Harvard, Others Face New Tactics by SRI Backers

“Our research finds that SRI does not necessarily hurt your portfolio,” says Katherine Burstein, an associate with the Mercer’s responsible investment team. “There’s proof out there that shows you can do just as well while implementing SRI policies, and in some cases you can do better.”

Article covering the Fair Harvard Fund published on May 29, 2012 in FundFire, a Financial Times service.

By Billy Nauman

Student groups across the country from high-profile colleges such as Harvard and the University of Chicago are employing new tactics to pressure university endowment managers to adopt more socially responsible investing practices.

At Harvard, a group of students has launched the “Fair Harvard Fund,” an effort to persuade the Harvard Management Co. to start a “social choice fund” for donors to give restricted monies to the endowment. The Fair Harvard Fund, run by the student Coalition for Responsible Investment, is collecting and pooling donations from Harvard students and alumni that it intends to present to the endowment manager this fall as the basis for carving out a socially responsible portfolio within the endowment.

“It’s a monetary petition to get the community to show their support for ESG [environmental, social and governance],” says Evelyn Chow, a member of the student coalition. “Harvard doesn’t have a social choice fund at all… If you would like your donation [to Harvard] to be invested responsibly, you don’t have any way of doing that in the current system.” So far, the Fair Harvard Fund has received donations from approximately 400 students and alumni.

At the University of Chicago, some students are pledging to withhold their senior class gift until the school incorporates SRI standards into its investment policy. The petition they signed reads: “We are not giving to send a message to the University that how it invests its money matters to us and could impact how we give in the future.”

The University of Chicago, which previously did not divest its portfolio holdings from South Africa and Darfur, as many of its higher education peers did in the past, holds firm to a policy that the endowment should not pursue a social agenda. “It’s an uphill battle considering the culture at our school,” says Nakul Singh, undergraduate liaison to the board of trustees at the University of Chicago. “But it’s something we think is worth campaigning about.”

“It’s always been an issue at UChicago,” Singh adds. The pledge is the latest development in a long line of efforts to push SRI standards onto the endowment. Singh explains that the student government also recently passed a referendum to create an SRI committee that would work with the endowment fund, but the school’s CIO and board of trustees shot the plan down.

Other schools have come under similar pressure as well, such as the “Occupy Vanderbilt” movement at Tennessee’s Vanderbilt University, which is pushing the investment office to adopt ethical investing guidelines, as reported by Nashville Scene.

“The advocacy from students [for SRI and ESG] is pretty widespread,” says Dan Apfel, director of theResponsible Endowments Coalition. “Although,” he adds, “the level of engagement on campuses varies.”

The Responsible Endowments Coalition is a non-profit organization that works with students at more than 40 universities across the country to help push for socially responsible investing within university endowments. “We’re seeing a broader move toward responsible investing overall,” says Apfel. “People of this generation are very aware of how these issues interact with money and finances.”

Craig Metrick, U.S. head of responsible investments at Mercer, says that these student groups are not “terribly common,” but they are spreading. “We’ve just started some conversations among the consultants at Mercer that deal with endowments, and each one has a case study or so,” says Metrick.

”Universities tend to handle it differently and have different concerns. Some have been more responsive [to students] than others. There are some cases where endowments and committees engage with students and have students involved, and there are others that I think would rather it go away,” says Metrick.

Schools choosing not to adhere to ESG and SRI agendas say they have legitimate concerns, however. Peter Stein, managing director of outsourced CIO firm Presidio Group and former CIO of the University of Chicago, says that most universities do not have “an explicit goal of trying to promote social good through the endowment.”

“They try to maximize the support to the university, which can then make the change,” he explains. “Most universities are very much committed to their communities, and they stand behind many of the causes that the activists are trying to advance, but they deal with them in ways other than through the endowment.”

“They aren’t amoral,” he explains. “But they try not to be partisan on a more granular level.”

There are also potential problems returns-wise with certain methods of SRI investing. “Even relatively simple constraints can drastically cut your options for investment and rule out whole areas [like alternatives],” says Stein.

“Unless you’re very big, you’re not going to have managers willing to customize an account for you at all,” he says. “It’s probably only in plain vanilla equities and bonds that you’d find someone willing to run a mandate with SRI concerns.”

Metrick echoes some of these concerns as well. “If you are screening companies on the issue of the day and keep doing it into the future, soon you are left with nothing to invest in,” he says.

However, Mercer also has conducted studies that show that investors can adhere to SRI and ESG standards without sacrificing performance.

“Our research finds that SRI does not necessarily hurt your portfolio,” says Katherine Burstein, an associate with the Mercer’s responsible investment team. “There’s proof out there that shows you can do just as well while implementing SRI policies, and in some cases you can do better.”

“That’s where some education can be helpful,” says Metrick. “There are ways to integrate those issues that don’t necessarily entail screening out a whole lot of companies and impacting the risk and return profile of the portfolio.”

The Fair Harvard Fund, for one, attempts to address these issues, and is advocating a systematic, risk-focused approach to SRI and ESG. “This is not a fringe thing,” says Nina Gardner, director of consulting firm Strategy International and a member of the Fair Harvard Fund’s advisory board. “They are realizing long-term this is a question of risk. Companies and endowments and anyone that wants to do long-term investing needs to look at it through an ESG lens.”

“The endowments are very conservative, but what we’re saying is this is a risk-averse strategy. We’re trying to screen out for unfortunate surprises,” says Gardner, pointing out losses at companies like BP and Wal-Mart that have faced ESG issues in the recent past.

The Responsible Endowments Coalition has seen the most traction, perhaps unsurprisingly, through student groups at smaller private schools and liberal arts colleges, but Apfel says that he’s seeing some larger state schools getting involved as well. “Schools can become leaders in responsible investing,” he says. “[It’s possible to] promote positive social change while continuing to preserve and grow their endowments over the long term.”

[Original article link here — requires FundFire subscription]

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