Pitzer College, along with asset management firm BlackRock, has launched the first ever environmental, social, and corporate governance-focused global equity index fund that is completely divested from fossil fuels, the college announced Sept. 21. Pitzer is set to invest $58 million of its $135 million-endowment into the fund, which represents the entirety of the public equity portion of Pitzer’s endowment.
The creation of the fund is a continuation of the climate action plan that Pitzer announced in 2014, which included a commitment to divest 99 percent of the college’s endowment and create a fund to facilitate the investment of endowment funds into environmentally responsible companies.
A global equity index fund is a single portfolio made up of publicly traded companies from around the world. Investors can buy shares of the fund without having to invest in individual companies. ESG funds are set up for those who want to invest in companies which have been screened for specific criteria regarding the environment, social relations and corporate governance.
The fund was a brain child of the Pitzer Board of Trustees and investment firm Mercer, according to Pitzer trustee Donald Gould PO ‘79, who chairs the board’s investment committee.
“We basically drew something up on a piece of paper and said, 'This is what we want,'” Gould said. “Mercer then took that idea to a number of leading asset managers and BlackRock came back with an offer.”
The fund is open to other endowments, foundations, and nonprofits. Gould predicts this fund will attract other organizations thinking about divestment.
“There will be a lot of institutions, not just higher ed, for whom these values resonate,” Gould said. “We’ve given institutions wishing to divest a very convenient way to accomplish what is otherwise very complicated.”
For Jack Carroll CM ‘18, a member of the 5C Divestment Club, the partnership with BlackRock – the largest asset management firm in the world – is a sign that the idea of sustainable investment is gaining legitimacy.
“What stood out to me was that Pitzer is partnering with a major financial firm like BlackRock,” Carroll said. “It's a positive shift in where sustainable investment and financial tools for addressing climate change are going.”
Pitzer is the only Claremont college commited to divestment from fossil fuels. In Sept. 2013, Pomona College commissioned its principal financial advisor, Cambridge Associates, to evaluate the costs of divestment. The report estimated it would cost $6.6 million in spendable income per year.
After the findings, former Pomona President David Oxtoby wrote in a statement that Pomona has an obligation to “weigh carefully the cost and probable impact of our actions.”
“For issues that affect the endowment, that obligation rises to the level of a sacred trust,” Oxtoby wrote. “The gifts that created our endowment were intended by our donors to ensure that the things that make Pomona great – such as an exceptional faculty, strong programs and generous financial aid – are never diminished or threatened by time and rising costs.”
Gould believes the new fund can match or outperform previous investment vehicles for the Pitzer endowment because it is more diversified. He said there's evidence that paying attention to environmental, social, and governmental factors can improve financial returns.
“We don’t think we are sacrificing returns to do this,” Gould said. “A board’s fiduciary duty involves many things. Endowment performance is one of them but endowment performance at all costs is certainly not. As long as we can invest in a way that is aligned with the values of Pitzer College and in a way that is prudent and doesn’t endanger the endowment than we should do so.”
For Carroll, the fund should be a lesson for other schools who have resisted divestment.
“I think it shows that Pomona, [Claremont McKenna College, Scripps College, and Harvey Mudd College] can do better than having investment practices with limited or nonexistent ethical standards,” he said. “There are many innovative and thoughtful ways that schools can align their values and sustainability practices with their investment practices that deserve much more consideration.”
Nevertheless, the other colleges have taken important steps in promoting sustainability.
Mark Kendall, communications representative at Pomona, wrote in an email to TSL, “We are strongly focused on taking tangible steps toward sustainability on campus by investing in green buildings, promoting energy efficiency, reducing waste and taking many additional measures to meet our ambitious goal of achieving net carbon neutrality by 2030.”
Tim Hussey, chief communications officer at Harvey Mudd College, reiterated HMC's commitment to promoting sustainable investment.
“The Investment Committee of the HMC Board of Trustees has focused its attention on strategic investment in sustainability options through the creation and management of its GreenFund (funded by a carve-out from the College’s endowment), which was approved in September 2015 and created in conjunction with the College’s ESW/MOSS student organization,” he wrote in an email to TSL.
According to Hussey, the GreenFund invests in sustainable campus projects that “pay back the investment in sustainable projects through cost savings over time.”
Representatives of Scripps College and Claremont McKenna College declined to comment.