Endowment investments: Where should institutions put the money?

By Thomas Wolber
Associate Professor of MFL

For some 170 years, Ohio Wesleyan University has been in the business of educating students. On the one hand, it attempts to develop a young person’s knowledge, skills, critical thinking and intellect. On the other hand, according to its “Statement of Aims,” it places education in the context of values.

Among the quoted goals are intellectual honesty, the concern for ethical issues (such as justice), the appreciation of cultural heritages and the willingness to meet the responsibilities of citizenship.

Thus, OWU strives to equip students not only with knowledge but also with “character.” We are a community of students and teachers united in the free pursuit of truth in the never-ending quest to examine the world around and within ourselves.

Ohio Wesleyan, founded by Methodists, is not unique in that respect. Many colleges and universities have goals that are based in Greco-Roman philosophy and/or the Judeo-Christian tradition.

Within that frame of reference, let us examine now the issue of socially responsible investing (SRI). It becomes clear very quickly that there is a deep gap between theory and practice. It is often the case that institutions of higher learning invest their endowment funds in whatever yields the highest returns. The maximization of profit is often the primary goal and the highest priority. In the short-term pursuit of revenues, the consideration of the long-term social and political impact is often ignored. Many schools claim to have strong ethical values, but when it comes to business decisions, they are unscrupulous. They teach good citizenship but don’t practice it themselves. They don’t put their money where their mouth is, forgetting that reputations and legacy are enhanced or diminished by the choices we make.

The question is, should a university (or a pension fund) invest in “sin stocks” involving alcohol, tobacco, gambling, pesticides, guns and ammunition, prostitution or pornography? Should they invest in coal mines, hydraulic fracturing, nuclear power plants and other industries that are harmful to humankind and to the environment?

Should they invest in countries where a tiny elite reaps all the income and squirrels it away in Swiss bank accounts while the vast majority of the population is oppressed and starving? Should they invest in far-flung countries on the other side of the globe when their own local communities are not thriving because of a lack of jobs? Wouldn’t such investments be socially irresponsible and in violation of the stated missions of most colleges even if the income is intended to serve educational purposes? How does this create a better world?

If you take the notion of “intellectual honesty” seriously, the answer must be unequivocally no. Institutions must consider the social, political, and environmental impact of their investment strategy. In the opinion of this writer, the endowment portfolio of a university should match their mission. The good news is that green investing is growing rapidly. Plenty of viable alternatives exist if business-affairs people and trustees only cared to look.

Locally, Huntington Bancshares recently rolled out a new investment option called EcoLogical Strategy ETF that emphasizes renewable energies, energy conservation, ecofarming, natural and organic foods and recycling. Nationally, in 2005 there were 55 funds with a total of $12 billion in assets. Five years later, in 2010, there were 250 mutual funds with $316 billion in assets. In 2012, the numbers was 333 funds with $640.5 billions.

The field is exploding. Dozens of publications offer information about environmentally friendly stocks and bonds and other green-investing strategies. The non-profit US-SIF (Forum for Sustainable and Responsible Investment) has a great website that explores ethical investment options. The U.N.-based “Principles for Responsible Investment” is another webpage devoted to SRIs globally.

In the corporate world, more and more responsible shareholders are demanding change and are exerting pressure. At a growing number of colleges and universities, too, students and teachers concerned about climate change are demanding that their institutions sell off their holdings in fossil-fuel companies, which represent a significant portion of the stock market.

Colleges and universities can and must do more to practice good corporate citizenship. Socially Responsible Investment would be an excellent starting point.