Having the largest university endowment in the U.S. ($30.7 billion), Harvard finds itself in a club it might not want to be a part of. This club includes companies like Apple, McDonald’s, H&M and Walmart and the common denominator is that its members often find themselves under close scrutiny over social and environmental issues, even if they’re far from being the only ones having them, due to their size and impact.
In Harvard’s case, the issue is the divestment campaign, which is trying to convince universities and colleges to divest their endowments’ investments from 200 publicly-traded fossil fuel companies.
If Harvard agrees to divest its investments, it could be a game changer for the campaign, probably making it a lot easier for other universities to do it, too. So far, Harvard has been very firm in its refusal to divest itself from fossil fuels. “We always appreciate hearing from students about their viewpoints, but Harvard is not considering divesting from companies related to fossil fuels,” Kevin Galvin, a university spokesman told The New York Times last December.
Yet, last week Harvard Management Company (HMC), which manages the university’s endowment, announced that Jameela Pedicini will become its first vice president of sustainable investing. “We will be looking to Jameela as our subject matter expert on current industry practices, possible partnerships related to ESG investing, and on issues of interest emerging on Harvard’s campus,” said Kathryn Murtagh, HMC’s managing director.
So what does this appointment mean? Is Harvard getting closer to saying ‘Yes’ to the divestment campaign, or is it just a lip service gesture to the students?
What exactly is the new VP of sustainable investing expected to do? “As long-term investors we are acutely focused on factors that may impact the long-term sustainability of Harvard’s endowment portfolio,” explained Jane Mendillo, President and CEO of HMC. “Jameela will help strengthen our understanding of these risks and opportunities and will sharpen our due diligence process to ultimately allow us to enhance the long-term returns we deliver for the University.”
Basically, it means that Pedicini will look to integrate ESG criteria into the endowment’s financial analysis. She won’t be the first one doing it in university endowments – according to the SIF 2012 report on socially responsible investing, educational institutions provide the second largest pool of institutional capital that is subject to some form of responsible investment policy. Most of this activity seems to be focusing on divesting from companies doing business in Sudan (affecting $200 billion in assets) and tobacco-related companies ($133 billion).
But Pedicini’s job doesn’t have to be only about negative screening of public equities. As Tellus Institute’s researchers wrote in the 2012 paper, Environmental, Social and Governance Investing by College and University Endowments in the United States, ESG criteria incorporation can also be used to actively filter portfolios for positive ESG attributes (investing in the most sustainable companies, for example). Other uses of ESG criteria the paper mentions are benchmarking portfolios, managing numerous forms of risk, or identifying “best-in-class” investments in any particular sector.
One of the most interesting questions is if and how Pedicini will address the issue of carbon bubble and the argument that the markets are mispricing risks by valuing fossil fuel companies as if all their reserves will be burned, while ignoring the fact that if the world is serious about not exceeding 2°C warming, then up to 80 percent of the carbon reserves owned by the world’s largest fossil companies will become unburnable.
You might think Pedicini won’t be able to ignore this analysis, especially when her new workplace considers itself to be a long-term investor that is “acutely focused on factors that may impact the long-term sustainability” of its portfolio. And, you’re probably right. Yet, it doesn’t mean necessarily that Pedicini will come up with a recommendation to divest from fossil fuel companies, and even if she does, her recommendation will be approved.
Can it really be that a savvy investor like Harvard will come to the conclusion that markets are now overlooking the risk of “unburnable carbon” but won’t take action? The answer is, apparently, yes. Just look at Pedicini’s last employer – CalPERS.
CalPERS, where Pedicini served as the investment officer for global governance, is the largest public pension fund in the U.S. with approximately $255 billion in assets. It is one of the leading forces in the SRI community (its CEO is also the co-chair of the Ceres Board), but at the same time, according to reports, about 10 percent of the market value of its stock portfolio is fossil fuel investments, which makes it also the target of a Bay Area divestment campaign.
The explanation for this seeming contradiction can be found in this quote by Pedicini’s former boss, Anne Simpson, CalPERS Senior Portfolio Manager and Director of Global Governance:
Climate change poses both risks and opportunities for a long-term, global investor such as CalPERS. The issues raised by climate change are complex and challenging. They require time, attention and coordination between investors, companies and policy makers.
If we can learn something from her old employer, it’s the fact that even an institutional investor that sees global warming as a valid risk won’t rush to take radical measures. Well, at least until someone comes and makes them do it. And if this someone is Harvard, a member of the game changers club, you can bet the efforts of the divestment campaign will continue until Pedicini and her bosses decide they are ready to walk the talk and start acting like a long-term investor.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.