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By the Book

The first and only Harvard-Yale game I attended was among the most eventful ever played. In 2019, not only did Yale overcome Harvard’s double-digit lead to win by a touchdown in double overtime, but halftime was prolonged by hundreds of activists from both schools, who stormed the field in support of divestment from fossil fuels. It was a dramatic introduction to the debates, sit-ins, demands, and complexities that characterize the push-and-pull over how Yale makes money through investment—investments which were valued at $31.2 billion as of July 2020, according to Yale’s Investments Office. 

In early December, I attended an open meeting with Yale’s Advisory Committee on Investor Responsibility, where various student leaders spoke in support of divestment from fossil fuel companies. It wasn’t a conversation in any recognizable sense, and the underlying assumptions of the two sides (student-activists and committee members) were so different it could barely be called a debate—more like successive presentations. The students—undergraduate organizers, members of the Yale College Council, and graduate students—presented an argument focused on the urgency of the climate crisis and our moral obligation to preserve ourselves and our planet. Members of the committee referred repeatedly to the limitations on divestment outlined in The Ethical Investor, the almost 50-year-old text which defines how and when Yale should exercise its power as an investor to foment social change.

Later that week, I ordered a hard copy of The Ethical Investor from a small used bookstore in Connecticut. It arrived three weeks late, delayed in a shipping facility somewhere between New Jersey and Springfield, MA. With a view over the woods outside my bedroom window, I sat down to read it. It wasn’t easy. 

Written by John Simon, Charles Powers, and Jon Gunnemann, The Ethical Investor is relatively short, only 178 pages, but only the final seven of those pages actually lay out any policy recommendations for how a university should invest with social obligations in mind. The other 171 explore a wide-ranging defense of those recommendations, discussing the responsibilities of corporations and shareholders, the questions at stake for the university as an investor, and the legal justification for a socially responsible investment policy.

The book was written in 1972 to explore and define the university’s role as a socially conscious investor. At the time, students on college campuses across the country were concerned with the complicity of higher education in the war in Vietnam and the Apartheid regime in South Africa. For administrators, on the other hand, Senator Joe McCarthy’s demagogic anti-communist campaign was still in recent memory, and leaders feared wading into what they viewed as political battles. I spoke over Zoom with one of the three co-authors of The Ethical Investor, Jon Gunnemann DIV ’75, who had helped to write the text while at the Divinity School. Today, he’s a smiling, white-haired professor emeritus of social ethics at Emory. Gunnemann and his Divinity School classmate, Charles Powers, first became interested in ethical investing through their South Africa Studies Group, a collection of socially-conscious students who wanted to leverage Yale’s influence to contribute to the end of Apartheid. Although they doubted their individual ability to make a significant difference, they saw Yale—and the Corporation (Yale’s governing Board of Trustees)—as an institution capable of forcing change. 

Powers and Gunnemann wrote an article for the journal The Christian Century on pressuring the South African regime through socially responsible investing, hoping to catch the eye of J. Irwin Miller, a devout progressive Christian and member of the Corporation. They were successful—with some help from Yale’s Chaplain, who recommended the article to Miller. Powers and Gunnemann organized a meeting with Kingman Brewster Jr., Yale’s president at the time; Miller; and the rest of the Corporation at the Century Association, which was then an all-male social club in New York City. John Simon LAW ’53, who had advocated for socially responsible investing in the nonprofit world, also joined the meeting, providing the legal expertise to back up the ideas Powers and Gunnemann had already been tackling. At that Century Association meeting, Miller sat silent until Brewster asked for his opinion. As Gunnemann recalls, Miller said, “I can’t see anything wrong with accountability.” And the question became not “if” but “how” Yale would institute a policy for socially responsible investing.

The answer was a year-long seminar in the 1969-70 term at the Law School, funded by a grant from the Ford Foundation. Students from the Law School, Divinity School, School of Forestry, and College formed teams to explore the legal, economic, and ethical ramifications of various possible policies. They examined wide-ranging case studies and drew on expert knowledge, seeking a set of policies that could address not only the issue of Apartheid but social harm in any form. The product of these hours of research, conversation, and debate was The Ethical Investor, written for Yale by members of the Yale community and adopted as University policy by vote of the Corporation in April of 1972. It was a powerful statement that Yale would not claim blindness or profess neutrality when its investments were perpetuating social harm.

The Ethical Investor differentiates between negative injunctions (i.e., the avoidance of harm) and affirmative duties (the promotion of good), stating “that all citizens, individual and institutional, are equally subject to the negative injunction against social injury”—a principle they term as the “moral minimum.” The text expects that Yale’s Investments Office will generally seek maximum economic return in selecting where they invest the University’s resources. “Nonprofit factors” are those considerations, like moral culpability, which are not primarily concerned with profit-seeking. They come into play when a company is found to be committing “social injury,” such as the perpetuation of Apartheid or the pollution of air and water. In such cases, the text recommends that Yale pursue shareholder actions—measures aimed at changing a company’s practices while still holding shares in it. 

