HKUST’s Investment Surplus and ESG Investing: How the Reserves ‘Make Money Work’ Under the Annual Report Lens

In a nutshell: The Hong Kong University of Science and Technology (HKUST) recorded a consolidated surplus of HK$1.162 billion in the 2023/24 financial year^※, of which interest and net investment income contributed HK$1.089 billion^※; stripping out investment returns, the underlying surplus was only about HK$73 million^※. In 2024/25, the consolidated surplus plunged to HK$454 million, and the UGC-funded activities showed an underlying deficit of HK$1.295 billion after removing investment returns^※, revealing the decisive role of investment income in the annual surplus or deficit. Since 2018, the University has practised ESG responsible investing, with over 75% of its funds managed by UN PRI signatories, while the Alumni Endowment Fund (AEF) continues to support students through a perpetual principal mechanism. For the overall picture of HKUST’s annual income, expenditure, and reserves, see the companion piece Annual Income, Reserves and the Endowment Fund^※.

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# Why Did the Surplus Reach HK$1.162 Billion in 2023/24?

In the 2023/24 financial year (ending 30 June 2024)^※, HKUST’s total consolidated income was HK$7.517 billion^※, and consolidated expenditure was HK$6.344 billion^※, yielding a post-tax surplus of HK$1.162 billion^※ (2022/23: HK$1.159 billion). The annual report explains that the 2023/24 surplus was driven primarily by significant investment gains, thanks to market expectations of interest rate cuts by major central banks and improved corporate earnings prospects spurred by advances in artificial intelligence^※.

Interest and net investment income for the year amounted to HK$1.089 billion^※, an increase of HK$282 million, or about 35%, from HK$807 million^※ in 2022/23. This single line item accounted for the vast majority of the year’s consolidated surplus of HK$1.162 billion and was the primary driver of the strong book surplus.

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# 2024/25: Investment Returns Hit New High, So Why Did the Consolidated Surplus Plunge to HK$454 Million?

In the 2024/25 financial year (ending 30 June 2025), HKUST’s consolidated income was HK$7.394 billion, a decrease of HK$123 million year-on-year^※; consolidated expenditure rose to HK$6.935 billion; and the post-tax consolidated surplus was HK$454 million, a sharp fall from HK$1.162 billion in 2023/24^※. The annual report’s treasury section explains that the steep decline was mainly due to a one-off return of the ‘General and Development Reserve Fund’ to the University Grants Committee (UGC)^※, making it a one-time accounting event, not an operational loss.

Notably, investment markets actually performed better during this year: interest and net investment income reached HK$1.496 billion, up HK$407 million from HK$1.089 billion in 2023/24^※, which the annual report attributes to robust corporate earnings growth and continued monetary easing by central banks, driving strong performance in the University’s equities, fixed income, and hedge fund investments^※. In other words, 2024/25 was a year of ‘record investment returns but a significantly shrunken book surplus’—the culprit was not the investment side but the one-off accounting treatment of the refund to the UGC, once again confirming that investment returns are not the only variable shaping the annual financial statements.

As of 30 June 2025, the University’s total reserves stood at HK$15.108 billion, comprising HK$3.918 billion in UGC funds, HK$2.364 billion in restricted funds, and HK$8.826 billion in other funds^※. The UGC funds balance fell by HK$711 million from HK$4.629 billion the previous year, a drop that exactly matches the HK$711 million deficit in the UGC-funded activities segment (see next section), indicating that the refund directly offset the UGC funds balance rather than affecting non-UGC reserves.

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# What Is HKUST’s ‘Underlying Surplus’ After Stripping Out Investment Returns?

The annual report distinguishes between ‘Consolidated Surplus’ and ‘Underlying Surplus’—the latter being a metric that excludes investment returns to reflect the financial strength of the University’s recurrent operations. In 2023/24, after excluding investment returns, the underlying surplus was approximately HK$73 million; in 2022/23 it was HK$352 million^※.

