Business school students and prominent members of the investment world gathered last Friday to discuss responsible, low-carbon investing during a Yale School of Management event.
MBA candidates from across the country competed in the inaugural National Low Carbon Case Competition, hosted by the SOM. The 11 teams — including participants from the SOM, New York University Stern School of Business and the University of Chicago Booth School of Business — presented their strategies to lower the carbon intensity of a hypothetical university’s investment portfolio. The judges, led by Bob Litterman, former head of Risk Management at Goldman Sachs, ultimately announced the NYU Stern team as the winner.
Beyond the competition, the event was used as an opportunity for MBA students and the investment community to engage in conversation about responsible investment.
“Yale has a history of engaging responsible investing, and we really wanted to showcase a way for Yale to continue to be a thought leader in responsible investing,” said Logan Yonavjak SOM ’16 FES ’16, co-director of the competition.
The NYU Stern team offered an investment plan that divested from companies that owned or extracted fossil fuels, while pursuing shareholder engagement with other energy-intensive companies like utility companies and manufacturers. The second-place Yale SOM team also pitched a strategy that involved divestment by ranking all the assets in the endowment’s portfolio by the amount of carbon emitted per dollar of revenues.
Still, other teams focused on carbon-free investing strategies beyond divestment.
Yonavjak said that these strategies reveal that “divestment is a part but not the whole of the conversation, and it is important to think about broader strategies.”
One of the key themes was “divest to reinvest,” according to the Yale SOM team, which argued that divestment from fossil fuel companies should be accompanied by investment in eco-friendly firms as well.
A number of teams, including the Chicago Booth team, found that a low-carbon portfolio could produce higher returns than a traditional portfolio by investing in high-growth clean energy sectors.
During the competition, teams also discussed the feasibility of their low-carbon investment approaches. Sabrina Szeto FES ’16, a member of the conference’s organizing team, said portfolio managers can build a diversified portfolio from green bonds, which have the same risk and return profile as traditional bonds, along with a mix of investments in green infrastructure.
Some teams suggested that investment decisions are built on the moral, financial and legal foundations of a university. Others also emphasized the moral obligations of investment managers.
The teams’ models and strategies were well received by the audience and the judges during the competition.
“The 11 competing MBA teams did a fantastic job of exploring the challenges and nuances involved in actually taking action and the whole room left inspired and energized,” said Yonatan Landau SOM ’15, co-director of the competition.
Szeto said that she was extremely impressed with the quality of the presentations and highlighted the NYU Stern team’s presentation, which modeled twenty scenarios based on different combinations of carbon prices and oil price shocks.
Organizers of the event said that it was a success more because of the conversations that were generated than the competition itself.
Helen Wang ’15 said she attended the conference because she wanted affirmation that a portfolio can remain diverse and thrive immediately post-divestment.
Landau was impressed not only by the quality of the presentations, but also by the conversations among audience members.
“It was amazing to hear senior fund managers from Goldman Sachs, state pension funds [and] leading investment advisory firms basically agree that divestment is both a powerful tool for communication and, increasingly, a prudent financial decision,” he said.
In light of the positive feedback from the investment community, Yonavjak added that the competition may become an annual event.
“The competition may not always be about low carbon, but we want to keep the conversation going about responsible investing issues that the investment community is discussing at the moment,” she said.
Besides the student-led presentations, the conference also featured Yale economics professor Kenneth Gillingham and Peter Knight, founding partner and president of Generation Investment Management, as part of the discussion about low-carbon investing.
The New York University Stern team was awarded $10,000 as part of their first place prize in the competition.