Germans have a vivid expression to describe the cold-war mentality that continues to divide their country: the “Mauer im Kopf”—literally, the wall inside the head. The Berlin Wall may have been dismantled, but for many German citizens the mental divisions between East and West remain very much at work in social and cultural life. In the wake of the Occupy movements on American campuses, the metaphor can be extended, rather more crudely, to the symbol of the university gates. At Harvard, where the administration locked down the main campus in response to the Occupy protests last fall, the gates leading to Harvard Yard may have been reopened, but the mental gates seem to remain very much closed when it comes to discussions of the investment of the university’s $32-billion endowment.
This spring, Harvard’s Undergraduate Council organized a town-hall meeting to discuss responsible management of the endowment. The event, which took place on April 5, was organized in response to demands for the integration of environmental, social, and governance criteria across the portfolio by a new coalition of students, staff, and alumni called Responsible Investment at Harvard. The group, which has won endorsements from more than 25 campus organizations, has started a Fair Harvard Fund to encourage the university to create a “social choice” option for donors who want to see their gifts invested in closer alignment with the university’s overall mission. It has also called for greater transparency in endowment investments.
I was among the panelists invited to speak at the forum, but about three hours before the event, I received an embarrassed, apologetic e-mail from the Undergraduate Council’s president, explaining that my invitation had been rescinded. Apparently, according to students and news reports in The Harvard Crimson, the Harvard Management Company, a wholly owned subsidiary of the university responsible for managing the university’s money, was “uncomfortable” with something I had written and threatened to withdraw its representative from the panel if I was permitted to speak. Given the criticism Harvard has endured for its investments in recent years, what could I possibly have written that merited a last-minute intervention on the part of Harvard’s investment arm? Is not the mission of a university to provide precisely such a forum where uncomfortable views can be aired and debated freely?
In my undelivered prepared remarks for the event, my principal aim was to dispel several reigning myths and misperceptions about sustainable and responsible investment. For example, one hears repeatedly that endowment managers’ primary mission is to maximize investment returns, and not to get distracted by social and environmental issues. Curiously, though, in the pursuit of unconstrained financial gain, the Harvard Management Company lost more than $11-billion in endowment value during the financial crisis four years ago, and has yet to dig the endowment out of the crater created by that loss.
Compare that with the University of Notre Dame, which has managed to recover its losses since 2008 while managing its endowment under the constraints of responsible-investing criteria related to its Roman Catholic mission. Notre Dame has generated enviable long-term returns while also observing the socially responsible investing guidelines of the U.S. Conference of Catholic Bishops, which include policies to protect life, promote human dignity, reduce arms production, pursue economic justice, protect the environment, and encourage corporate responsibility.
Naturally, since Harvard University is not a Catholic institution, such guidelines may not provide a suitable blueprint for responsible investment at Harvard. And, in fact, Notre Dame need not be lionized (as too often happens in discussions of endowment performance); the university could be more transparent about how it applies those guidelines across its diversified portfolio, which includes major allocations to opaque, illiquid alternative investments.
The point here is simply that an endowment need not suffer an inevitable trade-off in performance by incorporating responsible-investing criteria. Harvard Management Company has lost plenty of money while focusing solely on “enhancing the university’s financial resources,” while Notre Dame has made plenty while marrying its money with its mission.
Indeed, Mercer, a human-resources and investment-consulting company, conducted its own analysis of three dozen academic studies and reported in 2009 that “specific environmental, social, and corporate-governance factors can make a positive contribution to investment performance.”
Those are the kinds of findings that have led increasing numbers of institutional investors and asset managers to embrace sustainable and responsible investing and to begin to incorporate such criteria into investment management. They are also the kinds of studies that need to be subject to vigorous debate on campuses around the country, at town-hall meetings like the one organized at Harvard.
Unfortunately, endowment managers are largely unaware of these debates because they remain aloof from leading conversations about the responsible incorporation of environmental, social, and corporate-governance factors into investment. Today more than 1,000 institutional investors and managers around the world, with some $30-trillion in combined assets, have become signatories to the United Nations-backed Principles for Responsible Investment, pledging to incorporate such issues into their investment activities and ownership policies and practices. Yet not a single American college endowment has joined this initiative, which routinely hosts conferences, meetings, and working groups where state-of-the-art approaches to responsible investment are discussed. The Principles for Responsible Investment framework has even sponsored research into responsible investment in the kinds of alternative asset classes widely used by endowments, such as private equity, venture capital, property, commodities, and hedge funds.
Other groups of institutional investors have created similar networks to explore opportunities related to their specific institutional form. Faith-based investors created the Interfaith Center on Corporate Responsibility more than three decades ago, and philanthropic foundations have more recently begun the More for Mission Investing campaign-resource center, which is housed at, of all places, Harvard University.
In this respect, the Harvard Management Company’s unwillingness to countenance vigorous debate with well-informed critics about responsible investment is symptomatic of much broader cultural obstacles. In the mental map of most endowment managers, the gates are simply still firmly closed and locked. However, precisely because endowments are deploying their capital aggressively in the global economy—whether large-scale investments in farmland in sub-Saharan Africa, which critics have characterized as “land grabs,” or private-equity investments made by companies with poor labor relations—college investments inevitably attract the attention of people concerned, and rightly so, with the social and environmental implications of those investments.
The mission of higher education demands not an occasional town-hall meeting to discuss the future of responsible investment, but rather a much more open, engaged dialogue that might reunify the university with the world beyond its gates.
