Embedding Values & Taking an Active Stance – Haas Socially Responsible Investment Fund in 2018
Praised as ambitious and groundbreaking, the Haas Socially Responsible Investment Fund (HSRIF) is the first and largest student-led SRI fund within a leading business school. It offers our MBA students real-world experience in delivering both strong financial returns and positive social impact. Since 2008, the student principals have more than doubled the initial investment to +$3M, learning through experience about SRI and ESG investment strategies and practices.
[perfectpullquote align=”right” bordertop=”false” cite=”” link=”” color=”#84AEDA” class=”” size=”10″] “The annual performance was impressive, the articulation of strategy to align with the Haas Principles very savvy, and most importantly it came through quite clearly that this was a truly impactful and educational experience for the principals.”
– Michael Pearce, Cambridge Associates (MBA 08 & HSRIF Founding Principal) [/perfectpullquote]
The 2017-18 HSRIF Principals recently announced their annual summary of activities. They successfully produced another year of steady performance, with one advisory committee member noting that “the amount of risk to return has been strong, even heroic, in recent years.” In addition to strong returns, the 2017-2018 Principals were able to define and act on several news initiatives that enhanced the values that inform investment decisions. They successfully applied the four Berkeley Haas Defining Principles to guide future investments and leveraged their role as investors to advocate for changes at Facebook in the wake of recent privacy concerns.
Included below is a summary of key highlights from the 2017-2018 HSRIF Annual Report, in particular the Fund’s performance and values-driven activities:
Performance for the 2017-18 academic year was very solid, with the overall portfolio returning 14.8% in the year and the equities sub-portfolio up 21.1% in the same period. This compares to 13.6% for the Russell 3000 and 11% for an 80% Russell 3000 / 20% Barclays Aggregate portfolio.
Investment Beliefs and the Defining Principles
Ten Years of Standing for What We Believe In
This year, the Haas Socially Responsible Investment Fund marked a decade of student-led socially responsible investing. As we look forward to the next ten years, the HSRIF Principals wanted to ensure that the Fund continued to be a vehicle not only through which students could learn about the principles of socially responsible investing, but that would also be an outward example to the business world of the Berkeley Haas values. Learning from the journey of other leaders in ESG and fund management, the HSRIF undertook the process of clarifying the components of the Investment Beliefs that will stand as a guide for future HSRIF Principals.
Their Investment Beliefs draw directly from the values of a Berkeley Haas Leader and the four Defining Principles that are so thoroughly engrained in the students who are educated here at Haas: Beyond Yourself, Question the Status Quo, Confidence Without Attitude, and Students Always. The following description of their Investment Beliefs comes from the 2017-18 Annual Report:
- Fundamental approach, with ESG qualifier
Fundamental analysis is used to uncover the value of each investment for both learning and prudence purposes. Invest only in companies that are good or high potential to improve from an ESG perspective. Regardless of the financial return, HSRIF will not consider a business with poor ESG performance due to the belief that ESG factors drive long term value as a “high quality” company.
- Intermediate time horizon
To avoid the impairment of perpetual value, the investment is made on securities that have upside in a longer term, offset by the fact that a new class of principals will come aboard to reevaluate the portfolio each year. A typical investment analysis time horizon is around 2-3 years, although the fund typically is a longer term holder of high quality equities.
- Beyond Yourself
We believe that companies should be accountable to a wide set of stakeholders – from their overseas employees to their end consumer – and have a strong commitment to human rights of all people. As an institution, we have a rich history of supporting Anti-apartheid and Free Speech movements, and in advocating for the rights of the underrepresented and disadvantaged. As a fund, we commit to investing in companies that go “beyond themselves” to integrate a wider group of stakeholders into their management beliefs. (e.g. Starbucks)
- Question the Status Quo
Prevailing economic theory has done little to incorporate environmental externalities into the valuation of companies. At HSRIF, we question this stance, believing firmly that incorporating analysis of the environmental effect of a company’s activity is a more accurate assessment of the holding’s long-term value. Through our portfolio of holdings, the HSRIF seeks to advance Berkeley’s tradition of climate justice by supporting companies that minimize humans’ effect on natural resources. (E.g. Canadian National Railway)
- Confidence Without Attitude
Company leadership should be strong and inclusive, whether this is in the form of participatory voting rights, or a true commitment to diversity and representation at senior levels on boards. With strong governance and leaders that embody “confidence without attitude” we believe companies will not only hold themselves to more ethical standards, but also perform better financially. As the HSRIF, we invest in companies that have governance models that allow for participation, diversity, and responsibility. (E.g. Unilever)
- Students Always
We are always learning, and we expect the companies we invest in to be as well. As investors, we look for companies that are actively managing their ESG and continually looking to improve the long-term viability and impact of their company. We take an activist role in companies that have improvements to make in ESG, but which are committed and open about their path to doing so. (E.g. Facebook)
- Fund Diversification across Asset Classes
To provide downside protection, liquidity to fund the CRB draw and reflect that there are periods where it is harder to actively manage the portfolio (reflecting the nuances of the student calendar), the fund will be diversified between Fixed Income and equity , with the equity portion split between the individual equities portion of the portfolio and passive equity indices.
Facebook – An Active Investment Opportunity
A note from the 2017 – 2018 Principals:
“This year’s HSRIF Principals have engaged Facebook as an active investment opportunity within the portfolio (more details on the active versus passive in the annual report).
As principals, one of the tools at our disposal is our collective voice. The current challenges facing Facebook present an opportunity to use our voice to drive positive change as it relates to ESG metrics and ratings, further securing the company’s economic moat and our investment.
Please note our participation in the attached Open Letter to the CEOs of Facebook’s Largest Institutional Shareholders as it is intended to amplify our voice by calling for action.
The letter illuminates ideas to be presented in Facebook’s upcoming annual shareholder meeting that resonated with our Principals, including:
- A shareholder resolution filed by Arjuna Capital and co-filed by The New York State Common Retirement Fund, Illinois State Treasurer Michael Frerichs, Baldwin Brothers, Inc., and Harrington Investments seeks a report on how the company is managing content governance (including election interference, fake news, hate speech and online sexual harassment propagated by the platform).
- A shareholder resolution filed by Trillium Asset Management on behalf of the Park Foundation, calls for the board to appoint a Risk Oversight Committee, the presence of which may have anticipated and mitigated today’s crisis.
- A focus on disclosure pointing to research by Ranking Digital Rights that revealed that Facebook disclosed less about how it handles user information than six of its peers: Twitter, Google, Microsoft, Oath, Apple, and Kakao (a Korean company).
- The company’s board should be reconstituted with new independent directors who are experts in data usage and ethics to oversee company practices, and that the roles of Chairman and CEO be split and for Mr. Zuckerberg to step aside and let new leadership reinvent Facebook, while instituting best practices in good governance.
This public letter is our first step in engaging the company and we intend for this to be an active debate for future Principals to further engage. Please feel free to provide any questions, comments, concerns or suggestions as we move forward.”
Read the letter in full here.