A call to action to manage Harvard’s $32bn Endowment Fund responsibly

Why Harvard should lead universities in responsible investing.

If one were to give Harvard University’s endowment a grade, by some measures it would deserve an “A.” The largest university endowment in the country, it is also one of its strongest performers: in 2011, it jumped 21.4% to $32 billion [1], bringing Harvard almost back to pre-2008 levels. In the first quarter of 2012, its U.S.-traded equities rose 14%, slightly outperforming the S&P 500 and DJIA [2]. Contrast Harvard’s performance on the Green Report Card 2011, released by the Cambridge, MA-based Sustainable Endowments Institute: “A’s” across the board in areas such as administration, green building, and student engagement, with one notable exception: a “C” in endowment transparency [4]. In the report that Harvard submitted for consideration for the Green Report Card, it noted, “We allocate a portion of the endowment to private equity and natural resources investments that seek companies and/or ventures that may take environmental and sustainability factors into consideration” [5, emphasis added].
Harvard may invest some of its assets along social and environmental indicators, or maybe not. The point is, it’s difficult to tell. As Harvard students—from the undergraduate College as well as its professional and graduate schools—we are concerned with how the University manages its money, but there is a dearth of information that would give us insight into Harvard’s investment practices. While other schools with similarly-managed endowments have begun to open lists of their major holdings to campus community
members [7], Harvard remains resistant to claims that the university’s institutional values should inform the way it invests its funds. For instance, the present infrastructure to incorporate community input on Harvard’s investments is grossly inadequate. Harvard does have two entities—the Advisory Committee on Shareholder Responsibility and the Corporation Committee on Shareholder Responsibility—that advise and determine, respectively, Harvard’s proxy votes. Four students serve on the Advisory Committee, but as only a 12-person body, seatsaround the table are scarce. As Harvard students, we have both a responsibility and a right to care about how Harvard manages its money because the endowment contributes annually to the revenues of each of the University’s schools [1]. While the Harvard Management Company invests the money, it is the Harvard Corporation, the University’s highest governing body, that determines the endowment payout rate1. This rate is the percent of the endowment that each of the schools will receive to pay for part of their operations. This money goes towards worthwhile investments in Harvard, including its financial aid initiative, innovative research, and physical facilities.
Yet, there is a fundamental misalignment between the principles that guide the University’s socially beneficial education and research, and those that inform the investment strategies of the Harvard Management Company. An endowment that disregards the social and environmental impacts of its investments is an endowment that is not accountable to the mission of our University. In addition, it may fail to fulfill the fiduciary duty that HMC has to the University community: by not considering environmental, social, and governance (ESG) factors, Harvard is missing out on potentially critical risks and opportunities. This oversight is only exacerbated by HMC’s increasing exposure to emerging markets [2], where research conducted by Risklab, a subsidiary of Allianz Global Investors, suggests that ESG integration could reduce “tail risk,” the risk of unlikely events causing catastrophic damage, by nearly 40 percent [6]. This is a call to action. We are writing on behalf of a coalition of groups and individuals in the Harvard community known as Responsible Investment at Harvard, or “RI@Harvard,” that seeks greater mission alignment and accountability in Harvard’s investment strategies. Our campaign reflects what we have been taught in our time at Harvard: that we should strive “to assume responsibility for the consequences of personal actions [and] to advance knowledge, to promote understanding, and to serve
society” [3]. Thus, we are calling on Harvard for the reform of the Committees on Shareholder Responsibility, to move beyond proxy voting guidance and work on ESG policies across all asset classes; for the creation of a social choice fund; for the creation of a dedicated ESG unit within HMC; and, to commit to eschewing land-grab investments and private equity investments with poor labor and human rights records.
In this historical moment of proliferation of ESG integration among institutional investors—most notably, by California pension giant CalPERS [11]—Harvard has the opportunity to become a leader in the field of responsible investing. The establishment of the Initiative for Responsible Investment at Harvard, and the existing infrastructure for the coordination of responsible investing at universities already in place through the Investor Network on Climate Risk, Principles of Responsible Investment, and the Responsible Endowments Coalition, among others, points to the potential for Harvard to be in the vanguard of responsible investing.
With funds that far exceed the endowments of other universities, Harvard is uniquely positioned—and thus, possesses a unique responsibility—to lead a shift in the way that universities consider the value of their investments. Harvard has long been at the forefront of historical changes in the American higher education landscape: it pioneered major expansions in financial aid offerings at private universities [8]; revolutionized the American system of general education [9]; and, even influenced the way residential dormitories in the United States are built [10]. By incorporating a stronger commitment to investment transparency and environmental, social and governance considerations, Harvard should help set the standard for responsible investment in the next decades.
Please join us in making our vision a reality. Support us by contacting us at info@responsibleharvard.com or visiting our website www.responsibleharvard.com.

*Lange Luntao, Sam Wohns, and Evelyn Chow are all current students at Harvard University.*h6. References:

2. http://www.thecrimson.com/article/2012/2/13/hmc-equities-fourteen-percent/
3. http://www.harvard.edu/faqs/mission-statement
4. http://www.greenreportcard.org/report-card-2011/schools/harvard-university
5. http://www.greenreportcard.org/report-card-2011/schools/harvard-university/surveys/endowment-survey
6. http://www.ft.com/intl/cms/s/0/e0671e0e-782c-11e0-b90e-00144feabdc0.html#axzz1mJFkjhPC
7. http://www.greenreportcard.org/report-card-2011/schools/university-of-michigan-ann-arbor
8. http://www.nytimes.com/2006/03/31/education/31harvard.html
9. http://www.thecrimson.com/article/1962/11/6/general-education-pthe-appointment-of-a/
10. Bunting, Bainbridge, and Margaret Henderson. Floyd. Harvard: An Architectural History. Cambridge, MA: Belknap of Harvard UP, 1985. Print.
11. http://www.top1000funds.com/profile/2011/08/24/calpers-steps-up-esg-drive/