University of California, Davis
PA-10: Sustainable Investment

The examples below are not the comprehensive list of the investments referenced above, but rather illustrative examples.
SUSTAINABLE INDUSTRIES:
Commercial scale renewable power & battery storage developers, such as Upper Bay Infrastructure, Goldman Sachs Renewable Power.
Various public equity, fixed income and real asset holdings in companies that provide alternative fueling infrastructure development, stationary fuel cells, solar equipment, energy efficiency technologies, agtech, and sustainable water technologies.
SUSTAINABILITY PERFORMANCE:
Investment in LEED and/or EnergyStar certified green real estate and/or in funds that own real estate certified for energy, water, health, recycling and other sustainability characteristics (LEED, EnergyStar, BOMA, WELL and/or Fitwel).
SUSTAINABLE INVESTMENT FUNDS:
Congruent Ventures: a venture fund focused on new solutions to sustainability challenges, including renewable energy, energy efficiency and the circular economy.
MIT Engine Fund: a venture fund that invests long-term capital in startups focused on sustainability solutions, to help bridge the gap between discovery and commercialization. Its portfolio companies include those focused on decarbonizing the manufacturing processes for carbon-intensive industrial materials, such as cement and steel.
TPG Rise Fund: impact investment fund specifically designed to address challenges identified by the UN’s Sustainable Development Goals.
COMMUNITY DEVELOPMENT FINANCE INSTITUTIONS:
We invest in several consumer finance companies that help communities by enabling economically disadvantaged consumers to rehabilitate their credit, build equity and have access to capital by:
Consumer lending to performing C+ borrowers. This enables the borrower to rehabilitate their credit and meaningfully improve their FICO scores (i.e., 50-100 points) over the term of the loan. This FICO score improvement can help these consumers access more traditional forms of credit upon completion of the program.
Home Equity Financing that offers an “appreciation share” to borrowers. These products provide predominantly non-prime consumers with a means of accessing the imputed equity value in their homes in situations where a traditional HELOC is not available (primarily due to credit standards) and as an alternative to higher-cost unsecured debt.
Extending credit access to under-banked small businesses that are typically boxed out of more traditional commercial finance options (i.e., SBA loans, bank loans, and other similar products).

“The Office of the Chief Investment Officer shall incorporate environmental sustainability, social responsibility, and governance (ESG) into the investment evaluation process as part of its overall risk assessment in its investments decision making. ESG factors are considered with the same weight as other material risk factors influencing investment decision making.

The Office of the Chief Investment Officer uses a proprietary sustainability framework to provide core universal principles that inform the decisions and assist in the process of investment evaluation. The Office of the Chief Investment Officer manages the [endowment] consistent with these sustainability principles. The Framework can be found on the Office of the Chief Investment Officer website in the sustainability section.”

Our Framework for Sustainable Investing can be found here:
https://www.ucop.edu/investment-office/_files/sustainable-investment-framework.pdf

We approach sustainability, at every stage of the investment process, both from a risk management and investment opportunity perspective. We believe that our focus on sustainability, including in particular climate change, food and water security and the circular economy, can help us create better risk-adjusted returns over the long term.
After determining that the risks posed by fossil fuel reserve stranded assets warranted additional changes to our portfolio , UC’s endowment sold its holdings of companies that own any amount of fossil fuel reserves, beginning in 2019 and concluding in 2020. As a result, as of June 30, 2022, the UC endowment’s public equity and fixed income assets included ~$5.3 billion invested in fossil fuel reserves-free passive indexes, such as the MSCI ACWI IMI ex Tobacco ex Fossil Fuel Index, available at: https://www.msci.com/documents/10199/533e1509-9bc0-bdd4-946a-7736245c8c4e
By intentionally selecting real assets managers capable of advancing zero carbon emitting electricity, UC has invested approximately $183 million of its endowment into renewables and battery storage. Cumulatively, these private markets capital commitments have led to the acquisition or development of hundreds of megawatts of wind, solar and battery storage projects in the U.S., Canada, Ireland, India, and Japan. The majority of these clean gigawatts were developed through investments in utility-scale renewables platforms, as well as an aggregator strategy to own and operate commercial and industrial solar opportunities.
With regard to investment managers, UC Investments has developed a bespoke ESG/sustainability questionnaire and scoring mechanism that we use in the due diligence of potential new managers. Our due diligence questionnaire includes questions on climate risk (both transition and physical). We also engage in ongoing dialogue with our external managers to ensure they understand the priority we place on sustainability and to make sure we understand how they assess ESG risks and opportunities in their investment process. Through due diligence of new and existing investment managers, we measure them against one another and against our sustainability framework.
We have also added a description of our Sustainable Investing Framework into our standardized external manager contracts and communications, including specific information about securities that should not be purchased on our behalf.

With limited exceptions, UC Investments does not delegate proxy voting to its managers. In the rare instances in which managers vote our shares, we ask that they do so consistent with our proxy voting guidelines. When they intend to vote otherwise, they contact us and we discuss the matter prior to the vote.

