Looking to Divest? Top 5 Considerations for School Board & Investment Committee Members
March 29th, 2017
Across the nation, school boards and investment committees are debating the nature of their endowments with increasing frequency. Students, some galvanized by videos on 350.org or writings on divestinvest.org, are taking a page from their 1980s counterparts who rallied against South Africa’s apartheid policies. No matter the cause, the question facing trustees remains the same: Should an endowment invest assets consistent with the institutional values? On the surface, it’s a seemingly straightforward proposition. Yet the solutions are complex, riddled with questions about adhering to fiduciary duties, protecting donor relations and ensuring there is ample money to sustain and grow the institution.
1. Engage all stakeholders - students, alumni and teachers - before moving forward.
Your ability to transition beyond a preliminary discussion to an actionable investment plan hinges on your capacity to create a collaborative environment with all stakeholders. By explaining the purpose of an endowment, the operating budget and the fiduciary obligations of the board and investment committee, a “we are in this together” mindset can be formed. For schools with active student bodies, this level of transparency at the onset is critical.
2. Understand all of your options, from the various forms of divesting to the utilization of environmental, social and governance data.
To make a meaningful impact with your assets, we generally advocate coupling shareholder engagement with “positive tilting,” which utilizes environmental, social and governance (ESG) data to tilt the portfolio toward companies that are the most environmentally friendly, socially aware, and have strict governance practices. This approach gives us the best probability of earning competitive returns. If your committee decides to divest, understand that there are many different flavors. Barnard College recently decided to divest only from energy companies that deny climate change1. Meanwhile, in 2016, the University of Massachusetts became the first major public college endowment to eliminate direct investments in fossil fuels2.
3. Use data to transform divestment discussions into a concrete investment plan.
Academic institutions, more than anyone else, understand the power of data and education. Use historical data to facilitate a tailored educational program so that the board or investment committee can better understand the risk and return dynamics of fossil-fuel divesting. If you have time, check out our paper titled Our Journey with One School Endowment to see how we worked through these issues with a school endowment. Importantly, if you cannot use data to quantify the impact of divestment and create a concrete investment plan, partner with someone who can.
4. Adherence to fiduciary duties.
The growing body of data correlating strong performance with environmental and social investments is vital information for those charged with a fiduciary duty to act in the best interest of the endowment. Even large endowments like Harvard have advocated that fiduciaries “need to think not only more broadly across our portfolios, but also more broadly through time, including consideration of environmental, governance, and social factors,3” to effectively build a portfolio in perpetuity. To be fair, not all endowments have reached the same conclusion, and opinions about fiduciary considerations vary widely4.
5. Don’t waste an opportunity to bolster donor relations and galvanize current and prospective students.
For the schools that successfully engage stakeholders and develop a values-aligned investment plan, the journey does not end there. Maintain the energy and excitement by sharing your experiences. Outreach can reinforce the shared values of the community, galvanize prospective students, engage alumni and, ultimately, help unlock donor dollars.
If you’re interested in learning more about our experience working with school endowments to develop values-aligned investment plans, don’t hesitate to contact Casey Clark, CFA, Director of Sustainable and Impact Investing at email@example.com or refer to our latest whitepaper, Our Journey with One School Endowment.
1 McDonald, Michael, “Barnard College Endowment to Divest From Climate Change Deniers.” Bloomberg. March 4, 2017.
2 "UMass Foundation to Pull Direct Fossil Fuel Bets." FundFire. May 26, 2016. Note that the endowment may still hold fossil fuel investments through its hedge funds or other pooled vehicles.
3 Hoyle, Simon, “Good for Harvard, Good for the World: Why HMC Embraced ESG with Such Passion” Top1000Funds.com, October 2014.
4 2015 NACUBO-Commonfund Study of Endowment, January 2016.
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