Undergraduates, as you select the next President and Vice President of the Undergraduate Council this week, you will also have the power to vote “yes” on a referendum asking the University to establish a Social Choice Fund within Harvard’s endowment. Harvard’s historical investments in companies with poor social and environmental standards have created an urgent need for this fund. To show support for investing according to environmental, social, and corporate governance criteria, donors to the University would be able to earmark their gifts to the endowment. Under the leadership of graduates from the classes of 1962 and 1985, the alumni effort in favor of an ESG fund is well underway. If implemented, the fund will allow Harvard to consider global issues while raising the money it needs to provide exceptional research and educational opportunities to students.
By voting “yes” on this referendum, you can amplify our voices and proactively ask our University for socially responsible investments. While the Advisory Committee for Shareholder Responsibility allows for student input on investment issues, its power remains limited. Supporting the referendum will show Harvard’s leaders that we are concerned about our investment practices and the long-term success of the University—and that we are calling for reform.
Since the 1980s, the student body has occasionally protested some of Harvard’s investments, such as those in companies that supported apartheid in South Africa and genocide in Darfur. However, these calls for change have always been reactive rather than proactive. The current method of investing the endowment needs reform in order to avoid these risks in the future. Rather than urging the school to divest from specific companies, students and alumni should encourage the Harvard Management Company, which manages the endowment, to invest responsibly.
According to University President Drew G. Faust, the HMC’s primary purpose is to generate returns on the endowment. She told students, “That is its sustaining goal and it devotes itself to that, not to using the investments to advance particular agendas of one sort or another.” However, the aims of a social choice fund align with those of the HMC. Making money and doing good do not have to be mutually exclusive. To date, chief executive officers and corporations around the world with combined assets of over $30 trillion have signed the United Nations Principles of Responsible Investment, including Mohamed El-Erian, the former CEO of the HMC. In 2011, his company, PIMCO—a global investment management firm—signed on to these international regulations. Erika Karp, the Head of Global Sector Research at UBS Investment Bank wrote in an email to members of Responsible Investment at Harvard Coalition, “In terms of fundamental analyses of both risks and rewards, there is absolutely no reason to miss the opportunity for the potentially ‘enhanced analytics’ available through systematic ESG research.”
Although companies that do not fully recognize and articulate ESG issues may be more profitable in the short run, they will not be able to sustain such success in the future. Harvard’s endowment is a long-term investment, and the HMC must consider how companies will perform over many years. Companies like BP, which was once profitable for investors, faces a $25 billion judgment for the 2010 explosion on one of its drilling units which spilled 205 million gallons of oil into the Gulf of Mexico, bringing the total cost of the disaster to $55 billion for BP. The social investment firm Domini refused to invest in BP prior to the spill, citing “a pattern of safety and environmental concerns.” Investments in such unsustainable companies threaten the endowment’s long-term success as well. A social choice fund is a step toward preserving the future of Harvard’s money.
Other top schools like Hampshire, Williams, Vassar, and Mount Holyoke already have social choice funds, and Brown University became the first Ivy League school to start one in 2007. Harvard can easily join them. This is different from the demands of the Divest for Our Future campaign, which is aimed at ending ties between Harvard and fossil fuel companies. It also reinforces the need for socially responsible investment. And the Social Choice Fund can be implemented efficiently and quickly; it can yield profits matching the returns on the rest of the endowment. Numerous studies show ESG-run funds generate about the same amount of revenue as normal ones and may even do better in the long run. For example, a study comparing the S&P 500, an index of the largest publicly traded companies, to the MSCI KLD 400, an index for responsibly-screened investments, showed that the KLD 400 slightly outperformed the S&P 500 over a 20 year period.
Establishing a social choice fund will by no means solve the current issues of how the endowment is managed, but it is a modest and important first step toward getting the entire endowment to be run by ESG criteria. As students, let’s become part of the conversation on investment and vote “yes” to ask Harvard for a responsibly invested endowment.
Caroline T. Zhang ’16 lives in Wigglesworth Hall. Eliza M. Nguyen ’14, an inactive Crimson news writer, is a history and science concentrator in Quincy House. Both are part of the Responsible Investment at Harvard Coalition.