Arizona State University
PA-10: Sustainable Investment

Sustainable industries
Assets invested in sustainable industries such as renewable power, clean technology, sustainable food production, etc. As an example, this category would include BlackRock's Global Renewable Power fund.

Businesses selected for exemplary sustainability performance
Similar to most endowments, the vast majority of our assets are invested in pooled vehicles managed by third-party managers. The ASU Foundation assesses its managers using a proprietary framework developed by BlackRock to determine the level of ESG integration into the managers' security selection and portfolio construction process. The ASU Foundation considers managers ranked "Advanced" or higher as positive sustainability investments.

Definition of an "Advanced" Manager:
- able to articulate specific steps in the investment process where ESG information is formally reviewed at a team level
- ESG analysis is a process requirement and is conducted for every potential investment decision
- team has conducted ESG research on all portfolio holdings or on every new investment idea
- able to provide examples of ESG information influencing investment decisions, or proprietary models where ESG is directly linked to a scalable internal rating or score
- has dedicated ESG resources integrated within investment teams that are responsible for refining ESG processes and can actively influence investment decisions on the basis of ESG criteria

Additionally, the ASU Foundation has an endowed Sustainable, Responsible, Impact Pool with 100% of its holdings in ESG-oriented holdings, managers, and strategies

Sustainability investment funds
Assets that are invested in ETFs and other pooled vehicles that have an explicit sustainable or impact mandate. As an example, this category would include BlackRock's Impact Opportunities Fund.

Socially responsible mutual funds
Assets invested in mutual funds that incorporate positive socially responsible screens into the security selection and portfolio construction process. As an example, this category would include Schroders' Emerging Markets Equity fund.

ASUF recognizes the growing interest and importance of aligning investments in a manner consistent with globally recognized socially responsible and sustainability practices. Below are the principles that will guide ASUF’s investments:

Arizona State University’s Sustainability Leadership
From the establishment of the Global Institute of Sustainability in 2004 – now expanded and known as the Julie Ann Wrigley Global Futures Laboratory - and the world’s first dedicated School of Sustainability in 2006, ASU has taken a leadership role in addressing the most pressing global challenges. As the prototype for a New American University, ASU continues to find innovative ways to serve not only as a living laboratory but a leading example of sustainability for broader society. To realize this culture of maximum positive impact, sustainability considerations must be embedded into the full scope of ASU’s activities, including the manner in which we deploy our investments.
Here, the Committee sets forth its commitment to sustainable responsible investing, their guiding beliefs, and the aspiration to serve as a transformational catalyst in the way in which peers invest capital. As a leader, the Committee can guide and empower others to adapt their programs to the needs faced by their communities and society.

We believe:
1. Sustainable, responsible, impact investing means aligning capital in a manner consistent with the mission of the University, which can advance globally-recognized sustainability goals while still accomplishing our financial objectives in support of the University.
• ASU’s charter targets inclusion and diversity, research of public value, and taking fundamental responsibility for the economic, social, cultural, and overall health of the communities it serves.
• ASU’s design aspirations are eight principles integrated throughout the University, notably including Leverage Our Place, Transform Society, Value Entrepreneurship, Be Socially Embedded, and Engage Globally.
• ASU’s sustainability operational goals are eight measurable objectives including zero waste, climate positive (achieving net positive carbon footprint), and collaborative action.
2. We have a responsibility to consider the environmental, social and governance impacts of our investment decisions. In alignment with ASU’s mission to be “measured not by whom it excludes, but by whom it includes and how they succeed”, we adopt the goal “not to have the least impact possible, but rather the greatest net positive impact possible” (from the ASU climate positive goal). In other words, our strategy is not predicated on where we don’t invest, but rather where we choose to allocate capital—in order to advance a sustainable, equitable future.
3. The market has not fully priced material non-financial considerations such as environmental, social, and governance issues (ESG). This leaves an opportunity to drive differentiated returns as ESG and general investing become synonymous, and reduce risk now by using ESG as a lens.
• Environmental: Corporate environmental management practices, pollution abatement and resource efficiency create competitive advantages that improve long-term stock performance.
• Social: Companies with a focused commitment to their employees, customers, and community can significantly improve operational performance through a combination of enhanced brand, lower turnover/employment costs, and greater innovation.
• Governance: Good governance leads to better firm valuations. Stocks of well-governed firms, those with superior approaches to board structure, executive compensation, and anti-takeover mechanisms, perform better over time.
4. Companies whose business models align with global megatrends such as climate change, resource scarcity, demographic shifts, advances in healthcare, evolving transport, educational innovation, and financial inclusion stand to benefit from long-term economic tailwinds. Similarly, these megatrends will act as headwinds to companies that fail to adapt their business models. Our perpetual time horizon and consideration of ESG factors allows us to optimally take advantage of these types of long-term investments.

