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Environmental Studies Department |
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Macalester College Endowment: Environmentally Sound Investment MechanismsBy Fitz-David Smith & Karen Martin
Concerns have increasingly escalated within the past twenty to thirty years regarding social responsibility in the corporate business world. As businesses aim to minimize marginal costs of production, they can effectively increase profit margins by reducing their production expenses. Included in a firm’s costs of production are various methods of waste and pollution control; such costs can be diminished significantly by participating in irresponsible practices of waste disposal. Therefore, in an increasingly socially conscious world, the decision of investing with responsible firms has become an important topic in terms promoting social and environmental justice issues. Socially responsible investing is a somewhat broad category, encompassing a myriad of issues. Socially responsible investing reached its height during he 1970’s and 1980’s when many colleges and universities divested their money from companies in South Africa because of continuing apartheid practices. Recently colleges and universities have initiated divestment of their funds in companies associated with gambling, weapons manufacturing, alcohol, tobacco and environmental irresponsibility. Environmental responsibility is undermined when corporations engage in practices that are harmful to both the environment and to those people who are affected by the immediate environment. Corporations who manufacture products without any concern regarding negative effects that production processes may have on the environment fit into the category of environmentally irresponsible. Methods of participation exemplified by this scenario would include firms who attempt to minimize their costs of abatement by cutting corners in their environmental practices. Keeping in mind the many areas of socially responsible investing that may be analyzed, we have proposed a plan to investigate investment policies and procedures at Macalester College in St. Paul, MN. Macalester College is an urban, liberal arts institution with an enrollment of approximately 1,700 students and a secure endowment of $517 million as of 6.30.99. Our research involves determining which firms Macalester invests with and more specifically which of these corporations are considered environmentally friendly and which of those that are not. Macalester College’s Endowment: Initially, we met with the treasurer of Macalester College, Craig Aase. We inquired about matters related to the Macalester’s endowment and how such funds are managed. The overall purpose of Macalester’s endowment is to provide general and financial aid funds for the college. Endowment funds are spread over many different portfolio categories to ensure that if any one firm experiences bad returns in a given year, the college will not suffer a major financial loss. Figure one shows the diversity of the endowment portfolio. Seventy percent of Macalester’s endowment funds are invested into equities while the remaining thirty percent is invested in fixed income holdings. Of the equities, thirty percent are allocated to domestic large cap corporations while five percent is invested in small cap companies. Large cap companies include 1000 of the largest U.S. public companies while small cap firms do not meet this criterion. The other fifteen-percent is invested in international companies. Macalester invests five percent in emerging markets, five percent in real estate, two percent in oil and gas and eight percent in venture capital. Venture capital is money invested through limited partnerships, into startup companies that are not publicly traded. The college’s returns are typically realized when the company goes public through a public stock offering (IPO). Companies included are typically technology, biotechnology, or telecommunication related. The remaining thirty percent is comprised of fixed income, which includes bonds. After examining the list of asset allocations with Al Romero it was determined that we should concentrate on domestic large cap equities, which comprises thirty percent of the endowment. Macalester College’s Equities: There are four different companies that Macalester College allocates money to invest in. They are Northern Trust Quantitative Advisors, Inc (NTQA), Alliance Capital, Equinox Capital Management, LLC, and Chase. Macalester allocates 12.14% of their investments into Equinox Capital Management, LLC. Ninety-eight percent of the portfolio of invested money is included into an area referred to as Common Stock (Figure 3). Additionally, Equinox places 2.0% of Macalester College’s investments into an area called Cash and Equivalents. Chase allocates 0.66% of Macalester College’s investment funds into the following companies at the given percentages: 74.7% goes solely into Readers Digest Association while Central Newspapers, Inc. and Readers Digest Association, Inc. combine to comprise 22.9%. Alliance Capital invests 4.28% and has a quite wide portfolio in which they place funds. (Figure 4). There include the following five categories: Lastly NTQA invests 16.47 % over 300 companies. The breakdown of where money was invested was not available. After learning what companies Macalester invests in we sat down with Al Romero to discuss what types of companies we should target. Investing in a Company: The Calvert Group who we have located on the internet has five criteria that they use when investing in a corporation and they are as follows:
Therefore, the main objective of this project is to determine which if any companies have been contributors of environmental degradation. For the companies we find, there are a number of aspects to be analyzed concerning their performance.