The text instructs that divestment should be the last resort, a step only taken if, (1) the exercise of shareholder rights are unlikely to effectively change the company’s behavior, (2) elimination of the socially injurious behavior would make investment in the company unprofitable, or (3) the university expects to sell its shares before any shareholder action initiated by the university could be finished. Activists at Yale have recently argued that the past practices of fossil fuel companies demonstrate that they are resolved in their resistance to change. According to the guidelines of The Ethical Investor, this would make divestment justified.

The text also recommends that a “University Investments Council”—now the Advisory Committee on Investor Responsibility (ACIR)—be established to recommend policies to the trustees in response to requests from members of the Yale community. In the fall of 2020, President Peter Salovey established the parallel Committee on Fossil Fuel Investment Principles (CFFIP) to inform Yale’s fossil fuel investment policy specifically. Both the ACIR and the CFFIP advise the Corporation Committee on Investor Responsibility, which guides the full Board in directing the policies of the Investments Office. In mid-April, the CFFIP produced guidelines recommending that Yale divest from individual fossil fuel producers that most contribute to climate change and seem least likely to change their practices. The ACIR is now tasked with interpreting these policies, investigating the practices of individual fossil fuel companies, and making recommendations for divestment to the Investments Office on a case-by-case basis. The Investments Office currently estimates that Yale has $800 million invested in fossil fuels.

In his capacity as chair of both the ACIR and the CFFIP, Jonathan Macey LAW ’82, Professor of Corporate Law, Corporate Finance, and Securities Law at Yale Law School, explained to me the importance of standards like The Ethical Investor in guiding Yale’s investment policy. Yale is a fiduciary—meaning its trustees are obligated to maximize returns. Because the University generally has a responsibility to maximize the profits of its investment, guidelines like The Ethical Investor and the CFFIP’s report are necessary for when the University takes non-profit factors into account. 

The authors of The Ethical Investor anticipate and preempt numerous legal objections to their investment policy. One such defense is the “Education-Climate Rationale,” a rebuttal which seems especially well-suited to the present moment. The authors indicate that there may be instances in which friction between students and university leadership grows so incurable that the functioning of the academic community is disrupted—stemming from “a weakening of the fabric of trust and confidence among members of the university population.” In these cases, the university would be justified in a measured acceptance of student demands. They compare any potential loss of profits to a business’s provision of “stock options, pension benefits, and trips to Florida”—expenditures that ease conflict and contribute to the long-term wellbeing of an environment in which the organization’s mandate is better fulfilled. 

Nevertheless, while the book values a university that demonstrates its receptivity to students’ social concerns, in seeking remedies to those concerns, The Ethical Investor aims to balance moral purity and effectiveness—how can the university actually encourage change with its investments, while recognizing that sometimes it is necessary to cut ties with a company altogether? In the end, the book emphasizes change from the inside (to an excessive degree, some might argue), accomplished while fossil fuel stock is still held by the Yales of the world—institutions that are aware of their impact and actively seeking to change the behavior of the corporations with which they are associated. Meanwhile, it does expect that the university as a shareholder will hold companies accountable in an oversight capacity, relying on shareholder action when necessary. Many student activists today, however, argue that the “morally pure” choice (divestment) is also the most effective and necessary one—that Yale’s influence is so great and the climate crisis so grave that a decision to divest sets a needed precedent for others to follow.

In that seminar in which the first draft of The Ethical Investor was penned, students found that divestment depressed the stock price of the company in question for twenty-four hours, after which it bounced back as other (assumedly less responsible) investors took advantage of the lower price. And so the policy they developed positioned divestment as a last resort—one which evoked “the war movies in which the beleaguered infantry-man, having exhausted his ammunition, finally hurls his rifle at the advancing hordes.” It was the final step when there was no hope for changing a company’s practices through engagement with it. When I spoke with him in early April—before the release of the updated divestment guidelines—Gunnemann said he had supported divestment from fossil fuels for the past three years. And with the CFFIP report, it seems that Yale is adopting policies that align more closely with Gunnemann’s judgment and the consensus among numerous student activists. 

As my conversation with Gunnemann wrapped up, he emphasized one thing he learned when writing The Ethical Investor: “How you frame an issue becomes really decisive… and, of course, the other big question [is], who has the power to frame issues?” He was referring specifically to fossil fuel companies, which he feels have exerted disproportionate influence on discussions of the environment. My impression was that students conveyed a similar sentiment concerning the fossil fuel debate at Yale—that the very way in which the conversation is framed limits their ability to engage.

