Strategic Investment Group participated in AGB’s 2021 Foundation Leadership Forum leading a panel on governance recommendations for any institution considering aligning its portfolio with its mission. Nikki Kraus moderated a session with Ken Shimberg, Managing Director at Strategic, Christy Devocelle from University of Illinois Foundation and Michael Kahn from Grinnell College. Both Christy and Michael have led thoughtful processes to determine the right outcome for their institutions. While there is not one right answer, Strategic believes this is a critical governance process, and like many things around governance, the process will determine if you can get to the “right” answer for your institution. Strategic will be publishing a white paper with details on this subject in the coming months.
There were several key recommendations on institutionalizing a process that the panel offered to address calls for mission alignment. Their experience and insights made it clear that taking the time to develop and document a framework for the evaluation, definition and implementation of mission alignment is critical, as this is an evolving initiative that will require continual review.
First, get the right people. Developing a cross-functional group across the constituent base, including students, faculty, staff, alumni, donors, and board members is critical. Importantly, individuals with endowment portfolio investment experience should be included to help the group understand the feasibility of implementation options. We have learned that some processes did not work well because the ultimate recommendations were nearly impossible to implement without a costly impact on the portfolio.
Second, consider what are the values that align with the mission of your institution and whether actions taken would be coherent and consistent across the enterprise. For example, there is a lack of consistency if a college chooses to divest from fossil fuels yet neglects improvements to a large carbon footprint. Alternatively, if an endowment supports a large number of scholarships for students who would not be able to attend college otherwise, the board may consider that key to the mission and decide anything that could harm investment return should not be pursued. Conversely, if the institution is committed to environmental studies and does not rely heavily on the endowment, they could align their portfolio with that mission.
Third, educate yourself on your own documents (bylaws, charters, etc.), your state’s UPMIFA if relevant, the issues and what other schools have done to inform your approach. Many of the groups we have spoken with indicate this step is critical. There are a number of schools who have approached this process thoughtfully, and you can read documentation from Stanford, University of Denver, and the schools who participated in our panel, to gain a better understanding of the key things to consider.
Your process should force you to answer many critical questions. Here are just a few:
- What are the key values that align with your mission, and how should they be embraced across the institution?
- Do you seek engagement or a measurable impact? Or divestment?
- Are you willing to potentially forego some returns to pursue this strategy?
- Are you willing to redeem from investment managers if you cannot ensure that they will meet your criteria?
Additionally, read studies of the most effective strategies based on your goals. For example, key differences contributed to the success of divestment as one of the instruments that led to the abolishment of apartheid versus the ineffectiveness of divestment from tobacco.
It was interesting in the session to learn that there can be surprising outcomes when you pursue a thoughtful process.
Please reach out to us, share your stories, and ask questions if we may be able to help you.
Valentina Glaviano is managing director for Strategic Investment Group.
Nikki Kraus is managing director, global head of client development for Strategic Investment Group.
Ken Shimberg is managing director for Strategic Investment Group.
References and Resources
- Grinnell Report: Task Forces on Fossil Fuel Divestment and Climate Impact
- Stanford Statement: Ethical Investment Framework
With Thanks to AGB Sustaining Sponsor: Strategic Investment Group
Valentina Glaviano, CIMA®
Nikki Kraus, CFA
Managing Director, Global Head of Client Development
Ken Shimberg, CFA
Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.