After speaking with Al Romero we decided to look into energy and chemical companies. Some of these corporations include Exxon, Mobil, Atlantic Richfield Co, Texaco Inc, Royal Dutch, Coastal Corp, Dow Chemical, and Du Pont. We conducted internet research on these corporations to locate relevant environmental information on their web sites. Additionally, we searched journals and periodical literature to pinpoint information regarding their position regarding environmental practices. For many of the firms we were not able to locate information concerning their environmental practices. However, we did find some articles about Atlantic Richfield Co (ARCO) but there was nothing concrete. For instance, a grouping of companies were recently sued by a California environmental group. The charges allege that the defendants have behaved negligently in their storage practices. More specifically these companies were responsible for leaking various hazardous chemicals such as toluene and benzene into the underground water supply due unfit underground storage tanks and from refineries and gasoline service stations. The defendants Macalester invests in that are included in this lawsuit include Texaco, Atlantic Richfield Inc, Exxon Corp, Shell, and Mobil. (cgi.cnn.com) Another recent lawsuit was brought forth by the Ecuadorian government against New York based Texaco. The government claims that between 1976 and 1992, Texaco operations in Ecuador caused native communities to be displaced and was the cause of extinction of these communities. Furthermore, 17 million gallons of crude oil was discharged into the Amazon River, 20 billion gallons of toxic waste was disposed of into the environment, and the creation of over 600 open toxic waste pits all effectively assisted in the degradation of Ecuadorian habitat. Often, it is difficult to determine whether or not a company should be considered good or bad for the environment. Mitsubishi for example has done excellent work in producing fuel-efficient lines of automobiles, while at the same time, their manufacturing practices have been considered unacceptable in terms of pollutant levels emitted from their plants. (www.kohnswift.com) Additionally, we have tried to contact Brett Smith in Political Science because we were told that his classes have done in depth reports on many companies and this might help us make decisions on which companies to invest in. Though many of our searches came up empty we did locate some companies that had information on companies that they would sell to us. Socially Responsible Investing: Many investment management companies have created socially responsible funds and have extensive web sites explaining their attempts at socially responsible investing. After searching these companies’ web sites (see bibliography for web sites) we located a company called Investor Responsibility Research Center (IRRC) and they have compiled a directory with company profiles, the IRRC Corporate Environmental Profiles Directory. Other universities and colleges (i.e. Bryn Mawr College, University of California, Georgetown University, Johns Hopkins University, Harvard University, Stanford University) have purchased these profiles. We have contacted IRRC to see about purchasing this directory for Macalester. After talking with Sharon Useman, Marketing Development manger, of IRRC there are many options with IRRC. The first option is to purchase the directory consisting of quantitative and qualitative information about the S&P index. The quantitative information consists of information from the EPA and the qualitative information consists of surveys given to the actual companies and media inquiries. This comprehensive directory would cost $3000.000 dollars. There is also another directory, which consists of only qualitative information for the S&P 1500. This directory would cost $3000.00 dollars and if purchased together, the two directories would run $5000.000 dollars. IRRC also has two software packages. One of the software packages called Benchmarker is just for the environment. It allows you to query specific company portfolios for environmental screens based on certain restraints provided. An example would be querying companies that have had only three spills in the last year. The other software program is a portfolio screener that allows a user to screen companies for 16 different social screens. These screens include, human rights, labor, gender, race, environmental and tobacco. The environmental software Benchmarker costs $7,200.00 dollars for 12 months and the portfolio screener costs $9,500.00 dollars for 12 months. The cost of these products are too expensive for the Environmental Issues Committee (EIC) or the college to