Letter to the university community from Board of Trustees Chair Jeff Raikes on investment responsibility

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To our university community:

Today, after more than a year of work, informed by input from many of you, the Board of Trustees is unveiling a new approach to investment responsibility at Stanford. On behalf of the board, I want to share directly with you how we got here and what this new approach means. (I apologize for the timing - just a few days before the beginning of finals - but I wanted to share this information with you as soon as possible after the board’s action.)

Since 1971, Stanford has had a Statement on Investment Responsibility. This document expresses the board’s view of the university’s endowment - which is intended to provide financial support for the university’s mission across generations - and the responsible investment of the endowment’s resources. First developed in the context of the Vietnam War, the statement has been amended a number of times over the years.

Much has changed since 1971. First, the endowment itself is more complex. Sometimes thought of as a single "fund," the endowment today actually consists of more than 7,000 individual funds established by donors to Stanford over the years.

Second, the investment world has changed dramatically. Fifty years ago, the endowment primarily held direct positions in U.S. stocks and bonds. Today, little is held directly and the asset allocation is much more diversified. Because of the specific skills required, the current approach relies heavily on expert partners across the world who are selected by Stanford Management Company to execute decisions at the level of individual securities.

Third, there have been more requests from campus groups in recent years to apply social or political goals to the endowment’s holdings. As we have worked through these requests for divestment or shareholder engagement, we have found that almost everyone participating in the university’s process has been frustrated by some part of it - by the time the process has taken, by the lack of clarity in some parts of our policies, or other things.

With all of this in mind, in October 2017 the Board of Trustees initiated a full review of the Statement on Investment Responsibility and our related procedures for managing investment responsibility. We wanted to take a fresh look at everything and we wanted to define a 21st-century model for investment responsibility at Stanford.

The first step in our review was to conduct outreach. We asked the Advisory Panel on Investment Responsibility and Licensing, or APIRL - a panel of students, faculty, staff and alumni - to conduct this outreach. It conducted focus groups on campus, interviewed individuals and groups connected with past divestment proposals, solicited input on a website, and fielded a survey that received more than 400 responses from members of the university community.

The APIRL reported back to the board earlier this year and you can read its report here. Among the recommendations were a more proactive approach to investment responsibility, a more timely and transparent process, more clarity around the board’s standard for divestment, and the application of that standard to both the university’s direct and indirect investment holdings.

In addition to reflecting on the feedback provided through APIRL, the board has been reflecting deeply on its own objectives for the endowment. We realized four things:

  • We want students to have meaningful ways of using the university’s educational and research offerings to advance their interests in social issues.
  • We want the Stanford community to have the confidence that ethical considerations are explicitly factored into the investment decision-making process - as they are, today.
  • We want those who have questions or concerns about investment responsibility to have the benefit of a clear and effective process.
  • When it comes to the question of divestment, we believe a high threshold is necessary. As a general rule, we believe the endowment should not be used as a lever solely to advance social or political causes. We believe the act of divestment should be reserved for truly abhorrent and ethically unjustifiable circumstances - such as apartheid, genocide, human trafficking, slavery, and violations of child labor laws.

Members of our university community are engaged in and deeply concerned about a variety of pressing issues and moral challenges facing our world. That’s an important and admirable feature of our community. As a purposeful university, Stanford has extraordinary opportunities to positively impact lives and major issues facing the world through its teaching and research.

We understand the appeal of having Stanford, through its endowment, make a statement about a given issue. The endowment, however, has a specific purpose: to support the academic mission of Stanford. Donors contribute to Stanford in order to advance that mission - to support teaching and research, and the financial aid that makes it accessible to students of all backgrounds and walks of life. It is through this mission that Stanford advances good in the world. The endowment does not exist to choose among, and advance, other social objectives - even when they may be deeply compelling to some of us personally. Moreover, our commitment to academic freedom means that we encourage the broadest array of debate and discussion of ideas and we avoid the taking of institutional positions ("institutional orthodoxy," as Stanford’s Statement on Academic Freedom puts it) that could infringe upon that freedom.

Incorporating everything we have heard and reflected on, the Board of Trustees today is unveiling an updated investment responsibility framework with the following four features that I’d like to share with you:

  • A new initiative of educational and research opportunities. Under this initiative, Stanford will bring together and further expand educational and research opportunities for students and faculty wishing to explore issues around responsible, sustainable and impact investing and governance. The university is committing $10 million over 10 years to support this new initiative that will include both new and existing programs, courses, workshops, lectures, internships and other opportunities in this exciting and evolving area. The initiative will be developed over the next year in collaboration with faculty and staff from across the university, including the Graduate School of Business, Stanford Law School and the School of Humanities and Sciences.
  • A Stanford Management Company Ethical Investment Framework. This document , developed by SMC leadership and approved by the Board of Trustees, outlines how ethical considerations are factored into investment decisions. To illustrate, it uses the example of climate change, an issue of concern to us all.
  • An updated Statement on Investment Responsibility. This document , adopted by the Board of Trustees, builds upon the SMC Ethical Investment Framework. It outlines the endowment’s role as a central source of financial support for the university’s mission, and it articulates the "abhorrent and ethically unjustifiable" company behavior that would warrant the university’s disassociation from an investment.
  • Updated procedures for considering investment responsibility requests. Responding to the input we heard about the effectiveness and clarity of the process in the past, the new Investment Responsibility Guidelines outline a process in which the board’s Special Committee on Investment Responsibility will review investment responsibility requests, create an ad-hoc fact-finding committee where needed to research specific investment responsibility issues that arise, and seek to reach a decision in a more timely way.

We believe these actions represent an approach to investment responsibility that makes sense for the Stanford of the 21st century - creating new opportunities for students, factoring ethical and social considerations appropriately into the investment decision-making process, and fulfilling our deepest obligation as trustees to ensuring the long-term financial health of the university.

We also recognize that not everyone will agree with the decisions we have made. These are challenging issues on which reasonable people can disagree. If you do disagree with a step we have taken here, we hope you’ll be in touch with us and will continue to work with us on the issues that are important to you.

I encourage you to read more about the actions in today’s Stanford Report story and in a set of frequently asked questions posted on the web. Thank you to the many people who have contributed ideas and input to this process.

With best regards,

Jeff Raikes

Chair, Board of Trustees

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Trustees adopt new investment responsibility framework for Stanford; university commits $10 million to educational and research initiative


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