Background information on Swarthmore College’s investment policies

Swarthmore students involved in the Sunrise Movement are sponsoring a referendum next week to ask the Board of Managers to reconsider its longstanding policy regarding the weighing of social objectives within its investment policy.  I believe that the change in policy is unnecessary, particularly in light of the regular due diligence that our Investment Office and Investment Committee perform to manage the Swarthmore College endowment. The following paragraphs provide an overview of our management practices as well as our efforts to mitigate the effects of climate change within our investment portfolio.
The College’s endowment represents a principled contract with past donors, a source of present strength, and a promise of our continued educational leadership in the future. Because of the generosity of prior generations of donors,  Swarthmore is able to provide generous need-based financial aid, support faculty research and instruction through endowed faculty positions, support programs and activities of the College, and maintain our physical plant and grounds. Spending from the endowment provides funding for over half of the College’s operating budget on an annual basis.
The Board of Managers reviews and approves the College’s investment policy and guidelines, and the Investment Committee of the Board of Managers carries out those objectives with assistance from the College’s Investment Office.  As a matter of policy, the Investment Committee manages the endowment to achieve the best long-term financial results, rather than to pursue social objectives. This policy was established in 1991 and following extensive deliberation and research, was reaffirmed by the Board of Managers twice in recent years, in 2013 and 2015.
In order to achieve its investment objectives, the Investment Committee seeks to maintain a careful balance among the following three areas: High real returns (so spending can grow at or above inflation); low volatility (so spending can be largely insulated from market variability), and; adequate liquidity (so we have access to cash when we need it)
Like most of our peer educational institutions, the College does not hold stocks or bonds of individual companies, but instead retains external investment managers to manage its endowment portfolio.  The external fund managers work within various asset classes within the approved asset allocation for the endowment. The College performs extensive due diligence prior to engaging external investment managers, and monitors their performance to assure that they are adhering to their strategies and meeting our overall investment objectives.
As part of our due diligence process for investment manager selection, the College looks closely at the firm’s historical performance, adherence to its investment strategy, management philosophy, corporate governance, and approach to risk management.  Once an external manager has been retained, the College monitors the firm’s performance relative to standard benchmarks and our investment objectives.
As part of this ongoing due diligence of existing managers, and recognizing the global impact of climate change on the environment, in 2014 the Investment Office issued a survey to each of its external investment managers regarding how they approach these issues in making investment decisions.  Specifically, we asked the following questions: One, how does the manager assess the carbon footprint when making investments? Two, how does the manager evaluate the direct costs of climate change on future returns? Three, how does the manager consider the cost of government and regulatory policies aimed at reducing greenhouse gas emissions on future returns?
This initial survey provided a baseline for our due diligence on this topic.  In February 2017, the Investment Office again asked our external investment managers to provide an update on their practices and/or policies regarding how they assess climate change in the investment process.  Through these routine surveys we have been able to determine that these investment firms have dedicated significant resources to defining, measuring, analyzing and improving on their sustainable initiatives for their investment portfolios.
The College’s investment policy takes into account broader concerns, such as climate change or changes in an investment manager’s stated strategy, when they might materially affect the financial performance of the endowment upon which we rely to support our core mission and goals. Changing the investment policy to make a moral statement with no tangible effect could have the effect of diminishing performance and reducing funding available for critical mission-centric initiatives such as financial aid and academic programs, which is why the Board believes our current policy is the right one for the College.
Swarthmore has a deep and longstanding commitment to sustainability.  As evidenced by our internal carbon tax and our “putting a price on carbon” campaign, we are leaders in meaningful efforts to raise awareness of sustainability and reducing our own impact on the environment.  We are also working diligently and successfully to reduce our consumption of fossil fuels, and are making considerable strides to change our waste stream to minimize the amount of trash that is sent to Chester for incineration.  These are just a few ways that we are working to make tangible improvements in our community and in the broader environment.
Managing the College’s endowment requires constant vigilance and the ability to anticipate and react to changes in global and local markets. I am also committed to sharing information about the College’s endowment and its relationship to the College’s budget.  If you would like to learn more about the College’s finances and the endowment, I encourage you to sign up for the fourth annual cycle of our Budget Essentials program in the Fall of 2018.

1 Comment

  1. Dear Greg Brown,
    Please stop lying. Divestment will not hurt financial aid and the school knows this.
    As Sunrise Swarthmore and MJ have argued for years (
    There’s no reason to believe that fossil fuel divestment will hurt our endowment at all, let alone financial aid. Hundreds of institutions have divested, including many that prioritize fiduciary responsibilities. The Board’s original “estimated cost” of divesting is no longer applicable to our current proposal for partial divestment. The cost they have estimated is incurred from switching financial managers— under our proposal, we’re simply asking our financial managers who already have fossil free portfolios to switch our investments into those portfolios. This means that our endowment would be similarly diversified and the returns would be similar as well.
    In fact, divesting from fossil fuels is, in the long run, the financially responsible option. As the fossil fuel industry’s business model becomes increasingly infeasible— something that’s already starting to happen— and as over 80% of their reserves will have to be left in the ground, oil investments will become less and less profitable. By keeping our money there, we’re essentially betting against ourselves: the only way our investments succeed is if our planet doesn’t.
    It’s worth mentioning that many institutions that have divested or partially divested would not have done so if it incurred any significant cost. Yale University, with an endowment structured much like ours, has partially divested. So have the Rockefeller Brothers and New York City. And finally, the Norwegian Sovereign Wealth Fund, which had billions of dollars invested in Exxon, Shell, and other fossil fuel companies, announced last year that they divested solely for financial reasons— staying invested in fossil fuels was too risky.
    Finally, even if fossil fuel divestment does decrease the returns on our endowment— and that is already making a huge and unjustified assumption— there’s no reason to think that it will harm financial aid. College endowments average around a 10% return each year, and Swarthmore only spends 3.7%. That means that even a fractional decrease in returns would still leave us with plenty of spending room to spare. Sunrise will not support a plan for divestment that damages our financial aid— and there’s no reason for the administration to propose such a plan except to divide the student body.
    Saying divestment from fossil fuels will hurt the endowment is a strategy the administration has been using for the past 8 years, but it is nothing more than a scare tactic.

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