Investment Holdings (3.0)

4 0 0 June 18, 2024

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PA 5: Investment Holdings – version 3.0

Indicators

  • 4.1. Sustainable investment policy or committee
  • 4.2. Negative screening and divestment
  • 4.3 Investor engagement

Questions & Answers

How has this credit changed between STARS Version 2 and Version 3?

  • Investment credits have been reorganized for clarity. 
  • Investor engagement and positive sustainability investments are no longer scored together. 
  • A comprehensive list of differences can be found in the STARS 3.0 Summary of changes.

Is a financial summary that provides aggregated investment information sufficient for Indicator 5.1?

No. Aggregated investment information via financial and accounting statements is not sufficient. At minimum, a snapshot of the holdings in an institution’s investment pool within the previous three years that provides information about the funds allocated to different investment managers and/or basic portfolio composition (i.e., asset classes) is required. 

Is the disclosure (Indicator 5.1) required to be publicly posted?

Public disclosure (e.g., a public webpage with updated disclosure information) is not a requirement. Institutions can either upload disclosure information to STARS directly, or provide a public URL. 

What should be included in an investment holdings disclosure (Indicator 5.1)? 

To qualify, the disclosure snapshot must include, at minimum, the predominant asset pool or grouping of assets that is organized primarily to support the institution and reflect its investment policies. In general, this should include long-term reserves and unrestricted investment and endowment funds, including assets managed on the institution’s behalf by other entities. Pensions and other restricted assets may be excluded.

How should investments be measured under Indicator 5.2?

To claim points for a positive sustainability investment, the total pool of assets from which those funds are distributed must be included in the investment pool. For example, to earn points for long-term reserves held in a community development credit union, all of the institution’s long-term reserves must be included in the investment pool.

An allocation may not be counted in more than one category, e.g., funds invested in a Certified B Corporation that operates in the renewable energy sector may be reported as funds allocated to businesses selected for exemplary sustainability performance OR funds allocated to sustainability-focused industries or sectors (but not both).

What examples qualify for each of the investment options under Indicator 5.2?

Examples for each Investment option are listed below:

  • Funds that are explicitly focused on sustainability or ESG – Funds that are explicitly focused on incorporating sustainability or ESG criteria into the investment process; funds that seek to deliver a measurable impact on specific issues or themes such as low carbon or community development; and funds that are focused on purchasing bonds with sustainable goals.
  • Sustainability-focused industries or sectors – Direct investments in a sustainability-focused industry or sector such as renewable energy production and/or holdings of companies whose entire business is sustainable (e.g., a manufacturer of wind turbines).
  • Businesses selected for exemplary sustainability performance using positive screens – For example, as specified in the institution’s sustainable investment policy or an external sustainability rating tool such as B Corps, IRIS+ (Global Impact Investing Network), MSCI ESG Ratings, Principles for Responsible Investment (PRI), or Sustainable Accounting Standards Board (SASB) standards.
  • Community development financial institutions (CDFIs) – Funds allocated to credit unions, loan/venture funds, microfinance initiatives, and public/community banks that operate as social enterprises and/or have community development as their primary mission.
  • Place-based investments that target positive social and environmental impacts in economically divested areas – For example, affordable housing, climate resilience, and sustainable transportation projects that engage underrepresented groups and/or vulnerable populations in addressing the sustainability challenges they have identified.
  • Green revolving funds seeded from the investment pool – Exclude funds seeded from the institution’s operating budget, donations, or student fees, for example.

Should cash reserves be included in the investment pool (Indicator 5.2)?

Yes, ideally long-term reserves should be included because they can be held in socially beneficial vehicles such as money market funds issued by CDFIs. To accommodate the diverse ways that investment pools are structured, however, the minimum requirement is simply that the investment pool include “the predominant asset pool or grouping of assets that is organized primarily to support the institution and reflect its investment policies”. That could potentially be defined to exclude cash reserves, however doing so would not allow an institution to claim points for cash held in a credit union or CDFI, for example. If reserves are not included, the rationale should be documented in the Notes field.

Resources, Templates & Tools

Suggestions for Institutions

  • It may take some time to conduct a comprehensive investment holdings assessment. Work with your Investment Office, Foundation, or similar to collect the information requested under this credit and begin relatively early in the data collection process.

Potential Data Quality Issues

  • A credit status of “Not Applicable” is only allowed if the institution does not have an endowment, or the institution’s endowment is less than USD $1 million. 
  • Score outlier – Indicator 5.1. Earning full points (or close to) may be the result of credit misinterpretation. If a high score is reported, evidence that all criteria are satisfied must be provided. The investment disclosure must provide the amount or percentage invested in each fund and/or company. It is not sufficient to provide a financial summary that provides aggregated investment information.
  • Numeric outlier – Indicator 5.2. Reporting 20% or higher under “Percentage of the investment pool allocated to positive sustainability investments” may be the result of data entry errors such as an incomprehensive sample, double-counting, or credit misinterpretation. If a high score and/or percentage is reported, descriptive responses should reference examples that qualify. Double-counting must be avoided.

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