Unlike some universities with larger endowments, LSE does not invest directly in companies. Instead LSE invests in funds, across a number of asset classes which are actively managed by external Fund Managers or in passive funds which track a market index. The School’s investment adviser selects these funds to create portfolios aimed at delivering, over the long term, an average annual real return of 4.5% within agreed risk constraints and in harmony with the School’s ESG aims. These investment portfolios are formed by generous donations given to the School to support education and research.
In order to achieve the return target of 4.5% plus consumer price inflation the investment portfolio is predominantly invested in equity funds for growth. These funds represent a worldwide exposure to both large and small cap companies in developed and emerging markets. Despite this growth bias, the endowment is managed prudently so as to ensure that sufficient annual liquidity is available.
More details of the assets held in LSE’s portfolio at 31July can be found below.
Our Environmental, Social and Governance Policy
LSE adopted a new Environmental, Social and Governance (ESG) Policy in November 2022 which seeks to minimise our investment exposure to companies deriving revenues from:
- Thermal coal; mining of thermal coat (including lignite, bituminous, anthracite and steam coal)
- Tar sands; a highly energy and carbon intensive approach to oil extraction.
- Tobacco manufacture; all companies in the Global Insutry Classification Standard (GICS) tobacco industry classification
- Controversial weapons; all companies producing landmines, cluster bombs and their launch systems as identified by Morgan Stanley Capital International (MSCI).
LSE’s ESG policy involves selecting externally managed funds that minimise indirect investments exposure in the four sectors mentioned above. Since 2015, the exposure of our investments in those areas has reduced by over 80 per cent from 3.4 per cent of total assets to 0.4 per cent in 2020-21.
Transition Pathway Initiative
The School’s holdings at 31 July 2021 have been analysed to determine the proportion which has been rated by the Grantham Institute Transition Pathway Initiative. Those stocks which have been rated are shown below in the categories of rating as detailed on the TPI website.
ESG performance of Fund Managers
While the School has been successful in driving down our exposure to unwanted sectors as set out above, the School’s greatest impact in improving “sustainable” behaviours has been through our annual assessment of progress by our selected managers towards ESG goals. Thus each year, the School actively engages directly with each of its investment fund managers to assess and drive performance on Environmental, Social and Governance (ESG) matters. Our Asset Manager Evaluation Process on ESG Capabilities encourages our fund managers to invest in a socially responsible way consistent with the School’s SRI Policy and the UN Principles of Responsible Investing and a broader range of essential ESG issues. The process covers a range of factors, including their ESG policies, ESG voting records, PRI ranking, use of the TCFD (Task Force on Climate-related Financial Disclosures) and specific topics such as Climate Change, Human Rights, Diversity/Inclusion, and the UN’s 17 Sustainable Development Goals (SDGs). This is an evolving process; in 2021 we ask for the managers’ engagement with Transition Pathway Initiative (TPI) an important research driven rating on individual companies by the LSE’s Grantham Institute measuring progress towards meeting international climate change goals. We analyse, where relevant, our fund managers’ portfolios accordingly.
The chart below summarises the outcome of this process in 2020/21 and 2019/20::
Each year a bespoke ESG questionnaire is sent to LSE Fund Managers to assess:
- ESG engagement on four factors: frequency, quality of ‘themes’, integration, quality of impact.
- UNPRI and FRC Stewardship Code rating
- Communication of engagement outcomes and impact
- Manager commitment to reflect specific issues (currently TCFD, Human Rights, Diversity & Inclusion, UNSDG, TPI)
Find out more about LSE’s Fund Managers ESG evaluation process
Our plans for the future
We are committed to strengthening our approach to responsible investment and continue to review our policies and consider further steps and actions we can take.
In October 2020 LSE published its new Sustainability Strategic Plan, aimed at maximising the School's impact in creating a sustainable world. Investment is one of six strategic themes, with a commitment to Making sustainability a key part of our investment decisions. Explore the Investment section of the Plan for details of our commitments and supporting initiatives.
LSE’s Investment Sub-Committee and Sustainability Leadership Board play an important role in our approach to responsible investment. Furthermore, LSE’s ESG Policy is approved by Council on the recommendation of the Finance and Estates Committee.
The Investments Sub-Committee is responsible for governing the investment of School funds and to review the School's Investment Policy and Strategy. The committee is responsible for applying the School’s Socially Responsible Investment Policy and the implementation of the Investment section of the Sustainability Strategic Plan.
The Sustainability Leadership Board is chaired by the LSE Director and is responsible for monitoring the delivery of the School’s Sustainability Strategic Plan, including its Investment theme.