Investing Instead of Divesting

Maybe punishing every evil company is less practical than supporting corporations that seek to do good. Rather than divest from tobacco companies or those that engage in ethically dubious business in Sudan, Dickinson and Middlebury colleges are trying to steer investment dollars toward companies and managed funds with strong environmental and social records.

The Sustainable Investments Initiative, as the strategy has been dubbed, is an attempt to marry the colleges’ financial goals with the moral and ethical philosophies they espouse. That means this initiative is about more than promoting social justice and sustainability; it has to make money, too.

While there’s some history of individual colleges devoting funds toward sustainability, less common is a partnership like the one Dickinson and Middlebury have undertaken. Both colleges’ endowments are managed by Investure, a firm that handles the assets of several colleges and foundations. In addition to Dickinson and Middlebury, the Rockefeller Brothers Fund -- a philanthropic organization also working with Investure -- has put assets behind the sustainability initiative.

Annette Parker, vice president and treasurer at Dickinson, said the college’s decision to place a portion of its assets in the fund grew out of three years of deliberations among students, faculty and staff who were passionate about the colleges’ mission and stated commitment to sustainability. Through the course of those conversations, Parker said some of the most fervent advocates of divestment were slowly convinced that actions like divestment that might damage the college’s investment portfolio could undermine other social goods the college carries out with its endowment returns.

“Part of the whole process was for people to see it’s not black and white; there’s a lot of gray in the world,” she said.

Among the early skeptics of Dickinson's investment strategy was Cari Peri, a recent Dickinson graduate who participated as a student in the college's discussion groups on socially responsible investing. Peri submitted a proposal her freshman year, calling on the college to divest from oil companies that did business in Sudan and, consequently, are viewed by many as underwriters of atrocities in the Darfur region. While that plan didn't gain a foothold at Dickinson, Peri says she came to view the sustainable investment initiative as a positive first step.

“I found it to be a solution where we could do good with the money we have, as opposed to pulling money out of somewhere," said Peri, who is now a research fellow with the Sustainable Endowments Institute, a nonprofit organization that monitors university investments. "In reality, Dickinson is a really small school and someone would probably pick up those stocks. If we were Harvard, maybe divesting would make sense.”

While Middlebury asked several years ago that its fund managers divest from companies with ties to Sudan, college officials say they are unsure whether Investure passed that directive on to managers who've come on board since that time. Moreover, divesting completely would be "impossible," given the fact that the money is tied up in pooled funds -- not individual stocks -- and Middlebury is investing within a consortium of several other colleges and nonprofit groups, said Alice Handy, founder and president of Investure.

"We've moved from proxy voting, to negative screening, to divestment and now to positive investing," she said. "That’s where I see it on the continuum. It doesn't mean our clients couldn't potentially divest at some time; it’s just right now that’s not where the focus is.”

While the new investment approach is admirable, Peri remains "skeptical" and says she would hate to see Dickinson's investments in sustainability used as a fig leaf to cover other shortcomings.

"From a recent student and now an alumni perspective, I'd like to continue to see pressure to keep Dickinson true to sustainability and not allow this to be the one flag it can raise," she said.

Of the $250 million Dickinson has managed by Investure, just 1 percent -- about $2.5 million -- will go into the sustainable pool. Moreover, the investment represents even less than 1 percent of the college’s total $322 million endowment. Parker said the college aims to start small before investing any larger chunk of its assets.

“It’s a pebble in the water, I suppose,” she conceded.

Middlebury’s investment of 1 percent of Investure-managed funds is a larger dollar amount -- about $4 million total -- but the biggest contribution is coming from Rockefeller Brothers, a foundation created by the sons of John D. Rockefeller. The foundation’s board has approved the investment of between $35 million and $75 million -- about 5 percent to 10 percent of its endowment -- in the sustainable initiative.

As for how Investure will determine what constitutes a sustainable investment, Handy said the firm will do some of its own reviews and look to several organizations that grade companies on environmental impact and other factors. Handy didn't name specific organizations that might provide such guidance, but a few known examples include Trucost, Climatecounts.org, and RiskMetrics Group.

Mark Orlowski, founder and executive director of the Sustainable Endowments Institute, said there is still a “relatively small” group of colleges that have publicly declared an intention to invest in sustainable initiatives. Within that group, Orlowski said he wasn’t aware of an organized cohort of institutions pooling money together for such a cause.

“That’s what’s probably most noteworthy about this, that schools are talking to each other,” he said.

The Sustainable Endowments Institute’s signature project is an evaluation of colleges’ sustainability performance known as the Sustainability Report Card. Both Dickinson and Middlebury received overall grades of “A-“ in 2010.

Orlowski called the colleges’ participation in the sustainability investment initiative a positive step, but one that should be viewed in context.

“I think the benefits of doing it are there around the education and public awareness,” he said. “But obviously 1 percent of the endowment is only 1 percent of the endowment.”