In August of 2014, Mark Gentry, the Chief Operating Officer of Gifford Pinchot State University (GPSU) Foundation**, called Robert Farrington, a Managing Director at Commonfund. The GPSU student government had just presented the Foundation with a resolution urging them to divest of all fossil fuel companies from their portfolio. The Foundation’s investment committee had formed a subcommittee to consider what to do, but Gentry admitted that there was very little consensus among the new group about how to respond.
This was not the first time Farrington had received such a call. Commonfund managed the assets of 1,300 nonprofit institutions. He estimated about 40% of Commonfund’s university clients were either actively engaged in discussions about their exposure to carbon in their portfolio or had just framed a policy concerning carbon investing. Commonfund had been helping their clients think through these new investment considerations and evaluate potential methods to reflect such considerations within their portfolios.
As a target the divestment movement, the GPSU Foundation faced a set of dilemmas. The basic question was how should they frame their investment policies regarding carbon and what should be the objective of such a policy? There were many possibilities - they could focus their investments directly on removing potential carbon emissions from the atmosphere, or they could use their investment policy to try to change public attitudes concerning carbon and climate change, or they could frame their policy around stranded asset risk, or they could simply make a moral judgment irrespective of utilitarian ends. Each objective would mean a different set of investment choices. Then they faced the issue of implementing any new policy, should they change their portfolios or engage companies in their role as shareholders? And hovering in the background was the key question of how any change to their investment strategy would jibe with their fiduciary responsibility to donors?
Commonfund faced a different set of considerations as they helped their clients develop a response to campus pressure to divest carbon assets from their portfolios. As they considered potential investments with an eye toward reducing exposure to carbon, what would be the most meaningful measure of carbon intensity? When it came to public investments, would screening, weighting or forms of impact investing be the best method to construct a portfolio? How should they treat alternative asset classes? Could they find a sufficient pool of managers that fit their usual criteria and who were interested in managing carbon free or carbon light funds? Could they find consensus among their university clients as to specific objectives regarding reduction in carbon risk to build a commingled portfolio? Or would it make more sense to have a different program that would allow for more individualized responses?
** Gifford Pinchot State University (GPSU) is a fictitious entity, created as a composite of a number of university endowments interviewed by the case writer.
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Jaan Elias, William Goetzmann, and K. Geert Rouwenhorst. “ Low-Carbon Investing: Commonfund & GPSU,” Yale SOM Case 14-017, October 10, 2014.
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