The School's 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
- Indiscriminate weapons manufacture
LSE’s ESG policy involves selecting externally managed funds that minimise indirect investments exposure in the four sectors mentioned above. Since 2016, the exposure of our investments in those areas has reduced by over 85 per cent from 3.4 per cent of total assets to 0.5 per cent in 2022-23.
Additionally, under the ESG policy, the School pursues an investment policy to support companies that are aligned to climate change targets and divest from those that are not. Using the Grantham Research Institute's Transition Pathway Initiative (TPI) tool, the School further divests from the worst performers (as rated by TPI) in the Oil and Gas sectors. Further analysis on the School’s investment portfolios can be found below utilising the TPI tool.
LSE is also a signatory of the United Nations supported Principles for Responsible Investment.
FAQ- How can LSE investments support the transition to net-zero carbon?
LSE’s investment portfolios
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 that align to 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 31 July can be found below-
Holdings at 31 July 2024**
Holdings at 31 July 2023
Holdings at 31 July 2022
Holdings at 31 July 2021
Holdings at 31 July 2020
**Please note the format of this document is under review. The document has been published using its historic formatting however an updated version is expected to be published shortly.
If you have any queries or comments on the format or contents of the holding lists provided, please email chief.financial.officer@lse.ac.uk
ESG Review- Transition Pathway Initiative- Annual Analysis of portfolios
The School’s holdings at 31 July 2023 have been analysed to determine the proportion which has been rated by the Grantham Institute Transition Pathway Initiative (TPI). Those stocks which have been rated are shown below in the categories of rating as detailed on the TPI website.
The analysis summarises the holdings in the School's "endowment" portfolios however currently excludes the following which haven't been rated by TPI yet-
- Mercer’s Private Equity holdings
- Property holdings (Charities Property fund and CBRE)
- Cash balances held as part of investment portfolios
Overall, 36% of LSE’s rateable holdings have been assigned a Management Quality (MQ) rating by the TPI tool as at July 2023 compared to 12% at July 2022 and 9% at July 2021 demonstrating the increased MQ analysis TPI has undertaken and published over the last year. In a similar vein, by July 2023 8% of LSE’s investment holdings had been assigned a Carbon Performance (CP) rating by TPI compared to 6% at July 2022 and 4.5% at July 2021.
The Management Quality (MQ) rating aims to distribute companies according to the management of their greenhouse gas emissions and of risks and opportunities to the low-carbon transition (rated from 0 to 4* with 4* being the best). The MQ analysis for all portfolio holdings is presented in the chart below.
The Carbon Performance (CP) rating analyses companies’ emissions pathways against the international targets and national pledges made as part of the 2015 UN Paris Agreement limiting global warming to below 2 degrees centigrade. The levels A to E represent the following-
Level A- 1.5 degrees
Level B- Below 2 degrees
Level C- National/International pledges made
Level D- Not Aligned
Level E- No or insufficient disclosure
Since July 2021, we can see an increase in the portion of the portfolio that has been TPI rated due to additional stock ratings published by TPI over the last 2 years. This analysis will continue to be prepared annually and as a larger portion of the portfolio becomes rated by the TPI, this should enable more consistent comparisons from year to year.
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 early 2024, the School entered into a request for proposals alongside other UK Higher Education institutions to identify and develop a market for cash products that do not contribute to the financing of fossil fuel expansion.
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.
Governance
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.