Many university trustees and their money managers focus on the bottom line, which to them means maximizing returns with minimal risk and avoiding restrictions from socially responsible investing (SRI). Paradoxically, students claim the financial conservatism of university trustees contradicts the liberal ideals and global consciousness taught by many professors in the classroom.

Confronted by recent onslaughts of disturbing information on the Darfur crisis and climate change, college activist groups across the country have been pressuring trustees to disclose endowment investment information. A university whose endowment is invested in tobacco stocks, yet whose professors expound the health hazards of smoking, comes across as fundamentally inconsistent to its students.

The Sustainable Endowments Institute (SEI), a special project fund of Rockefeller Philanthropy Advisors that researches and educates on university endowment policies, released a groundbreaking study on shareholding practices in May 2006. The study examined schools with endowment assets surpassing $100 million, and found that two-thirds of colleges and universities disclose endowment investments only to trustees and senior administrators, not to students. Only 5% of schools include student committees in proxy voting, yet nearly half (49%) of the schools stated their willingness to do so.

At Dartmouth College, the Advisory Committee on Investor Responsibility (ACIR), made up of faculty, administration and two students, reached a compromise with the trustees: the ACIR would vote on shareholder resolutions, but was barred from discussing divestment or the investment process. Mark Orlowski, founder of the SEI, says this kind of solution will “enable students to have an active role, but doesn’t effect the performance of investments.” Luke Gilroy, one of the student representatives from the ACIR, said one challenge is simply trying to correct the assumption of other students and trustees that SRI will inevitably lower returns.

Williams College took steps in 2000 to overcome the tension between students and trustees by creating the Social Choice Fund, a separate fund that enables alumni to give without compromising their social and environmental concerns. Ninety percent of the fund is invested in a screened mutual fund and 10% in local community development projects.

In other instances, students have bypassed their university administrations altogether. The Responsible Endowments Coalition, founded in 2004, acts as a network for the exchange of ideas among student groups that advocate SRI of endowments. The Coalition includes over 40 universities and colleges with a combined endowment of billions; among them include Harvard ($25 billion), Yale ($15 billion), Stanford ($12 billion), Amherst ($1.15 billion), and Middlebury ($830 million).

Some of the Coalition’s member colleges are part of an on-going campaign calling for Farallon Capital Management, LLC, estimated to be the world’s fourth-largest hedge fund, to increase disclosure of its investment activities to the universities it represents. Trustee boards increasingly prefer to outsource actual investment decisions to professional management firms and hedge funds like Farallon that are even more opaque and inflexible about disclosure than funds invested in publicly-traded companies.

This makes it difficult for universities who may think they have divested, but may never be certain. The Harvard Crimson recently reported that Harvard has indirect investments worth $16 million in PetroChina and Sinopec, two firms doing business in the Sudan, through two mutual funds. This news prompted students from the Harvard Darfur Action Group to re-launch a campaign calling for Harvard’s full divestment.

Trustee boards also explain their reluctance to disclose investment holdings to students, faculty or alumni as a fear of losing competitive advantage. Williams releases their endowment holdings information after the fiscal year ends to make it obsolete. This time-lag system is one approach schools have adopted; another is to create a shareholder responsibility committee to help keep students in-the-know on where university endowment investments lie.

Many schools lack endowments large enough to allow them to take advantage of a separately managed account, and as a result, mutual funds or co-mingled funds have become the most common means of investing endowments for colleges. These kinds of funds have investments in hundreds of companies selected by the fund’s managers, and so the college has limited or no influence in choosing which companies to include.

Thus the challenge for small schools is to find funds that compliment their mission. Fortunately, the number of socially screened products designed for the institutional market, such as socially screened exchange-traded funds (ETF), continues to rise, increasing the opportunities available for schools that wish to embrace socially responsible investing. For more information, please visit www.kld.com.

While more and more universities and colleges are demonstrating progressive policies on campus toward cutting greenhouse gases and promoting environmental awareness, in the end only a minority can boast of offering full transparency of private or publicly-traded equities.