The two figures compare as follows:

The 2021/22 comparison is particularly telling: that year’s underlying surplus was a positive HK$439 million, but because of a severe market downturn, the consolidated result swung to a loss of HK$230 million. These figures confirm a critical logic in the annual report presentation—the cyclical fortunes of investment markets can almost single-handedly determine whether HKUST reports a ‘surplus’ or ‘deficit’, while recurrent operations remain relatively stable in positive territory once this factor is removed. The 2024/25 case provides a counter-case: investment returns hit a multi-year high, yet a one-off accounting item (the UGC refund) still sharply narrowed the consolidated surplus, illustrating that the ‘underlying surplus’ itself can be distorted by non-recurring items and cannot be simplistically equated with ‘true operating performance net of market cycles’.

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# Segment Breakdown: How Bad Is the ‘Underlying’ of UGC-Funded Activities?

The university-wide ‘underlying surplus’ is an aggregate figure that can obscure significant internal structural differences. HKUST’s annual report provides an operating commentary by two segments: ‘UGC-Funded Activities’ and ‘Non-UGC Funded Activities’^※. A closer look reveals a stark contrast in their underlying financial health.

This segment data reveals a structure previously obscured by the aggregated ‘underlying surplus’ figure: UGC-funded activities (i.e., the government-funded core teaching and research operations) had already slipped into a HK$105 million deficit in 2023/24 after stripping investment returns, and the deficit widened further to HK$1.295 billion in 2024/25 (of which HK$711 million was attributable to the one-off UGC refund, but even excluding that one-off item, the core operations were weighed down by rising salary and benefit costs and increased operating expenditure on teaching and research). In contrast, the two ‘non-UGC-funded’ segments—self-financing continuing and professional education (CPEP) and non-UGC research and other activities—continued to record positive surpluses, totalling HK$816 million in 2024/25, up over 30% from HK$586 million in 2023/24^※; the donations segment surplus also rose from HK$232 million in 2023/24 to HK$349 million in 2024/25.

In other words, HKUST’s ability to stay in the black depends heavily on the self-financing capability of non-UGC-funded activities and on investment returns, rather than on the core teaching and research operations covered by government grants. This is corroborated by the annual report’s disclosure that non-UGC reserves (HK$9.998 billion^※) continue to exceed UGC reserves (HK$4.629 billion^※) by a factor of more than two, as detailed in the companion piece Annual Income, Reserves and the Endowment Fund, Section 6 ‘University Reserves’^※.

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# Where Do HKUST’s Investment Returns Come From?

HKUST divides its reserves into UGC reserves and non-UGC reserves^※, both of which are invested. As of 30 June 2024, the UGC reserves balance was HK$4.629 billion, and the non-UGC reserves balance was HK$9.998 billion, totalling over HK$14.6 billion^※.

The investment of reserves is overseen by the Finance Committee of the HKUST Council^※. The bulk of the portfolio is in public equities and public fixed income—these are precisely the ‘in-scope assets’ governed by the ESG policy discussed later. That non-UGC reserves are more than double UGC reserves means a sizeable proportion of HKUST's investable assets comes from self-accumulation outside the government funding system (donations, surpluses from self-financing programmes, and investment re-accumulation).

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# When Did HKUST Start ESG Responsible Investing? What Is the Policy Framework?

HKUST has practised environmental, social and governance (ESG) investing since 2018^※. In October 2022, the University Council formally approved the ‘ESG Investment Policy’, the first local university to do so^※; on 21 December of the same year, HKUST publicly announced the policy, committing to becoming the first university in Hong Kong to eliminate fossil fuel investments^※.

The core framework of the policy is as follows:

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# What Does the ESG Investment Policy Document Actually Say? What Are ‘In-Scope Assets’?

HKUST’s official ESG investment policy is formally titled ‘Environmental, Social and Governance (ESG) Policy for the Long-Term Investment Pool’ (internal document code ‘CCP’)^※. It was approved by the University Council and came into effect in November 2022, with no earlier version to supersede (Supersedes: N/A), and its next review is scheduled for November 2026^※. At the time of writing, the policy is approaching its first formal review window.

