This article is more than 2 years old

Finance is forcing universities to do the right thing

A sustainable sector requires action on the environment, social issues, and governance - so say investors. David Kernohan talks to KPMG's Marc Finer to find out more
This article is more than 2 years old

David Kernohan is Deputy Editor of Wonkhe

Doing the right thing as a university – in terms of sustainability or social responsibility – can feel difficult when the government seems determined to stop you.

As we know, higher education providers have felt the rough end of the “culture wars” narrative in recent years. The public conversation has long placed the blame on students for introducing and agitating for ideas and practises that threaten established norms – these days universities themselves are increasingly blamed for indulging this adolescent “wokeness”.

Keeping the fire

One response to this hostile environment would be to step away from cutting edge progressive causes – but to its credit higher education has done the opposite. We’ve seen universities doubling down, actively publicising their initiatives on the environment, or social justice, or representative governance (ESG), and tying them to strategies (owned at a senior level) with challenging targets.

In some ways, universities have always done this kind of thing – and do take pride in evidence-led approaches to addressing historic inequalities. Indeed, there are some who say that they don’t go far enough – making public relations noise rather than bringing about meaningful change, or publishing documents and plans rather than demonstrating real leadership.

As Marc Finer, Director of Debt Advisory at KPMG, told me:

There is a golden opportunity for universities to be leaders in this area – but there is a risk that this issue is not high enough up the agenda.

That’s going to have to change – but not just to make the world a better place. Some of the greatest pressure being placed on universities to do the right thing comes not just from student campaigns, but from the world of finance.

Green growth

Perhaps you’re of an age to see occasional advertising from investment funds. You’ll know that it’s increasingly common to hear from “green funds”, or plans that promise more generally to support positive action, all while offering a very competitive rate of return. Your pension and your bank are equally keen to be seen to be doing the right thing.

But doing the right thing means putting money in the right places. In the old days resource extraction and manufacturing industries were always up for borrowing capital, and offered a reliable rate of return (as these things go). These days, the right place might end up being a campus redevelopment or a contingency loan facility for a UK university. Repayments have generally been reliable – and whatever you think of your vice chancellor the capacity for evil is fairly low. ESG boxes are more confidently ticked. Though, as Finer tells me, “research that would have happened anyway isn’t going to cut it – to be credible on ESG, providers need to be doing something beyond business as usual”.

I’m not saying here that bankers have all turned woke (I’m also not not saying that…), but that the driver here is the search for sustainable investment in the sense of investing in things that will continue to make enough money to make repayments, and that might expand enough to need further capital. In a general sense, some of the more exploitative and dangerous behaviours indulged in by – say – the automotive sector are no longer sustainable because of restrictions or regulations that add cost to change behaviour.

For higher education specifically, there is a growing expectation that students and commercial partners will avoid providers that don’t do the hard yards on the environment and social justice in future. Finer notes:

Increasingly, consumers expect brands to live their values. Do universities really expect the Greta generation to appreciate being handed bags of branded plastic at an open day? Will controversies over divestment or industrial relations shape application decisions?

Borrowing is a fact of university life – it enables investment in capital projects that would otherwise not be possible, attracting more students and more partners in the process. A university that can make a good ESG case – and back this up with hard evidence of progress and commitment – will have access to a wider market, and thus more attractive terms. And if anything, this is going to become more central to accessing funding in the future. Even including public sector grants – noting that Government has made its own stretching commitments on climate. Finer put it like this:

Right now, universities may be borrowing thinking about the next five years, though they should also have an eye on their position in 2030 – perhaps only two refinancings into the future. If lenders are having to push to meet their own ESG targets now, they’re thinking about how things will look when the loans they’re writing now are rolled over and these requirements are even more stringent. We are not too far away from ‘no ESG, no capital’ – that is the direction the capital markets are heading, and we are already seeing this in other sectors – with lenders turning down business on ESG grounds.


It’s not enough just to be a university, of course. And this is where those plans and targets come in. In other sectors investors have looked for evidence of real and lasting change. A plan isn’t enough, a plan needs to be backed up by senior ownership and measured via targets and milestones. And even then, a plan isn’t enough – action should form a central strategic priority. As Finer says:

Real leaders in this area are committing to as many as twenty sustainability performance targets, covering everything that a university does – from curriculum development to diversity in staff and student recruitment to environmental impact and investment policy.

Every provider website now has a tab or a menu option that spells out the environmental, social, and governance priorities that are (or should be) taken forward. Investors are wise to weasel words, and quick to spot where action and leadership is not there to back up impressive-sounding aspirations. They know where the data is, or should be, and they know the awkward questions to ask if it isn’t.

What are those questions? In Finer’s experience:

Most providers have a sustainability strategy or similar. Nearly everyone has the narrative right, and possibly a few date commitments on things like net zero. But investors will look at the detail:

  • Are the plans and strategies up to date, or near expiry?
  • Where are the stretching, measurable, targets?
  • Are all the sustainability targets related to green estates development and operations, or are the “S” and the “G” aspects represented?
  • Is there a named, senior, leader taking responsibility as a central part of their role?

So if ministers fear that universities are spending too much time saving the planet, or making society a fairer place, or striving for equality and representation at senior levels that reflects the diversity of staff and students, they are fighting a culture war that in many ways they have already lost.

This article is published in association with KPMG. 

Leave a Reply