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3 Ps Critical to Investing in Aftermath of US Withdrawal from Paris Agreement

Cambridge Associates and IEN outline why purpose, priorities, and principles are rules of thumb for ESG investing.

Despite President Trump’s decision to pull the US out of the Paris Agreement, institutional investors have united with businesses, philanthropists, cities, and states across the nation to pledge their allegiance to the international accord.

For many institutions finding it difficult to integrate environmental objectives and considerations (including ESG factors) into their investment portfolios, the blueprints can be found in the Paris Agreement. Cambridge Associates’ Tom Mitchell, managing director in the Mission-Related Investing Practice and Georges Dyer, principal of the Intentional Endowments Network (IEN), have outlined a simple strategy to aid institutions with investment issues.

Dyer and Mitchell’s plan explains how articulating purpose, priorities, and principles in a well-designed investment policy can provide institutions with the tools they need to effectively incorporate pro environmental investments into their portfolios. There are many questions investors should explore, but according to Dyer and Mitchell, there are three key inquiries mentioned in the release:

  • “What is our institution’s purpose? That is, what are our primary goals and core beliefs–and how should they inform our investment decisions? An institutional purpose usually takes an aspirational, longer-term time horizon. For example, an investor’s purpose statement may simply be to support the transition toward a low-carbon economy. Ultimately, defining a purpose ensures that the institution knows what it is striving toward with its investments. 
  • What are our core environmental or social priorities, and how can we express them in policy language? Thinking about priorities allows investment committees to link their broad purpose to specific investment areas. If an institution’s purpose is to support the transition toward a low-carbon economy, for example, its investment priorities may exist in areas like renewable infrastructure, clean transportation, and smart energy management. 
  • What are the principles that inform our investment decision-making? Endowments and foundations should think of these principles as overarching guidelines that help ensure the investments they make are in line with their purpose and priorities. For instance, a guiding principle for some investors may be that all investment opportunities should be viewed through a sustainability lens.”

Dyer and Mitchell add that decision makers at endowments and foundations should also proactively study sustainability themes to remain aware of potential opportunities to align their portfolios with their environmental goals.

In addition, Dyer and Mitchell say endowment and foundation officials should avidly study sustainability themes to remain aware of potential opportunities as to properly align their portfolios with their environmental goals. They also recommend open discussions among key stakeholders as “essential for defining and refining an institution’s investment purpose, priorities and principles,” noting that should institutions “not seek input and build consensus internally, they will be more likely to fall short of their sustainable investment goals.”

The full report can be read on Cambridge Associates’ research page.


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