In this chapter, you’ll learn:
- What responsible investment is all about
- How it relates to your school’s endowment
- That change is both possible and precedented
Responsible Investment: What is it?
Responsible investment is a set of tools and strategies that organizations such as your school can use to change destructive corporate behavior by leveraging their sway as major institutional investors.
Investors are either people or institutions that own corporations, or at least small pieces (i.e shares) of them. Responsible investors influence corporations from within, through a number of different methods such as:
- Moving money away (i.e. divesting) from practices that they find morally reprehensible, for instance, coal extraction or sweat-shop labor.
- Engaging corporations to change their practices through letters, dialogue, and other participatory processes such as proxy voting and shareholder resolutions.
- Actively investing in more responsible and sustainable companies and funds, or even into non-corporate economic models.
- Actively investing in community institutions and services for communities traditionally neglected by financial systems.
Responsible Investment: Past and present
Responsible investment originated in divestment campaigns targeting companies involved in the Vietnam War and grew in the 1980s as a means to oppose South Africa’s apartheid policies. Building on this experience, investors began to further experiment with using their financial assets to promote social change in the 1990s and 2000s.
Now there are a wide variety of responsible investment opportunities to learn about and explore. An increasing number of money managers have emerged that offer responsible investment vehicles to all sorts of clients, including individuals as well as institutional investors like foundations, pension funds, and universities. Responsible investment has become an industry in itself, and even has its own industry trade group, US SIF, the Forum for Sustainable and Responsible Investment.
Today, over $3 trillion in assets are managed using one or more strategies that consider environmental, social, and governance (ESG) issues, and the rapid expansion of responsible investment shows no sign of slowing down 1. In April 2006 the United Nations Environment Program launched the UN Principles for Responsible Investment. The principles are a global framework to help investors in the analysis of environmental, social, and governance issues and in the exercise of responsible ownership practices. As of July 2011, over 900 large institutional investors have signed onto the Principles, pledging to take ESG concerns into their investment decisions.
There are contentious internal debates about what constitutes responsible investment, which companies should be excluded/included, and how best to influence corporations. In the same way that the label “organic” has been diluted by the commercialization of a niche approach to farming, the label “socially responsible investment” (SRI) has become a generic term housing an entire spectrum of investment strategies, some more responsible than others. Nevertheless, within the RI industry we find some of our most helpful allies, knowledgeable resources, and ardent supporters.
Higher Education: The Next Frontier
Most colleges and universities maintain policies and standards aimed at social and environmental goals. A quick scan of your school’s latest prospective student materials will give you a good idea of how your school presents its mission. Most school mission statements contain some elements of the following:
- Ethical citizenship
- Support for the local community
- Strength through diversity
- Environmental sustainability
You can use this social mission to push your school to become more responsible in all their operations, including investments.
Many activists focus on their personal spending choices as a vehicle for changing corporate behavior. For example, choosing veganism, boycotting Coke, and avoiding sweatshop-produced clothing are all consumer choices with real political implications. But there are limitations in their ability to influence corporate behavior. A non-purchase is often an act of silence. Coca-Cola has trouble knowing the difference between a month when many consumers individually boycott their product and a month when people are just less thirsty. Second, coordinated consumer boycotts take an incredible critical mass because each individual consumer represents such a small portion of the overall market. We can choose to boycott, and live as conscientious (anti-)consumers, but it won’t always be enough.
Investors, or shareholders, have three advantages over consumers in the effort to change corporate practice.
- Firms must ultimately answer to their shareholders. Just as citizens have a right to be heard and to have their interests represented by their government, shareholders have rights within the firms that they own.
- Institutional investors (like colleges and universities) accumulate large ownership stakes that avoid the collective action problems mentioned above.
- Investor-led campaigns have had success in garnering serious press, often receiving attention in the papers that corporate elites read—affecting their strong desire for good publicity.
Colleges and universities in the United States collectively have over $400 billion in endowment assets, giving them far more power in the corporate hierarchy than most individual investors. Much of this wealth is concentrated at elite schools; there are 60 schools around the country that have over a billion dollars in endowment assets 2. As the stewards of such extraordinary wealth, schools are uniquely positioned to steer corporations towards social justice and environmental sustainability, and students can utilize this power to send louder, clearer, and more official demands than they could ever send on their own.
Surprisingly, colleges and universities have not yet had a sustained, coordinated presence in the responsible investment community, with the commendable exceptions of the South Africa and Sudan divestment movements. Recently, due to student activism, this trend has begun to change, with an increasing number of colleges investing in their local communities, screening their investments for ESG factors, and making their endowments more transparent. But colleges can be doing much more- and you can make this happen.
Click here to find one such story from Morgan Simon, the founding executive director of REC, detailing her responsible investment campaign at Swarthmore College. In 2001, she led a campaign to file a shareholder resolution against Lockheed Martin. Shareholder resolutions are formal statements that are sent annually to every single shareholder of a publicly traded company. You’ll learn more about this in Chapter 6. For now, just understanding that they serve as an effective way to shame a company into changing its behavior is enough to understand Morgan’s experience and discover how it is possible for one student to create sweeping change, both on a university level and on a corporate level.