This semester, the main conversations around fossil fuel divestment took place in two listening sessions with the CFFIP attended by student leaders and activists. Elaine Louden MPH ’22, a member of the Graduate and Professional Student Senate, told me, “In [The Ethical Investor] itself, I don’t see a lot of problems. I think it’s more about how people interpret what is in the book.” Before the release of the CFFIP report, she expressed dissatisfaction with how student concerns had been received—as did Jordi Bertrán Ramírez ’24, a YCC Senator and Sustainable Policy Co-Chair who was also present at the listening sessions. Louden, who first engaged in the divestment debate at Yale in this session, found it to be a disappointing introduction. She felt that there was an absence of voices who could speak to the impact of climate change from a public health perspective. When I asked Macey about the students’ characterizations of the listening sessions, he admitted that the committee had not communicated as openly as they should have at the initial meeting. “They may not feel heard,” Macey said. “I feel horrible about that—but they changed my mind about a couple of issues.” He hoped that when students read the committee’s report, however, they would see their arguments reflected and addressed in the text.

Bertrán Ramírez said, “Upon reading the report, a lot of what was enclosed in that document were near-direct quotes of what students had said in our meeting with the CFFIP, which was surprising, to say the least.” He referred specifically to the portions which emphasized the producer’s responsibility in limiting the availability of fossil fuels, when in the past the committee had often argued that it was the duty of consumers to limit their consumption and the job of the government to regulate. He conveyed the sense of empowerment that comes with seeing the real outcomes of student activism. He also expressed hope that students might have a say in the implementation of the CFFIP principles—especially when it comes to selecting the specific companies from which the University will divest. This is a possibility that depends largely on the receptivity of the administration. 

Even before the release of the CFFIP report and its adoption into Yale’s investment policy by the Corporation, activists at Yale had their next steps planned. Scott Gigante GRD ’23 organized the Yale Forward campaign to elect a Yale alum to the Corporation. The campaign’s candidate, Maggie Thomas ENV ’15, suspended her run in accordance with White House ethics rules in order to become Chief of Staff of the Office of Domestic Foreign Policy earlier this year. Yale Forward is still pushing for a more diverse Corporation, however, which might utilize the University’s platform to encourage broader social change.

When I spoke with Gigante, he skipped the customary talking-points of divestment almost entirely. “We need to think about not just divesting as a political act but investing as a political act,” he said. Such social impact investing would step beyond the socially responsible investing policy enumerated in The Ethical Investor, taking into consideration not just the prevention of harm but the promotion of good. He cited the Rockefeller Brothers Fund and the Gates Foundation, both of which have earmarked small percentages of their endowments for social impact investing. Macey, however, expressed doubts about social impact investing, wondering if a measure like that would limit the University’s ability to provide financial aid or hire new faculty. 

Gigante takes issue not only with the limited guidelines in The Ethical Investor but also with their execution: “In terms of the ACIR, I see not just an accessibility problem or a disincentive to participate, but actually a lack of accountability and a lack of mandate.” The ACIR—the main vehicle for student input—conducts private conversations and issues nonbinding recommendations which may or may not be made public. For this reason, in many instances, students may not see the results of their advocacy.

Macey made clear to me that he wants his committees to be transparent and communicative. Although it does not argue that investment decisions should be predicated on popular opinion, The Ethical Investor tasks the ACIR with making recommendations to the Corporation in response to “requests from members of the university community,” a mandate which is founded on the ability of the committee to mediate between students and trustees. 

Gigante and Bertrán Ramírez—the two activists with whom I followed up after the release of the CFFIP report—expressed differing degrees of satisfaction. Bertrán Ramírez’s anticipation especially came across: “We are at the cusp of something.” Earlier, he and Gigante had spoken of their engagement with The Ethical Investor as necessary to communicate with Yale’s powers-that-be. At the time, they did not feel heard by the Yale administration. Although those emotions may have changed with the release of the report, which Bertrán Ramírez describes as a win brought about by nearly a decade of student activism, Gigante still worries that the efficacy of the CFFIP’s principles will be limited by the decision-making structure. He sees a pattern emerging of an institution slow to respond to valid demands for change, a “now-typical ten year timespan for the Corporation to respond to concerns of investor responsibility, as has been the case in both Apartheid divestment and fossil fuel divestment.” It is an issue which both he and Bertrán Ramírez feel may be remedied by more direct student engagement with the Corporation and clearer conversations with the administration on questions regarding both divestment and investment. 

At the very beginning of my first conversation with Jonathan Macey he referred to The Ethical Investor as the Bible of Yale’s investment policy—not solely for its importance but also for its endless debatability. Gunnemann later analogized it to the Constitution, emphasizing that it is not a text which one should interpret with an originalist mindset. He hopes that the document encourages evolving conversations about the difficulties of investing responsibly. 

The Ethical Investor is no longer a young document––2022 will mark the fiftieth anniversary of its publication. As may occur with any statement of principles, over time a changing context has rendered parts of its content insufficient. Activists will continue to pose important questions. Should students be named to the Corporation? The ACIR disbanded in favor of more direct access to trustees? Does The Ethical Investor frame the conversation in a way that fosters engagement? Perhaps it is time for a repeat of that 1969-70 seminar at the Law School, to respond to these proposals and many more. In whatever forum they take place, however, ongoing conversations will have to recognize the validity of such questions, the limitations of the current system, and the necessity of self-critical examination. 

—Jack Tripp is a sophomore in Benjamin Franklin College

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