By DONOVAN HARRELL
The Socially Responsible Investment report released this week found that the University could benefit from socially conscious investment strategies, especially because these strategies tie into Pitt’s sustainability goals.
Chancellor Patrick Gallagher released the report on July 19. It discussed the Socially Responsible Investment Committee’s findings on how Pitt could potentially invest its $4 billion endowment while meeting increasing community demands.
Socially responsible investing (SRI) is essentially a strategy that takes into account non-financial issues when selecting investment options. Issues to consider include climate change, human rights and “contributions to societal ills,” such as weapons manufacturing, according to the report.
Gallagher initially formed the committee in January 2018 to gather community input and facts that would lead to future strategies for the University to use for responsible investing, according to the report.
The eight committee members — representing faculty, staff and alumni — collected data on SRI funds and their costs, compared Pitt’s investments to peer institutions and listened to various members of the Pitt community in town halls and online forums.
At these town halls, faculty, staff, students and Pittsburgh residents mainly called for the University to divest from fossil fuels. Town hall attendees frequently referenced a 2017 report from The Guardian, which named Pitt as one of several universities that invested in Energy Capital Fund IX-C, or EnCap, a hedge fund based in the Cayman Islands.
According to that report, Pitt invested roughly a third of its then-$3.5 billion endowment into EnCap, and $26 million of that investment went into fossil fuel industries.
Many used this report as a call for greater transparency from Pitt about how it invests its endowment, especially since Pitt has multiple ongoing sustainability initiatives.
In a subsequent online forum, 28 of the 29 people who participated said SRI should be considered in the University’s endowment investment strategy — the majority concern was with fossil fuel divestment and climate change.
The SRI committee report found it was important to consider these opinions, because investment decisions — especially any perceived to conflict with the University’s values — could impact future donors, perspective employees, enrollment and alumni support .
While the University’s endowment investment strategy is generally concerned with maximizing revenue and Pitt doesn’t yet have an overall strategy to apply SRI, the Pitt Sustainability Plan makes a strong case for SRI.
The report found that Gallagher’s introductory letter in the plan best summed up the importance of SRI.
“Long-term sustainability extends beyond environmental practices,” Gallagher wrote. “It requires deep and lasting changes that will enable future generations to thrive in a world that is environmentally responsible, socially equitable and economically robust. It is a great challenge — one that our University’s mission, which is to harness knowledge for society’s gain, perfectly positions us to tackle.”
Investment decisions that seem to conflict with this can send mixed messages to the Pitt community, the report said. Thirteen of the 15 largest college endowments — at schools such as Stanford, Yale and Princeton — already have an SRI committee designed to provide input on investments, the report also found. Fossil fuel divestment was a common demand.
“We believe that it is important for the University to be seen as a leader. Therefore, it is important to consider whether the University’s investment policies, particularly with respect to SRI considerations, are out-of-step with the practice at other endowments, and if so, whether this is due to the University taking a leadership position in practice or due to falling behind accepted practice,” the report read.
There are three ways SRI can be added to Pitt’s investment strategies, the report found — negative screening, positive screening and a governance process with more sway over the investments.
Positive screenings involve changing investment portfolios to meet a specific set of criteria, while negative screenings exclude “undesirable” investments.
The report concluded that while SRI has many potential benefits, there are some tradeoffs. SRI investments could have increased expense ratios and management fees that would result in lower net returns on Pitt’s endowment portfolio.
“All else equal, reduced returns can impact the University’s operating budget and, potentially, constrain its ability to pursue its mission,” the report read.
When making SRI decisions, the report recommends that the University consider:
- The importance of the social issue to the University community,
- The impact of the University’s investment policy decision on the social issue
- The impact of the University’s investment policy decision on the value of the endowment principal.
Donovan Harrell is a writer for the University Times. Reach him at email@example.com or 412-383-9905.