Endowment Enigmas

During the past two decades, this magazine has covered Harvard scholars’ research on global warming and how to contend with climate change. For nearly a decade, it has reported on the advocacy by students, faculty members, and alumni for divestment of endowment fossil-fuel assets, and University responses to that campaign. (The Corporation has declined to divest, but is pursuing a goal of “net-zero” greenhouse-gas emissions across the investment portfolio by 2050; see harvardmag.com/hmc-fossilfuel-net0update-21).

Appropriately, apart from faculty-written op-ed essays, and readers’ many letters, the magazine itself has not expressed an opinion on these matters in its pages. Until now.

Amid the exigencies of the pandemic, we overlooked Fossil Fuel Divest Harvard’s (FFDH) appeal last March to Maura Healey ’92, attorney general of Massachusetts, to “investigate [the University’s] conduct and…use your enforcement powers to order the Harvard Corporation to cease its investments in fossil fuels.” On April 30, FFDH reports, representatives of Healey’s staff met with a group of divestment advocates to review their argument.

The complaint itself (available at www.divestharvard.com) alleges that the Corporation has violated its fiduciary duties as required under the Massachusetts Uniform Prudent Management of Institutional Funds Act. Because fossil fuels damage the environment and human health, FFDH asserts, such investments are at odds with Harvard’s charitable mission. Since such damages threaten “the lives and prospects of young people” and rising sea levels may swamp campus facilities, maintaining fossil-fuel holdings means the fiduciary governing board has failed their “duty of loyalty.” In “refusing to abide by…previous commitments to socially responsible investing” and ignoring warnings about the threats of fossil-fuel production, the Corporation members have violated the requirement to act in “good faith.” And in assuming the financial risks of investing in such assets, the board has failed its “duty of care.”

These claims and others are proper subjects for debate. They proceed from the conviction that “Climate change is an existential threat to humanity and our environment.” A lot of people believe that, and they have a lot of good evidence on their side.

At question, though, is whether that justifies the state government investigating Harvard and forcing it to change its decisions, as divestment advocates have explicitly requested. In June, Massachusetts representative Erika Uyterhoeven, M.B.A. ’19, an attendee of the April meeting with the attorney general’s staff, introduced legislation that would compel the University to divest.

It is a long way from the (liberal) Commonwealth government potentially tinkering with Harvard’s investment decisions, to the state constituting a real threat to the University. But it’s not pure fantasy, either—particularly today. Multiple state governments this spring and summer prohibited campus vaccination or masking requirements—outlawing basic public-health measures. Other legislators have taken it upon themselves to shape the curriculum by trying to ban instruction in critical race theory or interpretations of U.S. history that examine institutional discrimination. And Florida’s HB 233, signed into law by Governor Ron DeSantis, J.D. ’05, requires the state’s public universities to survey faculty and staff members annually about their beliefs in order to assure “viewpoint diversity” and stymie “indoctrination” of students.

It may well be argued that these are right-wing political attacks that could never happen in Boston and Cambridge. But the precedents are not encouraging for those who believe higher-education institutions need unfettered room to explore ideas. FFDH’s invocation (in this case, from the left) of state power to decide University matters raises similar concerns. Harvard is having a protracted, vigorous conversation on divestment: a sign of a lively academic community. Its advocates are dismissive of the “net-zero” policy, and furious about the changed rules for petition candidates’ service on the Board of Overseers after divestment advocates were elected (see harvardmag.com/overseer-reform-20). Whether one sympathizes or not, anyone who cares about the role of the research university in society ought to have qualms, at least, about invoking the power of the state to referee—and decide—the debate.


Turning to other endowment matters, what might Harvard do with, say, an extra $6 billion or more? That’s not an idle question. Although investment returns have not been reported as of this writing (they may be by the time of publication; consult www.harvardmagazine.com. Updated October 14, 1:00 p.m. Endowment results were just reported: the rate of return was 33.6 percent, and the endowment is now worth $53.2 billion; read a complete report here.), early reports suggest they could be gangbusters.

After financial markets swooned during the onset of the pandemic, in March-April 2020, they have responded with gusto to governments’ emergency spending, monetary stimulus, and economic recovery. For the year that ended June 30 (when Harvard closes its books), public stock indexes were up more than 40 percent. The Wilshire Trust Universe Comparison Service forecast the most robust results in 35 years, with the median foundation and endowment up 27 percent—and larger ones up 34 percent.

What would gains like that mean for Harvard? A 20 percent return on an endowment valued at $41.9 billion in mid 2020 would produce a resulting year-end value (after spending during 2020-2021, and gifts received) of perhaps $48 billion. Even these hypothetical numbers (see harvardmag.com/endowment-outlook-21) imply:

• a familiar public-relations difficulty for the University, in a year when the rich got richer and the poor found life ever more brutal;

• an internal debate, as endowment gains run into the University’s tight spending control, extending back to the Great Recession and resulting in minimal growth in the faculty ranks, nonunion salary compression, and other constraints; and

• a renewed debate about the efficacy of HMC’s protracted restructuring, intended to boost inconsistent, lagging results.

In the longer view, a $48-billion endowment would, finally, be about equal in real terms (adjusted for inflaton) to the $36.9 billion peak before the 2008-2009 meltdown: a 13-year slog to get back to par. That hard progress explains the Corporation’s financial restraint in the interim.

But if the investment results are outsized, might that invite an unusual response? Should the Corporation authorize a one-time distribution to fund academic priorities—maybe in the form of a matching challenge to Harvard’s most generous donors? Will the magnitude of the University’s good fortune result in inspired use of the $800-million proceeds from the sale of edX (see “edX Exit,” September-October, page 25) to advance learning at the less well-off higher-education institutions that school most students?

Whatever the reputational headaches, these are good problems for Harvard to have after a challenging year. It would befit the institution to debate them.

~John S. Rosenberg, Editor

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