purchase. Other alternatives will have to be found to examine different companies and their environmental responsibility rankings. We did find a company called Citizens Index that has environmental and social responsibility information on line regarding 300 companies (i.e. Adobe Systems, American Online, Home Depot and Whirlpool Corporation). The Citizens Index seeks to demonstrate that superior financial performance can go hand-in-hand with high social and environmental standards. This information can be accessed via the web. (http://www.citizensfund.com/live/citizensindex.asp?mnu=companies) Many additional investment companies have created mutual funds, which do not actually reveal what companies they are investing with but instead assure that certain screens are being met. Additional Green Campuses: We also looked at other universities and colleges that promote green campuses to see what they have or are trying to do about cleaning up investments on their campuses. First we collected newspaper and magazine articles about socially responsible investing that listed firms specializing in conscious investments and also schools around the country that have tried to screen their investments. We compiled a list and then searched the university and college web sites to find the environmental organization and then an email address. We contacted:
We received responses from University of Michigan and Michigan State. Neither of these schools has an environmental screen in their investment policies. Carnegie Mellon responded and provided an additional email address to try however we are still waiting for a response. Recommendation for Macalester College’s Investment Practices: Macalester College invests roughly 16% percent of its endowment funds in corporations. In an attempt to not limit the number of corporations we invest in instead of placing a screen on all investments, perhaps targeting a few select companies with bad environmental records may prove more feasible. Three of the four investment companies place funds in such a wide array of companies that they could easily switch the money to another company and not really affect the stock portfolio. Choosing not to invest in one firm is such a small percentage of the overall endowment that the effect would be minimal. To change the investment policies at Macalester the trustees who sit on the endowment committee must be persuaded. They make the overall decisions and then bring their findings to the complete Board of Trustees for approval. Conclusion: Macalester College has the potential to be one of the first colleges in the country to take a stand against companies that are not environmentally responsible. We believe that altered portfolio investments could be efficiently achieved while not incurring significantly large monetary losses to the institution. Ideally, a favorable situation would occur if the Environmental Issues Committee could team up with other socially conscious organizations on campus such as the Student Labor Action Coalition (SLAC). The cooperation of various groups could lead to protesting investment in companies with other social problems such as bad labor practices. This way screens (i.e. tobacco, alcohol, labor, green) could be put into place by the college in its investment policies. Bibliography Campus Ecology Chapter16: Investment Policies Call, Toni. "Conscience Guides More The Chronicle of Higher Education. March 29, 1996 A49.Investors." The Christian Science Monitor. August 3, 1998. Mercer, Joye. "Fewer Colleges Let Moral Concerns Govern How They Invest Funds." Quinn, Jane Bryant. "Putting Your Money Where Your Politics Are." The Washington Post. September 19,1999. "Socially responsible funds chalk up big gains." The Detroit News. December 6, 1999. "Survey finds colleges applying social criteria to investments." The Chronicle of Higher Education." September 29, 1993. A23.\ CNN cgi.cnn.com Calvert Group www.calvertgroup.com Citizens Index Fund www.citizensfund.com Common Fund www.common-fund.org Corporate Watch www.corpwatch.org Council on Economic Priorities www.cepnyc.org Investor Responsibility Research Center www.irrc.org Interfaith Center on Corporate Responsibility EnAct-Dirty Job Boycott-www.umich.edu/~enact/dirtyjobs.html GreenMoney Online www.greenmoney.com Kinder, Lydenberg, Domini Social Research on Corporations for Institutional Investors-www.kld.com/wfree.html Kohn, Swift & Graf, P.C.- www.kohnswift.com/texclasrein.htm Natural Investing www.naturalinvesting.com Sharon Uselman. Market Development Manager. Investor Responsibility Research Center 202.833.0700 sharon.uselman@irrc.org Social Investment Forum www.socialinvest.org
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