Following a year of review and input from the campus community, Stanford’s Board of Trustees has adopted an updated approach to managing social responsibility in the university endowment’s investments.
At its Dec. 3-4 meeting, the board approved two documents: a new Ethical Investment Framework issued by Stanford Management Company (SMC), and an updated Statement on Investment Responsibility from the board.
Also read:Letter to university community from Board Chair Jeff Raikes
Frequently asked questions
Statement on Investment Responsibility
SMC Ethical Investment Framework
Report of the Advisory Panel on Investment Responsibility and Licensing
The first document is a statement of how SMC actively incorporates ethical considerations into its investment decisions. The second is a statement of the trustees’ view of the responsible investment of Stanford’s endowment and the "abhorrent and ethically unjustifiable" conditions under which an investment should be excluded from it. Stanford also is adopting procedures intended to be more effective for the board to hear investment responsibility requests from the campus community.
In addition, as part of the Presidential Initiatives on Mission & Values being developed in the university’s long-range planning process , Stanford is committing $10 million to a new educational and research initiative in the area of responsible, sustainable and impact investing and governance.
The initiative will expand opportunities for students interested in these subjects and will be developed over the next year. The initiative will include both new and existing programs, courses, workshops, lectures, internships and other opportunities in this exciting and evolving area of scholarship.
"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," said Board of Trustees Chair Jeff Raikes in a letter to the university community.
Year-long reviewIn October 2017, the Board of Trustees initiated a review of its Statement on Investment Responsibility and related procedures for addressing investment responsibility issues. The statement was first issued in 1971 and has been amended a number of times since.
The board asked the Advisory Panel on Investment Responsibility and Licensing (APIRL) to conduct outreach to the campus community. The panel, consisting of students, faculty, staff and alumni, conducted a campus survey that drew 432 responses, interviewed individuals and groups connected with past divestment proposals, conducted focus groups and solicited input on a website. The APIRL provided its recommendations to the board earlier this year.
The APIRL said the previous Statement on Investment Responsibility "has proven difficult to use as an evaluation tool" and produced confusion in the community regarding its standards and guidelines. Moreover, the APIRL urged the university to adopt a more proactive approach to investment responsibility, outlining more clearly the principles that define how environmental, social and governance (ESG) factors are considered in investment decisions in the first place.
"If the university has adopted a broad and carefully considered approach to ESG issues, the university can then appropriately relegate divestment to an exceptional decision made only in the most extreme situations," the APIRL’s report said.
The APIRL also recommended an improved process for reviewing investment responsibility requests. The year or more required for many decisions in the past has been frustrating to community members, the panel said, and the APIRL itself has sometimes spent months researching an issue only to find that the university has no investment holdings in the area.
Among other things, APIRL members recommended that the APIRL itself be dissolved and that an ad-hoc fact-finding committee be created where needed to research specific investment responsibility issues that arise.
The outreach and input of APIRL informed board discussions that continued through the summer and fall, resulting in four steps being announced today and described below:
- An initiative for expanded educational and research offerings in the area of responsible, sustainable and impact investing and governance
- A Stanford Management Company Ethical Investment Framework
- An updated Statement on Investment Responsibility issued by the Board of Trustees
- A more effective process for investment responsibility requests to be heard
Initiative for expanded educational and research offeringsAs one response to the year-long review, Stanford is committing $10 million over a 10-year period for a new initiative that will develop an expanded platform of educational and research opportunities for students and faculty with interests in responsible, sustainable and impact investing and governance.
The goal of the initiative is to deepen research efforts and create a robust set of educational offerings for students with interests at the dynamic intersection of social change, finance, philanthropy and governance.
"The world is moving away from a sharp separation between ’finance’ and ’social responsibility’," said Jonathan Levin, dean of the Stanford Graduate School of Business. "At the GSB, we’re excited to join with others across the campus to develop this new initiative that will bring together ethics, investing, social responsibility, corporate finance and other closely related topics."
