University of California, Berkeley
PA-9: Sustainable Investment

In 2017 the endowment made a $35 million commitment to Congruent Ventures, a new energy seed-stage venture capital fund, which is a clean tech investment firm seeded with capital from the investment office and which sources investment opportunities from throughout the UC system. The fund is also invested in Pattern Energy, a renewable power company. In 2017 the endowment also made a $70 million investment in TPG Rise Impact Fund, TPG’s impact investment fund. Additionally, the investment office has liquidated its high-yield bond holdings of of Dakota Access Pipeline (DAPL) operating companies ETP and SUNOCO. In 2015 the office sold its holdings in the world’s largest coal mining firms and firms that generate profits from Canadian oil sands mining. In 2015 the University of California because the first and largest founder of the Aligned Intermediary, which helps long-term investors identify investable climate infrastructure projects in clean energy, water infrastructure and waste-to-value. That same year, the UC became the first and only institutional investor that is a signatory to the Bill Gates Breakthrough Energy Coalition to accelerate clean energy solutions. We also work to partner with family offices and other investors, sourcing ideas from our national labs and agricultural centers.

The world is changing and investors must keep abreast of how growing awareness of environmental, social and governance (ESG) risks spreads rapidly via social and other media to influence markets. At the Office of the Chief Investment Officer of the Regents (OCIO) we believe ESG risks can present opportunities and that addressing these factors is in line with our fiduciary duty. Some of our stakeholders have voiced concerns regarding the impact ESG risks could have on the future growth of our endowment and retirement funds. We have listened carefully to these concerns through meetings, one-on-one encounters and written exchanges. Based on this stakeholder engagement, as well as extensive research on ESG risks and opportunities, we agree that certain material ESG factors will increasingly become a focus of risk assessment for long-term value creation in the years to come. We continue to actively study how our peers and fund managers are improving measurement of these variables for integration into investment decision-making and are working to bring ESG evaluation more holistically into our investment culture. Key ESG risks are driving new economic and financial trends and can guide our investment decisions and fund manager selection and monitoring. This list is not intended to be static, but represents important core universal principles we keep in mind as we aim to ensure the best return on investments for our university and its many stakeholders. These principles include the following trends and considerations: Climate Change: Continued emissions of greenhouse gases will cause further warming and changes in all components of the climate system. A transition to a lower carbon economy, including low carbon sources of energy, is necessary to ensure the health and well-being of future generations. Given the scale of existing infrastructure and the challenge of quickly shifting the transportation sector to low carbon fuel sources, this transition requires a multi-generational effort. Inequality: Addressing inequality is not only a responsibility but also an opportunity. Solving inequality of opportunity can create new demographics that can contribute to economic progress and widen the market for goods and services, thereby creating a more profitable and sustainable business climate. Human Rights: Businesses whose profits are derived from direct harm to public safety, the unlawful deprivation of human dignity, or the exploitation of children or other vulnerable workers undermine universally approved United Nations principles and create a serious threat to the conditions needed for a well-functioning, market-based global system. Food and Water Security: Global climate change, population growth and rapid urbanization are intensifying the strain on global water and agricultural systems. Human well-being is inexorably linked to water and food security, and failure to adequately ensure these basic needs for future generations will undermine global economic welfare, human security and political stability. Diversity: Diversity enhances economic, social and environmental outcomes for business and society. Aging Population: Rapid aging of populations will be a transformational force affecting society and the global economy, requiring new approaches to health systems, workforce organization, intergenerational relations and public finance. Circular Economy: The “take, make, dispose” pattern of growth is an unsustainable economic paradigm. We must transition to a more circular economy in which intelligent design allows us to decouple economic growth and development from consumption of finite resources. Ethics and Governance: Our market economy system relies on trust as a fundamental cornerstone. Good corporate governance and proportionate, transparent and responsible regulation are vital to well-functioning and sustainable financial markets. As long-term investors, we seek the sustained returns associated with strong governance, rather than the rapid gains that can vanish quickly if they are rooted in corruption, fraud or falsification. Recent financial crises highlight how destructive such fraud and corruption can be to the proper functioning of credit markets and the preservation of personal and corporate wealth.

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. In 2017 the endowment made a $35 million commitment to Congruent Ventures, a new energy seed-stage venture capital fund, which is a clean tech investment firm seeded with capital from the investment office and which sources investment opportunities from throughout the UC system. The fund is also invested in Pattern Energy, a renewable power company. In 2017 the endowment also made a $70 million investment in TPG Rise Impact Fund, TPG’s impact investment fund. Additionally, the investment office has liquidated its high-yield bond holdings of of Dakota Access Pipeline (DAPL) operating companies ETP and SUNOCO. In 2015 the office sold its holdings in the world’s largest coal mining firms and firms that generate profits from Canadian oil sands mining. In 2015 the University of California because the first and largest founder of the Aligned Intermediary, which helps long-term investors identify investable climate infrastructure projects in clean energy, water infrastructure and waste-to-value. That same year, the UC became the first and only institutional investor that is a signatory to the Bill Gates Breakthrough Energy Coalition to accelerate clean energy solutions. We also work to partner with family offices and other investors, sourcing ideas from our national labs and agricultural centers.

The investment office votes its proxies in accordance with ISS ESG guidelines.

The investment office has worked with outside groups such as Ceres and the 30 Percent Coalition on shareholder engagements. We have also partnered with other investment managers to engage with companies over key issues, such as diversity, and will from time to time engage in direct dialogs with companies on our own as and when we deem appropriate to do so. In 2016 for example the UC was a co-filer on a resolution by Exxon Mobile shareholders, requesting that the company publish a two-degree scenario analysis. Although originally defeated, a similar resolution was successful in 2017. This past February the company published its first such analysis. The investment office has since engaged in a dialogue with the company about its report. UC is also involved in a joint share holder engagement effort with the California State Teachers Retirement System concerning board diversity.

The Office of the Chief Investment Officer applies a handful of negative screens to its investments. These include: companies doing business in the Sudan, companies that derive a significant amount of their revenue from thermal coal or oil sands, tobacco companies and business which operate private prisons. We also screen for firearms manufacturers.

The UC works with a number of networks and groups. Among them: Ceres 30 Percent Coalition Principles for Responsible Investment (PRI) Coalition for Private Investment in Conservation (CIPC) Task Force on Carbon Related Financial Disclosure (TCFD) The Farm Animal Investment Risk and Return (FAIRR) Investors & Indigenous Peoples Working Group Enlightened Endowment Initiative United Nations Global Compact

UC Berkeley has its own endowment, but the sustainable investment information was not available at the time of submission.