different definitions. So we need to be cognisant of the fact that our definition may not be the same as everyone else.

Is that a big problem around those different definitions?

It is a huge challenge. You could get paralysed by the diversity of definitions and metrics. You also have some managers labelling stuff that may not be 100% correlated to what they are doing.

You have said that the requirement to deal with hard to abate sectors is an urgent responsibility. What have been your conclusions on this?

One of the issues is nearly a third of global emissions are from the steel, cement and aviation sectors. So far, there is not enough investment here to support the transition. The tendency has been to focus on electrification and renewable power. So there remain di cult technologies and sectors that need investment to decarbonise.

Sitting alongside that is the discussion we are having around the labelling of funds, reporting on funds and trying to set targets and incentives for fund managers to encourage and attract progress on sustainability ambitions.

But there is the potential that if we just focus on the total emissions picture to go down in a straight line, we may not be able to get investment for these high emitting sectors and to create the technologies that we need to put in place.

I don’t have a great conclusion yet, but it is important for us to invest with asset managers who are investing in technologies to decarbonise in these areas in order to be part of the transition. We should not walk away from this area just for our portfolio to have a low emissions profile.

We need to be careful that as an industry we don’t conflate tech funds with low emissions with a great impact on decarbonising the economy.

Will supranational events help or hold back your sustainable investment work?

National and supranational policies and frameworks are critically important. They have to happen. And they have to keep moving forward for us to have an investment universe of companies. Having said that, for us, the real high impact work is working with our fund managers.

What would you change to beef up global co-operation on sustainable investment?

It is the point about consistency and co-ordination so that we can have global standards, which is happening with The Task Force on Climate-Related Financial Disclosures.

What is the biggest difference between your endowment and other institutional investors when it comes to sustainable investment?

There are quite a few things. We have an incredible long-term time horizon and don’t have liabilities in the same way as a pension fund does. Our investment has provided for the university and is more than 800 years old.

And although we will all be dead, hopefully the endowment will support the activities of the university in another 800 years. So we are an institution that is incredibly long term.

Our allocation is therefore different to, for instance, a closed DB pension scheme. We have a high target allocation in equities, at 60%. Of that, the long-term target for private equity is 30%. So we have a high percentage of private assets and equities and our private market managers have the tools to drive sustainability in companies for the long term.

Then we have access to the university and its research, not just on climate issues, but in all fields. That is pretty unique. That is sharing some of the scientific and research knowledge on climate change with our asset managers and gets them in that space where they can talk about what they can do and what their tools are as investors to drive the transition to a low-carbon economy.

We have a bespoke executive education programme, completed by 18 firms, managing more than £150bn. That has helped to magnify our impact. We are also a nice size with our net asset value being just over £4bn. We are big enough to have a good team to invest globally, but small enough to invest with early stage managers or managers who have capacity-constrained funds but are pretty nimble. That is quite exciting in that it helps us to build a strong portfolio.

What are your hopes for the fund and the wider sustainable investment industry?

In the long term, what would be great to see happen in the industry is for sustainable investment to be the core part of all investment. Not something that is seen as separate. That is the key hope.

For us as a fund, it is to be recognised as one of the asset owners that have been part of that important journey of sustainability being integral.

How far away are we from that?

We still have a lot of work to do. I don’t know how far away we are. There has though been a huge positive with the direction of travel in the last five years. And there is strong momentum, but we don’t see that being applied equally.

What is the biggest lesson you have learned in your career?

Not feeling paralysed by a lack of information. Taking what is in front of you and then making a decision. So being comfortable about being a little uncomfortable in making progress on climate ambitions and to think differently.


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