The university is establishing a working group of faculty members from across the campus - including the Graduate School of Business, Stanford Law School and the School of Humanities and Sciences - to plan the scope and mission of the new initiative.
New SMC Ethical Investment FrameworkPart of the Board of Trustees action this week was reviewing and approving an Ethical Investment Framework developed by Stanford Management Company, the university division that manages the endowment.
"Ethical and social considerations play a central role in SMC’s work," the document says, including in decisions about asset allocation, analysis of individual investments, and selection of the external fund managers who invest most of the endowment’s holdings.
"Ethical and social factors can alter [long-term investment] prospects, particularly if they involve a public good, such as clean air or water," the document says. "For example, climate change alters the risk and return characteristics of conventional energy holdings."
Many risks are analyzed at the level of specific businesses, the document says. "Businesses that consistently and willfully mistreat stakeholders usually make poor long-term investments, as shareholder dissatisfaction, and perhaps even legal sanction, erode the value of the business. We believe the University has more productive places to invest its capital."
In addition, the Ethical Investment Framework emphasizes the ethical and social considerations that play into SMC’s selection of external fund managers.
"Through close dialogue with our external investment partners, SMC reinforces attention to ethical and social factors that impact security-level investments," the document says. "We also spend significant time and effort to understand the character and sensibilities of potential partners when first evaluating a new relationship. We consider a strong moral framework to be an important aspect of an alignment of interests with the University."
Updated Statement on Investment ResponsibilityIn addition to approving the SMC Ethical Investment Framework, the trustees this week issued a new Statement on Investment Responsibility for the university.
The statement reaffirms the long-term importance of the endowment, which "provides a central source of financial support to sustain the University’s educational and research mission, now and in future generations." It notes that SMC’s investment process "actively incorporates ethical and social considerations to help achieve its goal of maximizing support for the University’s mission."
In the statement, the trustees also outline their view that the best contribution the university can make to issues of broad social and political concern is through education, research and debate. "Consistent with the University’s educational mission and its commitment to academic freedom, facilitating campus programs and processes by which these issues can be discussed and thoughtfully debated within the campus community is the most appropriate channel for most broad social and political issues to be addressed in the University context," it reads.
"Just as the University does not take positions on partisan or political issues, the Trustees maintain a strong presumption against using the endowment as an instrument to advance any particular social or political agenda," the statement says.
As a result, the statement sets a new standard for the consideration of divestment and provides examples of conditions that meet the standard.
"The Trustees recognize that very rare occasions may arise when companies’ actions or inactions are so abhorrent and ethically unjustifiable as to warrant the University’s disassociation from those investments," the statement reads. "Such activities include apartheid, genocide, human trafficking, slavery, and violations of child labor laws."
Raikes, the board chair, elaborated on the rationale for the updated statement in his letter to the university community.
"Members of our university community are engaged in and deeply concerned about a variety of pressing issues and moral challenges facing our world," Raikes wrote. "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 excellent 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."
More effective investment responsibility proceduresFinally, a new set of Investment Responsibility Guidelines has been developed to guide the process of submitting and considering divestment requests under the new statement.
Under the process, an individual or group with an investment responsibility concern will be able to submit a proposal to the Investment Responsibility and Stakeholder Relations (IRSR) office and to the Special Committee on Investment Responsibility (SCIR) of the Board of Trustees.
The SCIR will review the proposal in the context of the Statement on Investment Responsibility. The SCIR can decide whether further review of the proposal is necessary and, if so, can undertake a full evaluation of the issue. In doing so, the SCIR can choose to form an ad-hoc fact-finding committee, which would include subject-matter experts, responsible for research and campus engagement where needed. The Board of Trustees would make the final decision on what action, if any, should be taken on the request.
"We believe this process will be more effective and clear for everyone involved," said Gene Sykes, chair of the trustees’ Special Committee on Investment Responsibility. "Our committee will be able to consider investment responsibility proposals in a more timely way, establish an expert task force where necessary to investigate the facts, and generally make better use of the time of both requestors and those considering requests."