The policy text specifies that ‘in-scope assets’ refer specifically to public equities and public fixed income, which together account for 64% of the strategic asset allocation of the ‘Long-Term Investment Pool’^※. This means that the policy’s quantitative targets (fossil fuel reduction, SBT coverage, climate solutions allocation) strictly apply only to about two-thirds of HKUST’s investable assets; for other asset classes such as hedge funds and private equity, the policy merely requires ‘gradually extending transparency’ without setting equivalent hard targets.

A common misinterpretation worth clarifying: the 2030 target in the original policy text is precisely stated as “100% of the emission weight of in-scope assets must come from companies that have adopted science-based targets (SBTs) or are engaging with HKUST to adopt SBTs^※”, not the literal “100% of assets allocated to SBT companies”. There is a substantive difference in coverage, as the former allows companies “in the process of engagement” to count towards compliance.

Another point of confusion: the net-zero target year for the investment portfolio is 2050 (aligned with the Paris Agreement and Hong Kong’s 2050 carbon neutrality pledge)^※, which is different from the 2045 net-zero target for campus operations (see the Net-Zero Action Plan 2045)^※. The former governs the carbon intensity of the investment portfolio, while the latter governs the campus’s own carbon emissions. The two targets operate on separate governance tracks and should not be conflated.

The policy also mandates an annual review mechanism: every year, a full ‘look-through’ review is conducted on all investments, requiring fund managers to account for the ESG risk exposures of their holdings, and assessing whether to take engagement or exclusion measures against managers who fail to provide portfolio transparency or adequately explain negative ESG factors^※.

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# What Are the UN Principles for Responsible Investment (PRI) and How Does HKUST Engage with Them?

The UN Principles for Responsible Investment (UN PRI) is the world’s largest responsible investment network, requiring signatories to systematically incorporate ESG factors into investment analysis and decision-making, and to actively engage in stewardship and disclosure. HKUST itself is not a direct signatory; instead, it indirectly implements the PRI principles by entrusting over 75% of its assets to fund management firms that are UN PRI signatories^※; external investment managers are required to demonstrate to the University how they integrate climate risk into portfolio management and to exercise proxy voting rights actively.

This arrangement means HKUST does not directly manage the stock portfolio; rather, it embeds sustainability goals at the mandate level by selecting external managers with ESG credentials—a mainstream ‘outsourced compliance’ model for large institutional investors. The 2023/24 annual report^※ notes that fossil fuel exposure under this policy was already 75% below the benchmark; the 2024/25 annual report further shows the exposure gap widening to 80% below the benchmark^※, with near-zero exposure to tobacco and controversial weapons. The two-year comparison suggests that ESG screening at the external manager level is tightening continuously, rather than being a one-off commitment upon the policy’s announcement.

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# How Does the Perpetual Principal Mechanism of the Alumni Endowment Fund (AEF) Work?

The Alumni Endowment Fund (AEF) was established in 2012^※, as HKUST's first endowment fund primarily sourced from alumni donations^※. Its core financial mechanism is that the principal is preserved in perpetuity, and only the income generated from investments can be spent^※. This ‘principal in perpetuity’ model aligns with the conventional practice of major university endowments worldwide, ensuring the fund can sustainably serve successive generations of students without eroding the principal through one-off withdrawals.

AEF investments are also overseen by the Finance Committee of the Council, with the Vice-Chancellor and President, along with vice-presidents, determining the use of funds according to the University’s strategic needs^※. The income supports four broad areas: talent and passion development, civic engagement and community service, financial aid and emergency support, and heritage initiatives and sustainability. Specific programmes include AEF student entrepreneurship grants, exchange scholarships and bursaries, sports scholarships, and the Student Emergency Fund^※, and the number of student beneficiaries has grown steadily over the years.

