Socially Responsible Investments: Costs and Benefits for University Endowment Funds

Abstract

We examine the socially responsible investment (SRI) policies of university endowment funds over 2009-2017. SRI policies are more common when funds face greater stakeholder pressure to adopt such policies, and among universities that are more donation-dependent and located in environments with greater corporate social responsibility. SRI policy adoption predicts greater donations, especially from “socially-conscious” donors, but impose a drag on fund performance. On balance, SRI and non-SRI funds produce similar total additions (investment income plus donations), consistent with an optimal contracting equilibrium. SRI policies also yield non-pecuniary benefits, including enhanced risk management practices by the fund and a larger number of university applications.

Keywords: Endowments, socially responsible investing, charitable donations

JEL Classification: G13, G14