Implementation Framework: Consistent with our fiduciary duty, we seek to drive superior, risk-adjusted returns and embed sustainability in the investment decision making process.
• Investment Policy: Defined objectives for sustainable outcomes and improvements along with financial targets. We embed these beliefs in the core of our Investment Policy Statement to maximize their impact and drive alignment of investment decisions.
• Portfolio Construction: We apply our beliefs across asset classes, geographies, sectors, and strategies. We recognize that a restrictive approach limits implementation of a diverse portfolio by reducing the investment universe. Our approach will embrace the holistic set of tools at our disposal to drive heightened, long-term, risk-adjusted returns in a responsible manner.
• Manager Selection: We align with managers that not only incorporate environmental, social, and governance metrics in their investment process, but also reflect these values in their own business practices.
• Active Ownership: We (and our managers) use shareholder rights to advocate for best practices and transparency to improve the long-term value of a company.
• Measurement: Use frameworks to evaluate the portfolio based on ESG, progress toward the UN Sustainable Development Goals, diversity, and other relevant impact metrics.
• Stakeholder Engagement: We seek ongoing collaboration with experts and constituents within the University, not only to help meet the complex demands of sustainability, but to adapt to the evolving values and mission of the University.

Net Zero Commitment:
ASU has set aggressive sustainability goals and is committed to reach them by advancing sustainability technology and research, converging the university’s mission with its operations in a living laboratory environment that extends to the broader world, learning from the practice of implementation, and raising awareness of the urgency in addressing climate change and resource depletion. In FY 2019, the University reached carbon neutrality for Scope 1 and Scope 2 emissions – a full six years ahead of its goal as stated in the President’s Climate Commitment. ASU further seeks to achieve carbon neutrality for Scope 3 emissions by 2035.
Consistent with these goals, the ASU Foundation commits to transition its investment portfolio to at least Net Zero greenhouse gas emissions by 2035. We believe this Net Zero framework offers a balanced approach in considering both the users of fossil fuels as well as the producers in alignment with the University’s leadership. Recognizing the importance of a robust carbon accounting methodology and thoughtful implementation, intermediate targets and updates will be released over the intervening years.

Key tenets of the sustainability policy include:
- aligning capital in a manner consistent with the mission of Arizona State University
- a responsibility to consider the environmental, social and governance impacts of our investment decisions
- a recognition that the financial markets have not fully priced in material non-financial considerations such as ESG issues
- a belief in the long-term shift of companies business models that are directly impacted by climate change, resource scarcity, demographic shifts, advances in healthcare, evolving transport, educational innovation, and financial inclusion

The sustainability policy is implemented through a framework that consists of the following:
- a sustainability policy directly embedded into the Investment Policy Statement
- application of the policy across all asset classes, geographies, sectors, and strategies
- alignment with managers that not only incorporate ESG into their investment process, but also reflect those same values in their own business practices
- active ownership
- measurement of process to evaluated progress towards the UN Sustainable Development Goals, diversity, and other relevant impact metrics
- stakeholder engagement through collaboration with expects and constituents within the University

Additionally, a discretionary consultant, BlackRock, assumed management of the broader endowment portfolio as of July 1, 2017. As part of their decision-making process, BlackRock incorporates ESG metrics into their due diligence and manager selection process for the endowment.

