UUCEF Adds Sustainable Real Assets to Strengthen the Portfolio and Advance Our Values
Executive Summary
- UUCEF is adding a 5% allocation to sustainable real assets through the Metis Sustainable Real Asset Index Fund.
- Real assets—such as infrastructure, buildings, metals, gold and other commodities—can help diversify the portfolio and provide protection against inflation.
- Because these investments can carry significant environmental and social risks, UUCEF selected a strategy designed to reduce harmful exposures and emphasize more sustainable practices.
What Are Real Assets—and Why Is UUCEF Investing in Them?
The UU Common Endowment Fund invests for the long term on behalf of UU congregations and other participating organizations. One of our most important responsibilities is to build a portfolio that can support annual distributions while preserving its purchasing power for future generations.
That requires diversification—not relying too heavily on any one kind of investment.
Most of UUCEF’s publicly traded investments have historically been in stocks and bonds. Real assets provide another source of diversification. The term refers to investments connected to tangible parts of the economy: infrastructure, buildings, metals, precious metals such as gold, and commodities.
These assets can respond differently to economic conditions than traditional stocks and bonds and may perform relatively well during periods of rising prices. UUCEF’s investment consultant, NEPC, therefore recommended allocating 5% of the portfolio to publicly traded real assets to increase diversification and provide potential protection against inflation. NEPC’s analysis found that the allocation could be made without materially changing the portfolio’s expected long-term risk and return.
For an endowment seeking to support congregations over many decades, that inflation protection matters. UUCEF’s Investment Policy Statement specifically calls for managing the Fund to preserve its inflation-adjusted purchasing power over time.
The Problem with Conventional Real-Asset Investing
There is an obvious challenge for a values-based investor: many traditional real-asset investments come with serious environmental and social concerns.
Mining and commodity production can affect workers, Indigenous peoples, local communities, water and ecosystems. Buildings and infrastructure can be major sources of greenhouse-gas emissions. Traditional real-asset portfolios can also include significant investments in fossil fuels.
These concerns have historically prevented UUCEF from investing broadly in real assets while maintaining its commitment to socially responsible investing.
That is particularly important because UUCEF’s Investment Policy Statement goes well beyond simply seeking competitive financial returns. It calls on us to consider environmental sustainability, climate change, human rights, Indigenous rights, worker rights and other social-justice concerns in the investment process.
A Different Approach: Sustainable Real Assets
The Investment Committee believes the Metis Sustainable Real Asset Index Fund offers a strong way to pursue the diversification benefits of real assets while addressing these environmental and social concerns. Instead of simply buying a conventional basket of real assets, the Metis fund uses sustainability-focused approaches across five areas:
- 25% global green infrastructure
- 20% green real estate
- 10% producers of essential metals
- 20% sustainably sourced gold
- 25% commodities using a carbon-conscious approach
This distinction matters because the transition to a more sustainable economy still requires physical resources. Renewable-energy systems require metals, and communities need buildings, transportation, electricity and other infrastructure. The investment challenge is to meet those needs in ways that reduce environmental harm and better protect people and communities.
The Metis strategy therefore applies environmental and social criteria to its investments. It screens out industries considered inconsistent with its environmental objectives, including thermal coal and unconventional oil and gas, as well as tobacco, gambling, adult entertainment and weapons. It excludes companies identified through third-party data as violating the United Nations Global Compact, and its methodology seeks to avoid the worst environmental and social performers. These safeguards were important to UUCEF’s decision to use the strategy.
Investing for the Long Term—and for Our Values
UUCEF does not view financial performance and socially responsible investing as separate responsibilities. Our task is to build a portfolio capable of supporting UU organizations over generations while using our assets in ways that reflect our values as faithfully as possible.
The new sustainable real-assets allocation puts that approach into practice. It adds another source of diversification and potential inflation protection while applying environmental and social standards that many conventional real-asset investments do not. In doing so, UUCEF is strengthening the portfolio for the long term while continuing to align its investments with its values.