Last Friday we attended a conference on investor responsibility on behalf of the Endowment Advisory Committee (EAC), the Wesleyan Student Assembly (WSA) student group that makes recommendations to the Investment Office on shareholder proxy resolutions. This national gathering of campus investor responsibility committees was hosted by Columbia University and organized by the Responsible Endowments Coalition, a national organization that works with students to promote investor responsibility. This was the first time that campus representatives, other institutional investors, and money managers came together to discuss the challenges and possibilities for socially responsible investing. We wanted to share some of the things we learned with the community.
In addition to gleaning knowledge about the functions of these committees, such as the best practices for proxy voting, divestment, transparency, and accountability, we also gained a better understanding of what the investment landscape looks like now, and how it has changed. There has been a remarkable evolution in socially responsible investing. When the pioneers of the field began talking about socially responsible investing forty or fifty years ago, the approach was to avoid morally reprehensible or irresponsible companies. This produced a number of asset management companies as well as corporate watchdogs. It also probably produced the notion that socially responsible investing necessarily meant lower returns, since the tactics were largely limiting and avoided certain investments.
After years of experience and many additions to the field, SRI has evolved into a sophisticated and ambitious approach to encouraging long-term, market-wide change in corporate policy. Corporate engagement, which is the biggest and most exciting new tool, has arisen from a number of factors. In recent years, empowered shareholders have had some encouraging successes as a result of writing proxy resolutions, or engaging with management to address a certain issue. There has also been the longer trend of individual and institution investors insisting that their portfolios not contradict their beliefs and values. This has forced mainstream money managers to figure out how to simultaneously make returns and acknowledge ethical concerns.
As a result of this continuing trend, an amazing thing has happened. Managers have learned that it is in their interest to promote responsibility in the market. Irresponsible corporate governance structures, disregard for the social environment, and abuse of the physical environment make for bad financial prospects in the long run. The dismal prospects for over-fished fisheries are a clichéd but good example. In the interest of market sustainability, managers have begun to take a proactive, if behind the scenes, approach to promoting corporate responsibility. The conference attendees were very excited about a recent 2008 report by the British Insurers Association that actually showed slightly higher returns in the long run for portfolios with environmental, social, governance (ESG) criteria.
In addition to these questions of market sustainability, a panel of speakers from Innovest, Goldman Sachs, and Clear Bridge (an asset management company), addressed the idea that SRI funds have to compromise returns in the short run. Just like with any other type of fund, there are SRI funds that perform extremely well and there are SRI funds that perform poorly. Kevin Ng, a member of the Fundamental Equity Team of Goldman Sachs Asset Management, expressed Goldman Sachs’ interest in SRI initiatives and its ongoing engagement with management to promote responsibility. For the last year, Goldman Sachs has been offering investment vehicles to shareholders who want to capitalize on these initiatives.
A central theme of the conference was the crucial role of SRI as a part of fiduciary responsibility. Our trustees’ obligation to protect the long-term financial interests of the University is shared with the pioneers of the field, most notably churches and pension funds. Representatives from the Interfaith Center on Corporate Responsibility explained how religious organizations were the first to pursue ethics in investing 40 years ago. Another speaker, Michael Musuraca, is a trustee of the New York City Retirement System (NYCERS), a pension fund that serves 125,000 NYC employees. This important fund has been investing responsibly since the 1980s and has a strong history of shareholder engagement. Also, our very own Connecticut state treasurer has been a proactive proponent of socially responsible investing.
All of this information has been useful to the EAC. We are currently working on a proposal for the trustee working group for investor responsibility that would create a committee for investor responsibility here at Wesleyan. Please stay tuned for details and come to the WSA on Sunday nights as we work through the proposal for an investor responsibility committee.
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