From a financial perspective, the AEF is pooled with the University’s overall reserves for unified investment management, and its total size or annual investment return is not separately disclosed. Its surplus appears in the annual report segment results under the ‘Donations segment’. In 2023/24, the donations segment recorded a surplus of HK$232 million^※, an increase year-on-year driven mainly by improved investment returns; in 2024/25, the segment surplus further rose to HK$349 million, also attributed to higher investment returns^※, even though new pledges of donations amounted to only HK$299 million, a marked drop from HK$764 million in 2023/24^※. The donations segment’s surplus likewise exhibits a pattern of ‘declining fundraising but offset by investment returns’, consistent with the pattern at the university-wide level. For the donation architecture and major historical gifts, see the companion piece Donor Registry and Named Buildings^※.

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# A New Dimension of HKUST’s Investment Strategy: Is the Redbird Innovation Fund a ‘Different Kind of Investment’?

Beyond the public market allocations under the ESG framework, HKUST has in recent years developed a funding channel of a different nature from traditional ‘reserve investing’—the Redbird Innovation Fund (RIF), with a total commitment of HK$500 million^※. According to the ‘Outlook’ section of the 2024/25 consolidated financial statements^※, the RIF aims to collaborate with external investment partners to create multiple Venture Investment Funds (VIFs) with a total target size of HK$2 billion^※; in the past year, the first VIF with a target size of HK$600 million has been established under the RIF framework^※.

The RIF is fundamentally different from the ESG Long-Term Investment Pool described earlier: the latter is a passive asset allocation of university reserves (public equities, fixed income, hedge funds), pursuing stable long-term returns with ESG screening; the former is an active venture capital arrangement, leveraging external capital (HK$500 million in own commitment to catalyse a HK$2 billion target) to invest in start-ups within the HKUST ecosystem, serving the goals of technology transfer and incubation rather than purely maximising financial returns. The annual report does not disclose whether the RIF is subject to the same set of ESG policy quantitative targets, nor does it disclose its independent risk and return evaluation metrics—a current limitation of publicly available information.

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# What Do Fluctuations in Investment Returns Mean for the University’s Finances?

Taken together, a structural picture emerges: HKUST’s reserve pool of over HK$14.6 billion, managed by external fund managers under the ESG policy framework, generates substantial but volatile investment returns each year. In a cyclical upswing (as in 2022/23, 2023/24, and 2024/25), these returns contributed between HK$800 million and nearly HK$1.5 billion, greatly amplifying the book surplus; in a downturn (as in 2021/22), they turned a consolidated surplus into a deficit even though recurrent operations maintained a positive underlying surplus. The 2024/25 case further illustrates that even with record investment returns, a one-off accounting item can still sharply narrow the book surplus.

Another structural fact worth noting: non-UGC reserves remain more than double UGC reserves (in 2024/25, non-UGC reserves reached HK$11.190 billion^※, while UGC reserves fell to HK$3.918 billion^※ due to the refund, widening the ratio to nearly three times). The larger the investable asset base, the larger the absolute swings in investment returns; as the reserve pool continues to grow, this ‘investment amplification effect’ will exert an increasingly prominent influence on the reported annual surplus or deficit.

The annual report does not separately disclose changes in investment returns following the implementation of the ESG policy, nor does it compare benchmark performance before and after ESG screening. This is a limitation of the current public reporting scope; readers seeking to assess the contribution of ESG factors to returns in depth will need to consult the specialised reports the University submits to external rating agencies.

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# Further Reading

• Annual Income, Reserves and the Endowment Fund^※—The full picture of HKUST’s consolidated annual income and expenditure, the share of government funding, reserve sizes, and the surge in donations driven by the Eighth Matching Grant Scheme
• Donor Registry and Named Buildings^※—Major gifts from the Hong Kong Jockey Club, Lee Shau-kee, Li Ka-shing, and others, and the rules governing building naming rights
• Lee Shau-kee’s Gift and the Named Campus^※—Funding deployment and naming details of the single largest gift

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