Socially Responsible Investments: Costs and Benefits for University Endowment Funds

Abstract

We find that socially responsible investment (SRI) policies are more common among the endowments of universities that face greater stakeholder pressure to adopt such policies and depend more on donations to fund operations. SRI policies result in cumulative abnormal donations of 6% of endowment assets following adoption events, and mainly from “socially-conscious” donors. However, SRI policies predict worse investment performance and no overall growth in endowment assets (donations plus investment income). Finally, SRI policies result in enhanced risk management practices, more federal support for research in sustainability science, and higher student applications. Our results support the view that universities serve diverse functions in society and different universities support society better by adopting different goals.

Keywords: Endowments, social responsibility, charitable donations, fund performance

JEL Classification: G13, G14