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January 29, 2007
Inaugural Report Card Grades College Sustainability on Endowment and Campus Efforts
    by Bill Baue

The Sustainable Endowments Institute study finds endowment sustainability lagging campus sustainability policies and initiatives.

Sustainability is increasingly informing classroom teaching and even campus operations of colleges and universities, yet these institutions continue to lag on applying the concept to endowment investments, according to a study released this week. In the College Sustainability Report Card, the Sustainable Endowments Institute examines campus and investment policies at the 100 US and Canadian colleges and universities with the largest endowments--representing $258 billion collectively, or three-quarters of all university endowments.

"Linking campus sustainability efforts with endowment investment policies is important because it assures a unified sustainability vision for an institution," said Mark Orlowski, executive director of the institute. "These two aspects both reflect how schools consider sustainability in relation to their resources."

The study grades schools on sustainability in seven categories looking at 26 indicators. The institute recognizes "leaders" as those receiving an average grade of "A-" or better in the four campus sustainability categories: climate change and energy, green building, food and recycling, and administration. It also recognized leaders in the three endowment sustainability categories: transparency, investment priorities, and shareowner engagement.

"While 26 schools are recognized as Campus Sustainability Leaders, only a single school qualified as an Endowment Sustainability Leader--Williams College," Mr. Orlowski told SocialFunds. Mr. Orlowski is an alum of Williams, and was instrumental in bringing about many of the endowment policies there. "This means there's a whole lot more upside potential on the endowment side."

"Campus sustainability efforts are much more visible and tangible--you can see green buildings going up and taste locally-grown food, but you can't see, touch, or feel endowments," Mr. Orlowski explained. "We hope this report will shine light on the role of the roughly $350 billion of university endowments in promoting sustainable investment practices."

Interestingly, school responses to the surveys sent by the Sustainable Endowments Institute reflect a similar divide between campus and endowment sustainability. The response rate to the survey on campus sustainability was 90 percent, while less than half (48) of schools responded to the survey on endowment sustainability, despite the fact the former was more intensive (requiring narrative answers) while the latter was multiple choice.

Combining campus and endowment scores into an overall grade, four schools (Dartmouth, Harvard, Stanford, and Williams) qualified as leaders, while 22 earned "B" grades, 54 "Cs," and 20 "Ds."

The report points to the 2005 study by Freshfields Bruckhaus Deringer, the world's third-largest law firm, which outlines options and obligations for fiduciaries to address environmental, social, and governance (ESG) issues in their investment decisions. The benevolent mission of most academic institutions may sway the fiduciary duty to address ESG issues more toward obligation for university trustees. This alignment of mission with investment has come to the fore of late in the wake of the Los Angeles Times investigative report on the lack of such alignment for the Bill & Melinda Gates Foundation.

"Colleges have an opportunity to demonstrate leadership in an area that Gates Foundation has neglected," said Mr. Orlowski. "Our 'A' List for shareholder engagement shows that 16 schools have seized that opportunity."

The Shareholder Engagement Leaders include Dartmouth, Stanford, and Swarthmore. Dartmouth has a standing Advisory Committee on Investor Responsibility (ACIR) comprised of faculty, administrators, students, and alumni. The ACIR decides how to vote on all shareholder resolutions pertaining to social and environmental issues (though not on corporate governance issues) at companies where the college holds shares directly--which is the case for about 30 percent of the endowment. In 2005 (the most recent year for which data is available), the ACIR voted in favor of all sustainability-related shareholder resolutions, including those addressing climate change.

Stanford employs an in-house manager of investment responsibility who votes all shareholder resolutions according to guidelines based on recommendations by an advisory panel that includes four student and two alumni representatives. These guidelines evolve over time to consistently prioritize "shareholder best interest." For example, in 2000 Stanford became the first university in the US or Canada to adopt voting guidelines calling for support of shareholder resolutions relating to climate change.

Swarthmore's Committee on Investor Responsibility (CIR), which consists of four students, three staff, and two members of the board's Investment Committee, advises the Investment Committee on how to vote on social and environmental shareholder resolutions. The CIR has filed several shareholder resolutions.

In 2002, Swarthmore became the first US educational institution to file a solo shareowner resolution since the end of the anti-apartheid movement when it asked Lockheed Martin (ticker: LMT) to explicitly bar sexual orientation discrimination in its employment policies. Three days after the school re-filed the resolution later that year for the next proxy season, the company announced it would add protection from sexual orientation discrimination to its equal employment opportunity policy.


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