Proxy Voting Dashboard: https://vds.issgovernance.com/vds/#/MzY1OQ==/

We augment our shareholder engagement efforts by working in collaboration with other institutional investors through Columbia Threadneedle’s responsible engagement overlay service (see: https://www.columbiathreadneedle.co.uk/en/inst/about-us/responsible-investment/#Active-ownership). Working through reo, UC Investments is able to amplify our voice as a shareholder in order to improve our investee companies’ long-term performance on material environmental, social and governance issues, including climate change risks. In the past year, we engaged directly - through letters and dialogue - with senior management and boards of directors of 508 companies on climate change and environmental issues.
Through sustained, direct interaction with our investee companies, we encourage them to adopt climate strategies that include:
a plan to cut emissions to net zero by 2050 at the latest, with interim targets;
a credible strategy to implement the net zero target, including alignment of capital expenditures;
a strong governance framework to oversee climate strategy;
risk analysis and disclosure in line with the TCFD; and
lobbying and public policy practices consistent with this approach.
UC Investments, through the responsible engagement overlay service, is the lead CLimate Action 100+ investor for Volkswagen. In 2022, partly as a result of our interactions with Volkswagen, it set Scope 1 and 2 emission reduction targets which will result in reducing emissions from its own production facilities by 50% by 2030. These targets are deemed by the Science Based Targets initiative to be aligned with a 1.5 degree Celsius of global warming.

We track the MSCI ACWI IMI ex Tobacco ex Fossil Fuel Index, which screens out roughly 300 publicly traded companies that own “proved and probable” reserves of thermal coal, oil and gas. We apply the same screening definition (i.e., any amount of fossil fuel reserves) to our other investments in public equities, fixed income and the private asset classes (private equity, absolute returns, real assets and real estate), thus comprehensively covering the entire endowment. To the extent that fossil fuel reserve owning companies are held in commingled accounts, UC Investments continues to reduce exposure by, for example, converting such accounts into separately managed accounts that exclude fossil fuel reserve owning companies.

In addition, UC Investments applies other negative screens to its investments, namely: companies doing business in Sudan; tobacco related businesses; firearms manufacturers; and businesses which operate private prisons in the United States.

Importantly, in 2020, in order to amplify our voice as a shareholder on key sustainability issues, UC Investments enlisted the services of the responsible engagement overlay team at Columbia Threadneedle.
Along with other institutional investors whose combined assets total roughly $1.16 trillion, UC Investments actively engaged with over 500 publicly traded companies on key sustainability issues in 2022.

UC Investments participates in a number of investor networks to engage in policy advocacy and to share best practices, including, e.g., Climate Action 100+, FAIRR Collier, the UN Principles for Responsible Investment, the Intentional Endowments Network, the Council of Institutional Investors, the Task Force on Climate-related Financial Disclosures and the Thirty Percent Coalition.

Climate Action 100+ is an investor-led effort that seeks to persuade high emitting companies to transition to net zero emissions

FAIRR Collier: UC Investments leverages its work on climate through the FAIRR Initiative, which assesses the physical and transition related climate risks to the food sector.

GRESB: GRESB is a mission-driven and industry-led organization that provides actionable and transparent environmental, social and governance (ESG) data to financial markets. It collects, validates, scores, and independently benchmark ESG data to provide business intelligence, engagement tools, and regulatory reporting solutions for investors, asset managers, and the wider industry.

The Intentional Endowments Network is a peer learning network of colleges, universities, and other mission-driven institutional investors working together to achieve their risk and return objectives through investment actions that create a thriving, sustainable economy.

The FSB Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force will consider the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. The work and recommendations of the Task Force will help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.

The United Nations-supported Principles for Responsible Investment is an international network of investors working together to advance sustainability and to provide resources to learn about and act on climate change’s impacts to investment portfolios.

The Council on Institutional Investors is an international non-profit organization representing the voice of corporate governance, supporting effective corporate governance practices and strong shareowner rights.

The Thirty Percent Coalition, founded in 2011, is a pioneer advocating for diversity in the corporate boardroom. Our vision is for senior leadership and board of directors to reflect the gender, racial and ethnic diversity of the United States workforce. The mission of the Thirty Percent Coalition is to promote gender and racial diversity on corporate boards.

UC Investments, 2021 and 2022 Climate Risk reports (aligned with the TCFD), available at: Climate Change | UCOP

UC Investments’ Proxy Voting Record: VDS Dashboard (issgovernance.com)

LA Times: “UC investments are going fossil free. But not exactly for the reasons you may think” https://www.latimes.com/opinion/story/2019-09-16/divestment-fossil-fuel-university-of-california-climate-change
MSCI Global Fossil Fuels Exclusion Indexes Methodology:
https://www.msci.com/eqb/methodology/meth_docs/MSCI_Global_ex_Fossil_Fuels_Indexes_Methodology_Dec2017.pdf
University of California Sustainable Investment Framework:
https://www.ucop.edu/investment-office/_files/sustainable-investment-framework.pdf

All information for this credit was provided by the University of California Office of the Chief Investment Officer.