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Towards a Coherent Divestment Policy

By Manav K. Bhatnagar and Benjamin B. Collins

Among the issues facing Harvard, few are as important—or as longstanding—as how the University should deal with ethically questionable investments. Unfortunately, Harvard employs an antiquated and ad hoc system under which the University profits from injustice. Harvard must establish standards that allow potentially dangerous investments to be pre-screened so that divestment does not have to be used as a last resort.

Last year’s PetroChina divestment campaign sparked a campus debate on how politicized, if at all, the Harvard endowment should be. The problem with seeking maximum returns in investments is that companies like PetroChina, Sinopec, Unocal that either indirectly facilitate or are directly complicit in grave human rights abuses remain in Harvard’s portfolio. Fortunately, last year the University agreed that Harvard must ensure that its money is not used to facilitate morally bankrupt activity. Citing President Derek C. Bok’s precedent that divestment is reasonable in “exceptional circumstances,” the Corporation decided to divest from PetroChina.

While Harvard has a long tradition of morally responsible investing decisions—including its decisions to divest from Angola’s oil industry, apartheid South Africa, and tobacco stock—all these decisions were made on an ad hoc basis. This “Bok system” has several problems. First, the “exceptional circumstances” criteria for divestment forces the ethical responsibility debate to be rehashed from scratch each time a questionable investment is discovered in Harvard’s portfolio. Second, the current system means that reviews often do not occur because they are reactionary. This means the overall process is slow and arduous. For instance, Congress’ declaration of genocide in Sudan was not enough for the University to reconsider its portfolio—six months of pressure from a mobilized campus was needed to put the bureaucratic wheels in motion.

Furthermore, the biggest check in the Bok system is the Advisory Committee on Shareholder Responsibility (ACSR). Comprised of professors, alumni, and students, the ACSR was a concession made by the University to student activists demanding institutional checks during the campus debate over investments in apartheid South Africa in 1972. While the ACSR research was valuable in prompting the PetroChina decision, they hold little real power—they can only make recommendations and primarily focus on shareholder votes, not screenings of investments. Overall, the Bok standard of ad hoc ethical decision-making—adopted in reaction to student protests over investments in Apartheid—is a formula for managing public relations crises, not a coherent set of guidelines.

There is no way of avoiding confrontations on ethical issues regarding investments—students have and will continue to force them on the administration as long as the President and Corporation fail to give real power to the ACSR to actively monitor Harvard’s portfolio. Bitter and divisive fights with students and alumni are not worth the cost—last year’s Senior Gift controversy as well as the shantytown protests over apartheid at commencements in the 1980s could have been avoided if a body like the ACSR were continuously screening investments.

The Corporation must also establish a set of guidelines on ethical investing, something Harvard has considered in the past but failed to do. In 1971, President Nathan M. Pusey ’28 and the Harvard Corporation wrote to the University Governance Commission that “Harvard will not make investments which, according to information which has come to our attention and which we believe is reliable, support activities whose primary impact is contrary to fundamental and widely shared ethical principles.” Pusey’s vision of a systematic and proactive social investment strategy was wide-ranging and called for senior administrative posts at the University to be dedicated to maintaining a socially responsible endowment. Yet Pusey’s recommendations were never implemented and replaced with the Bok system that is still used today.

What might such guidelines look like? The Corporation should look to both the standards set by its peer institutions and the criteria set forth by the Harvard Corporation in the PetroChina decision. A prudent place to start would be an unequivocal ban on investments that facilitate governments responsible for committing or supporting Congress-declared genocides There is no excuse for Sinopec, which is involved in Sudan in the same way as PetroChina, to remain in Harvard’s portfolio—since the University has taken a moral stance against genocide in Sudan, it behooves them to be consistent. Other schools that divested from PetroChina, like Yale, Stanford, and Amherst, recognized the similarities and also divested from Sinopec.

While Harvard was praised last spring for firing the first salvo and taking a leading role, after almost a year Harvard lags far behind other institutions in the scope of its decision. If Harvard is to remain a leader in the field of ethical investing—or an ethical investor at all—the University must establish both a set of ethical investment standards and a proactive system to check that such standards are being met.

Manav K. Bhatnagar ’06 is a Sanskrit and Indian studies and government concentrator in Eliot House. Benjamin B. Collins ’06 is a social studies concentrator in Eliot House. Both are members of the divestment wing of the Harvard Darfur Action Group.

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