There’s an old local Boston joke that goes like this. A student with a shopping cart piled high with food is standing in the “12 items or less” line at a local grocery store. When she gets to the front, the clerk points to the sign and says, “What’s the problem? You went to Harvard and can’t count or went to MIT and can’t read?” Either way, it would certainly indicate that no admissions process is perfect. These two universities, both located in the small city of Cambridge, MA (population of around 120,000 people) rank Number One and Number Two respectively in the latest global university ranking from U.S. News & World Report.
This joke captures the stereotypical differences between the two universities. There is another one. The Harvard Management Company, Harvard’s endowment (which ranks first in the U.S. at $40 billion) is a signatory to the Principles for Responsible Investment (PRI). MIT’s endowment, the MIT Investment Management Company (MITIMCo), which ranks sixth at $16.5 billion, is not.
I was an undergraduate at MIT (one Bachelor’s degree in math and one in humanities, so I can both count and read) and have taught at MIT’s Sloan School of Management. I did my graduate work at Harvard (Master’s and Ph.D. in sociology) and taught at Harvard Business School where I received tenure in 1989. Both of these institutions matter to me. I want them to do well and make the world a better place.
Thus, I was pleased to receive an e-mail from three MIT undergraduates—Anushree Chaudhuri ‘24, Jasmine Chen ‘24, and Daisy Wang ‘24—who are working on a project as members of the MIT Environmental Solution Initiative‘s Rapid Response Group (RRG), led by Professor John Fernandez. They wanted to discuss with me climate-related financial disclosures, the fiduciary duties of institutional investors to incorporate climate change into the investment process, and what universities and their endowments should be doing in terms of both.
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I was a bit puzzled by this request given that the RRG “was formed to respond to critical environmental issues in a timely manner with science-based analysis and assistance in the service of our partners in communities, civil society, government and industry” and seems to have little to do with the investment industry. When I inquired about this, Fernandez replied “Yes, this is certainly within our mission because we are connecting science-based analytical thinking to real-world actions. The story of money – where it goes and what it does – is intimately tied to the challenges of climate change and the students of the RRG go where the challenges are most critical. Acting on climate change has to include every sector of society, including the investment industry.”
Fair enough. The students and I had a good discussion, and I pointed out that the issue of climate is one aspect of the broader issue of the integration of environmental, social, and governance (ESG) into sustainable investing, which is rapidly being incorporated into mainstream investing. The reason for this is the clear empirical evidence that now exists between ESG performance and financial returns.
This led to me pointing out the difference between the two universities’ endowments and resulted in an interesting little side research project with some puzzling results. The team studied a selected set of 12 of Harvard’s peers (Brown, Cambridge, Columbia, Cornell, Dartmouth, Northwestern, Oxford, Princeton, Stanford, University of California, University of Pennsylvania, and Yale) and 12 of MIT’s peers (Caltech, Case Western Reserve, Georgia Tech, Harvey Mudd, Lehigh University, Olin College of Engineering, Rensselaer Polytechnic Institute, Rochester Institute of Technology, Rose Hulman Institute of Technology, Stevens Institute of Technology, and Virginia Tech).
While Harvard and Northwestern were the only two in their peer set to have become a signatory of the PRI, all of the rest except for Penn and Princeton disclosed explicit policies about ESG investing. In some cases, but not all, these concerned divestment from fossil fuels. The debate continues about whether divestment or engagement is the most effective way to create the necessary changes in this sector. (For an interesting example of the latter, see activist hedge fund Engine No. 1’s “Reenergize Exxon” campaign.) In contrast, not a single one of MIT’s peer set disclosed anything regarding a sustainable investing policy. If such policies exist, they are well hidden from a search by students who know their way around the Internet.
How to explain this difference? I really don’t know. Maybe it’s a “read” thing and the first set of schools is just better at words, so they can communicate more effectively. At the same time, since counting is pretty easy for engineers, you’d think that numbers from empirical research would be persuasive to them. Yes, I understand that university endowments are managed quite independently of the faculty and properly so. But that doesn’t explain why the endowments of these tech schools are behind their more literary peers when it comes to where the investment world is moving. Nor is it the reason Harvard is ranked slightly ahead of MIT this year.
One of these tech schools needs to go first, so why not my beloved alma mater (to whom I make modest annual unrestricted donations to the endowment)? Following my recommendations, the student group is proposing three priorities to MITIMCo—becoming a signatory to the PRI, releasing a public Statement of Purpose, and creating a transparent standing committee on shareholder responsibility—things that today MIT disappointingly lacks today but could benefit from tomorrow. To its credit, its endowment recently became a signatory to Climate Action 100+, a coalition of 545 investors with total assets of $52 trillion that are engaging with companies that in total represent 80 percent of global industrial missions. This makes sense given that MIT is one of the leading universities in the world technologically addressing the challenge of global warming from climate change.
One example is En-ROADS, led by Professor John D. Sterman of the MIT Sloan School Sustainability Initiative.“En-ROADS is a transparent, freely-available policy simulation model that gives everyone the chance to design their own scenarios to limit future global warming.” When asked why En-ROADS was created, Sterman explained “Whether it’s learning to fly an aircraft, perform surgery, or tackle climate change, experience comes too late. In such settings, people learn best in simulations. En-ROADS is grounded in the best science, but we never tell people what policies to try. They explore their own ideas, and get immediate feedback on the likely impacts. Few policymakers have ever had that experience. That’s why En-ROADS has been used by hundreds of members of the US House and Senate, governors, other elected officials and senior policymakers—from both political parties—and tens of thousands of leaders, educators, and citizens around the world.”
A broad set of investors has already been through the En-ROADS program. This portion is being led by Dr. Jason Jay, Senior Lecturer at Sloan and Director of the Sustainability Initiative. Jay said that interest in the investment community has been high and major priority is to expand it this year: “2020 has been a watershed year for investor action on climate change. Net zero commitments are ramping up among institutional asset owners and managers. Private wealth is flowing faster into potential climate solutions, and the Climate Action 100+ is creating a viable mechanism for real shareholder engagement. The trouble is that investors often don’t understand the scale of action across policy domains and industry sectors that is needed to really achieve a 2-degree future. En-ROADS is proving helpful in driving that conversation forward.”
I have had the pleasure of teaching some courses on sustainability with Jay and Sterman in the past and we keep in touch. After my input to the student project, I suggested to my colleagues that now would be a good time to meet with Mr. Seth Alexander, the Chief Investment Officer of MIT’s endowment. I pointed out that while this might be awkward for them given the separation of Church and State, I would be more than happy to. My academic career has not put me in a position to donate millions of dollars, which would be the basis of a reasonable request for an audience. Nor am I a professional investor. However, I do know many of the largest asset owners and asset managers in the world who have deep expertise in sustainable investing. They have the same obligations to generate financial returns as does MITIMCo. I’m sure I could get one or several of them to meet with Mr. Alexander if that would be helpful.