College and university endowments are managed by financial professionals who generally invest in a portfolio of equity and bond investment vehicles that will produce a 5-6% return (in a good year). Nothing is guaranteed, as the recession crisis of 2008 demonstrated, with endowments typically losing 25-30% of value. Unbeknownst to many educational institutions however, an endowment investment is available that provides much higher returns – 15-25% – and that is virtually 100% risk free: an investment in energy efficiency improvement of campus systems, particularly upgrading lighting to LED.
You Won’t Be a Pioneer
In the last 3-4 years there has been a significant movement to invest in green improvements on the university campus primarily to promote sustainability.
The investment model typically used to achieve these goals is a Green Revolving Fund (GRF). This fund is usually set up to finance projects that reduce energy use, provide renewable energy, or foster other natural resource-saving measures. Tracked savings from projects funded are returned to the GRF to be used for future improvements. As of July 2016, the Sustainable Endowments Institute (SEI) has registered 62 participating institutions that have committed $131 million to GRFs. SEI reported that the average return on GRF investment is 28%. Some of the GRFs have been at it for a long time with significant investment. A good example is Harvard University’s GRF, which was established in 2001, invests $12 million annually, and saves $4 million annually. However, most GRFs are relatively new and total $1 to 2 million or less.
A quick Internet search will turn up all the information needed to start a Green Revolving Fund – greenbillion.org is a good start. The Investment Primer for Green Revolving Funds, available at greenbillion.org, is a particularly useful “how-to” document.
Efficiency Improvements as Endowment Investments
Though the GRF is one model for university investments, this article is not about setting up a GRF; it is about making the best endowment investment – bar none. Sustainability and efficiency improvements are good policies for many reasons: wise use of limited resources, reduction of pollution, work towards going carbon neutral, etc. In the narrow focus of making the best endowment investment, the most compelling reason for investing in efficiency improvements on the college campus is that it produces both the safest and the highest financial return of any investment that could be made. In my opinion, it is such a good investment that much higher funding amounts should be committed to making it happen sooner rather than later. Continue reading...