College lags in responsible investing

Author: Chi Zhang

The Sustainable Endowments Institute slapped the College with a grade of "C" for endowment transparency and investment priorities in a report released on Jan. 24. In response to the low mark, the student-led Advisory Committee on Socially Responsible Investment (ACSRI) announced it would increase efforts to promote socially responsible investing.

"Middlebury has a $750 million endowment and the community deserves to know where and how that money is invested," wrote Daniel Kane '09, a member of ACSRI, in an e-mail. "Increased endowment transparency would assure the community that what this institution and what we stand for is not a farce."

The ACSRI was formed last fall with the mission of reviewing the College's endowment investment and ensuring that it is consistent with the community's ethical commitments. According to ACSRI member Michael Cooper '07, the group was born from student initiatives to stop investing in corporations that conduct business in the Darfur region of Sudan.

Socially responsible investing (SRI) accords importance to environmental, ethical, social and humanitarian considerations. This form of investment has gained global momentum in recent years. The volume of socially responsible investment in mutual funds alone increased from $12 billion in 1996 to $178 billion last year, according to figures provided by Nate Blumenshine '08, a member of the ACSRI.

The current focus of the committee is on energy efficiency issues and the environmental aspect of SRI in general. The Sustainable Endowment Institute's College Sustainability Report cited the college for not having "any public statements about investigating or investing in renewable energy funds."

The ACSRI propounds this cause by conducting research and preparing proposals for companies in the College's endowment portfolio and then participating in the proxy voting process at the annual shareholder's meeting. Proposals can advise companies to improve in certain areas such as environmental practices or workplace safety. The lack of transparency in endowment investment, however, has proven to be a hindrance to the committee, according to Blumenshine, as portfolio information is not accessible.

As of now, only five percent of the College's endowment holdings are disclosed to the ACSRI. Other colleges evaluated in the report have varying degrees of endowment transparency. At Williams College, which received "A's" in both Endowment Transparency and Investment Priorities, a list of investment holdings and the proxy voting record are both publicly available.

The transparency issue has been a major point of contention between the ACSRI and the College's Board of Trustees since the committee's inception.

Cooper and Kane acknowledged the potential administrative difficulties in making the endowment transparent, such as that associated with the hedge fund and third-party investor, as well as the apprehension surrounding the relatively new concept of SRI in endowment. The committee feels strongly, however, about the need to take a first step toward increased transparency.

In response to the concern that profitability may be compromised by introducing transparency, the committee claimed that profit can be reconciled with social considerations. According to Cooper, studies have shown a positive correlation between social responsibility and financial performance.

"At the end of the day, businesses that are not socially responsible get caught up in fines and taxes," said Siddharth Baveja '09, treasurer of the Student Investment Club (SIC). "It makes sense to invest in a company with a long-term prospect."

This emphasis on long-term prospect coincides with the report and the committee's agenda for a sustainable endowment. According to Kane, socially responsible investing is the means by which the ACSRI wishes to effect "positive social and environmental change in line with the college's mission while also keeping the endowment investments profitable."

"We can both do good and do well," said Blumenshine.

The ACSRI delivered a presentation on Socially Responsible Investing to the SIC, which receives a portion of the endowment from the College for investment. The presentation saw mixed receptions, meeting with both skepticism and support.

"Socially responsible investing is by no means the only consideration, but it definitely needs to be on the back of an investor's mind," said Baveja.

Following the correspondence between ACSRI and the SIC, the latter withdrew its holdings in PetroChina, which was involved in Darfur.

As of now, the ACSRI is comprised of five students and College Treasurer Derek Hammel, although more student, faculty and alumni participation is hoped for in the future.

Cooper believes that the students play a dual role in instituting socially responsible investing.

"An active student voice helps demonstrate to the board of trustees the commitment of the college community on investing the endowment in a responsible way," said Cooper. "Students with this awareness may also go into the workforce as catalyst for changes in favor of SRI in their own businesses and investments."

The ACSRI has plans to increase the awareness and prevalence of socially responsible investing on campus.