Friday, May 18, 2012

Education: Out of the box thinking.

Endowment Activism: How Students Can Move Big Money

Think broke students have no power to influence Wall Street? Think again.

by Martha van Gelder     posted May 17, 2012

Students are known for having an abundance of ideals, but not much money or power. But student
       installing solar panels by Katie Romanov                   
Middlebury College is know for its focus on social responsibility and sustainability. Members of Middlebury's team attach solar panels to the roof of Self Reliance, their entry in the Dept of Energy Solar Decathlon.
Photo by Katie Romanov courtesy of Dept of Energy Solar Decathlon 
organizations around the country are finding ways to put thousands, sometimes millions of dollars behind sustainable companies.

At Middlebury College, members of the school’s Socially Responsible Investing (SRI) club are working to guide the school’s $900 million dollar endowment towards more sustainable investments.
They’ve joined a growing number of other schools in invoking the kind of ownership rights seldom embraced by the left: the right to influence the world through the tools of Wall Street, using their role as investors to spur change in powerful corporations.

“Colleges have the opportunity to be leaders in socially responsible investing because we combine liberal ideals with a huge amount of money,” says Olivia Grugan, a Middlebury senior and president of the SRI club.

Responsible investing

At Middlebury, a group of students started a Socially Responsible Investing (SRI) club and began working with the administration to set aside a part of the school’s $900 million endowment to be managed in a socially responsible way.

Having ethically managed funds was a priority for the club, and they initially asked that the school allocate 1 percent of its endowment to a fully transparent fund.

Middlebury’s administration was wary of sacrificing too much of the endowment’s money-making potential.
“Our endowment supports some major commitments we’ve made,” says Patrick Norton, chief financial officer of the college. “We have a commitment to future generations of students and can never put our funding stream at risk.”

As the stewards of significant pools of capital, colleges can also use their position as shareholders to influence the way the company operates.

But values and profits don’t have to be mutually exclusive, notes Dan Apfel, the executive director of the Responsible Endowments Coalition, which regularly works with students to incorporate the principles of SRI into their schools’ endowments.

Grugan argues that socially conscious investing is part of the school’s responsibility. “Middlebury has a mission statement that includes language like ‘environmental stewardship’ and ‘global community,’” she says, “and those values are something we want reflected in the entirety of our endowment.”
In 2010, the school created a socially responsible fund of $4 million, to be matched with another $4 million raised through fundraising efforts.

The current size of the fund is $2.5 million, but students and administrators are hopeful that it will grow in the next few years. Although the fund is not managed by students, they were able to provide input on the general direction of the investments.

“When we got this fund, we had a couple of choices in what direction we could take it,” says Grugan. “We could try to make it the greenest fund ever, or we could aim to make it a model for how the entire endowment could someday be run. We chose the latter.”

The fund runs along the same line as a regular pool of investments, but weighs its decisions according to the “triple bottom line” of profit, people, and planet. As a result, its assets are spread among companies that lead their fields on environmental and social issues.

Shareholder activism

Steering money towards sustainable companies is not the only way to encourage the triple bottom line. As the stewards of significant pools of capital, colleges can also use their position as shareholders to influence the way the company operates.

“This is a really powerful type of investment activism,” says Grugan, “some would argue that it’s the most powerful—you’re utilizing your position within a company to change the way it operates.”

When Grugen discovered that a Middlebury-based fund owned shares in Exxon Mobil, she wondered if they could use their position as shareholders to influence Exxon’s position on the proposed KXL Pipeline that would carry the oil across the United States.

The students decided to join a coalition of socially minded Exxon Mobil investors who were attempting to bring a resolution about the risks of tar sands development to vote at the annual shareholders’ meeting. The mere act of holding a vote would signal the importance of the issue, and if the vote were to pass, it would put real pressure on the management to consider the risks of pipeline involvement.

                                       The Bank Vs. America Showdown
                        Bank of America protest, photo by Rainforest Action Network
In shareholders’ meetings and in the streets, how 99% Power is taking on Bank of America.
“Endowments are leaders in the financial world... We can lead in the shift towards making socially responsible investing the norm.”

Before the resolution could go to vote at the annual meeting, though, Exxon lawyers challenged it through the Securities and Exchange Commission, and it was dismissed.

The SEC dismissal of the Exxon shareholder resolution was a setback, but Grugan was encouraged that the small club had had a real impact on how the school managed its funds. “We had a five-student club, and we got $4 million allocated. What could we do if we had the whole student body on board?” she wondered.

Currently, the SRI club is devoting its energy to getting more students involved in the management of the school’s endowment. “This is a unifying tool,” says Grugan, “because no matter what your issue, you can use shareholder advocacy to further it.”

The potential of socially responsible investing

Values-based investing is a growing trend, and not just on college campuses. In 2010, almost one dollar out of eight was invested in a fund that is ethically screened in some way.

In 2008, the endowments from U.S. four-year institutions totaled over $400 billion. That represents a huge body of influence—if its custodians choose to wield it.

“Endowments are leaders in the financial world,” says Apfel. “We can lead in the shift towards making socially responsible investing the norm.”

And students aren’t the only ones who can participate in the direction of endowments; as a major source of donations, alumni can have a major influence. Says Apfel, “just sending a letter to your school asking where they invest and expressing your desire to donate to a socially responsible fund can be influential.”

“Where socially responsible investing is great is in its potential, which is largely untapped,” says Grugan. “Colleges are not doing all they can. This isn’t a solution story yet, but it could be. There is a lot of potential."

Martha van Gelder wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Martha is a freelance journalist based in Washington DC. She tweets about sustainable investing and the tar sands at @marthavangelder.

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