Yale’s Low-Carbon Portfolio Case Competition: Divestment Grows Up

“Say what you want about 350.org,” said Peter Knight, who manages $11BB of socially responsible investments, “but they changed the discussion.” If 350.org brought the divestment discussion into the living room, Yale SOM students brought it into the board room on Friday night for the SOM’s inaugural “Low-Carbon Portfolio Case Competition.”

Yale School of Management Launches Nation’s First Low-Carbon Investment Case Competition

Puts Yale Back at the Center of Socially Responsible Investment

A national low-carbon investment case competition sponsored by the Yale School of Management in November marks a new first for Yale, and a homecoming for the practice of socially responsible investment.  

The Ethical Investor: Universities and Corporate Responsibility, written by Yale professors and graduate students in 1972, made the notion of socially responsible investment real.  Defining criteria and procedures to consider moral dimensions beyond profit when managing the university’s billion-dollar endowment, the book resounded among educational facilities and the market at large. A boycott of investments in South Africa, propelled by over a hundred colleges and universities, helped bring down apartheid in 1994.  A total of $3.74 trillion dollars now in socially responsible investment (SRI) accounts represents over 11% of total of U.S. assets under management today.[1]

For the most recent divestment effort, however, momentum may have crested in May when Stanford became the 12th university in the nation to join a nationwide “Fossil Free” divestment movement, announcing it would sell its holdings in companies whose primary business was coal.  Considering Yale’s trailblazing in the area of SRI, leaders of the local Fossil Free Yale contingent were sorely disappointed by last month’s decision on the part of Yale not to follow suit.

While a decision by the Yale Corporation to sell off any part of its portfolio based on climate change impacts would have made them the first Ivy League University to join a movement whose momentum is uncertain, recent developments at Yale are anything but a step back.  The same August 27 letter from Yale President Peter Salovey that announced that Yale would not divest, also announced creation of a panel to investigate making Yale the first university to follow the model of major corporations who are using in-house assessments of a carbon charge for long-range planning decisions.

And now the School of Management, coaxed by members of Fossil Free Yale, brings a first-ever competition with teams from the top business schools in the country vying to demonstrate effective divestment from a portfolio manager’s standpoint.  Student teams will all evaluate the same hypothetical portfolio of investments provided by Commonfund, a Wilton, CT based investment firm founded in 1971 with $25 billion in assets under management.  Bob Litterman, former head of Risk Management for Goldman Sachs, will lead a panel of judges who will assess the teams on two tasks:  their analytical rigor in assessing the carbon component of the companies in the portfolio, and their creativity and results in adjusting investments accordingly.

Winning teams will share a $10,000 first prize, says Gavin Fernandes, one of the competition’s organizers.  But more importantly, he says, they’ll be creating case studies to prepare MBA students for careers in investment firms where they can effectively de-leverage and re-leverage investments on behalf of clients who, like the authors of The Ethical Investor, sought to balance profit with the desire to do no harm.


[1] Voorhes, M., Humphreys, J., and Solomon, A., Report On Sustainable and Responsible Investing Trends in the United States, 2012, Ussif.org, accessed March 19, 2014. http://www.ussif.org/files/Publications/12_Trends_Exec_Summary.pdf

November 15, 2014