Responsible Investing

In 2014, the Pitzer Board decided to divest the endowment from fossil fuel stocks, becoming California’s first private college or university to do so. At the same time, the Board committed to consider environmental, social, and governance (ESG) factors in determining which publicly traded stocks to hold in the endowment portfolio. That commitment was realized in 2017 when Pitzer’s endowment became the lead investor in a new global stock index fund.

Pitzer invests in an index fund it helped design, which is managed by BlackRock. The MSCI ACWI (All Country World Index) is the starting point for the BlackRock fund’s selected index. Developed by MSCI Inc., a leading investment research and indexing firm, ACWI is made up of more than 2,500 companies from around the world, providing a broad measure of global stock market performance.

MSCI offers a suite of indexes, derived from ACWI, that more heavily weight companies exhibiting stronger performance on environmental, social, and governance (ESG) factors. Building these ESG indexes starts with MSCI’s ESG research division, which evaluates every company in ACWI, using a comprehensive scoring system that considers factors such as alignment with the UN Global Compact, adherence to the UN Universal Declaration of Human Rights, and compliance with various international treaties and norms. The resulting composite ESG ratings—which weigh both positive and negative criteria—are proprietary to MSCI. In addition, all MSCI ESG indexes consistently exclude tobacco producers, controversial weapons manufacturers, thermal coal producers, and companies deemed to be in serious violation of UN Global Compact principles.

The BlackRock fund in which Pitzer invests uses an MSCI ESG index that takes the screening a step further, excluding all fossil fuel companies and any company rated having a “red” level controversy score under MSCI’s methodology. This index then weights the remaining companies in a manner that seeks a high overall ESG score, subject to constraints designed to ensure both broad diversification and fund performance that does not excessively deviate from ACWI.

The index is intentionally designed to be dynamic rather than static. This approach provides a practical and forward-looking framework for Pitzer to maintain a portfolio that consistently strives to lead in responsible investing.

The index is intentionally designed to be dynamic rather than static. It evolves over time to reflect shifts in corporate behavior as well as changes in the broader external environment in which companies operate. This approach provides a practical and forward-looking framework for a small liberal arts college to maintain a portfolio that consistently strives to lead in responsible investing—not only at the moment of investment, but in the ongoing stewardship of those investments every day thereafter.

Other nonprofit organizations seeking a responsible investment* solution have followed Pitzer’s lead, and the fund now has more than $900 million in assets. The fund has delivered strong performance, and its low-cost structure saves the College hundreds of thousands of dollars annually in management fees.

_{*Responsible investment involves considering environmental, social and governance (ESG) issues when making investment decisions and influencing companies or assets (known as active ownership or stewardship). Source: Principles of Responsible Investment: What is responsible investing?} 

Resources

Learn more about the MSCI ACWI ex Fossil Fuels Custom ESG Focus Index [PDF]

MSCI ESG Screened Indexes Methodology [PDF]

ESG Factors in Methodology [PDF]

Learn more about mutual funds and index funds