As outlined in a letter written by BlackRock’s Chairman and CEO, Larry Fink, BlackRock as a firm has also made commitments to pursuing ESG policies by engaging directly with companies and using their proxy voting power to influence and promote ESG principles while also drawing a direct linkage of climate risk as investment risk. Further, BlackRock has committed to divesting client assets from companies who derive a material percentage of revenue from thermal coal production. We believe that BlackRock’s values are strongly aligned with the mission of the ASU Foundation and will continue to see them use their influence to further ESG principles. See below for a link to the letter:

https://www.blackrock.com/corporate/en-us/investor-relations/larry-fink-ceo-letter
https://www.blackrock.com/corporate/investor-relations/blackrock-client-letter

Similar to most endowments, the majority of our assets are invested in pooled vehicles by third-party managers. We share our proxy voting guidelines with each of them and receive reports of their activities on our behalf. In addition, our outsourced CIO, BlackRock, has engaged in numerous activities on behalf of their clients, including us, as outlined above and below.

Below is a brief description of BlackRock’s proxy voting guidelines:

These guidelines are divided into six key themes that group the issues that frequently appear on the agenda of annual and extraordinary meetings of shareholders.

The six key themes are:

_ Boards and directors
_ Auditors and audit-related issues
_ Capital structure, mergers, asset sales, and other special transactions
_ Compensation and benefits
_ Environmental and social issues
_ General corporate governance matters and shareholder protections

Detailed information regarding BlackRock’s corporate governance and engagement principles, investment stewardship engagement principles, and climate risk engagement can be found here:

https://www.blackrock.com/corporate/en-br/about-us/investment-stewardship/voting-guidelines-reports-position-papers

Our outsourced CIO, BlackRock, engages on our behalf both at the portfolio level and, where they are also the fund manager, at the individual security level, as described previously.

Additional information: https://www.blackrock.com/corporate/literature/publication/2022-investment-stewardship-voting-spotlight.pdf

Further, we have been on a pathway for more direct engagement with companies. We partnered with As You Vote to take over proxy voting of our directly held securities. This started with our Student Managed Funds. Then we added our SMAs. Most recently, we began replacing passive, ETF exposure with Direct Indexes to allow for greater engagement. In 2022, we voted on proxies related to 75 companies. For 2023, that number will expand to several hundred with the increased direct ownership.

ASU students and internal investment staff engaged with Chevron's legal and investor relations team on three occasions to discuss the company's lobbying efforts and other points of concern. Subsequently, in December 2022 ASUF co-filed a shareholder resolution with Chevron around disclosure of their transferred emissions and calculation methodology for reductions in their reported emissions.

Consistent with our University's charter to be "measured not by whom it excludes, but by whom it includes and how they succeed", we have adopted the goal not to have the least impact possible, but rather the greatest net positive impact possible. In other words, our strategy is not predicated on where we don't invest, but rather where we choose to allocate capital in order to advance a sustainable, equitable future.

"The ASU Foundation--along with ASU--is a founding member of the Intentional Endowments Network (IEN). The Chief Investment Officer of ASU Enterprise Partners (parent company of the ASU Foundation) is on the executive board of IEN.

The Arizona State University Foundation is also a member of the Ceres Investor Network: https://www.ceres.org/networks/ceres-investor-network

ASU Enterprise Partners is a signatory in Confluence Philanthropy's Belonging Pledge related to racial equity. https://www.racialequityandbelonging.org/

ASU and the Foundation also committed to the Intentional Endowments Network Retirement Pledge to elevate sustainability into our university retirement plans."

Notes: The endowment amount reported in the Operational Characteristics section does not include non-pooled endowments managed by third parties or other assets counted for NACUBO assets.