Over the years, the Yale endowment has grown from a humble sum intended largely to fund operations and scholarship to a massive pool of capital numbering in the tens of billions. Over this period of growth, Yale has had to wrestle with the ethical implications of its endowment policy. With the University endowment at a historical high and calls for divestment growing even more contested, it is critical that Yale define what role it must take both as an institution of higher learning and as an “ethical investor.”

Exactly 43 years ago on April 15, 1972, The New York Times declared that Yale University had fundamentally redefined the role of its endowment.

“Yale University has decided to exercise its right to speak out when business corporations in which it has invested appear to be engaged in anti-social activities,” the article read. “Yale thus becomes the first major university to resolve this controversial issue by abandoning the role of the passive institutional investor.”

The article was referencing the Yale Corporation’s adoption of the guidelines put forth in the book, “The Ethical Investor” — a 200-page manual that outlines the “ethical, economic and legal implications” of Yale’s institutional investments. In short, Yale would no longer eschew the ethical consequences of its money management. The University had formally taken steps to become the first “moral investor” in higher education.

Yale Law professor John Simon LAW ’53, one of the three authors of the book, still has one of the original prints on his bookshelf. Though the cover of Simon’s copy may be faded and its pages slightly yellowed, the function of “The Ethical Investor” is largely unchanged.

“It obviously expanded the notion of what Yale’s role as a shareholder ought to be,” Simon said. “There had not been any serious discussion or debate at Yale previously about its role as an investor, except that Yale generally stayed out of political issues.”

Provost Benjamin Polak described the book as a “touchstone” for Yale: a “simple and transparent” standard to ensure that the University investment policy remains consistent with its mission.

In many ways, the endowment is the lifeblood of the University. Annual returns from its investments help fund research, support scholarship and, more generally, maintain the University’s independent status as a private organization.

But four decades after the Yale Corporation’s adoption of the guidelines articulated in “The Ethical Investor” — when the University endowment stood at roughly half a billion dollars — the debate over the total purpose of the Yale endowment remains far from resolved.

If anything, the responsibilities that Yale must assume with its investments have only become more emotional and political. While the University’s endowment stands at a historic, nominal high of $23.9 billion, protests for divestment from fossil fuel companies, for instance, resulted in the citation of 19 Yale students last week.

Many students and activists argue that Yale’s endowment is a tool to be leveraged for social or political change. Others, however, maintain that it is a financial resource, plain and simple, with the sole purpose of supporting the academic mission of the University.

But perhaps, the true function of Yale’s endowment actually falls somewhere in between.


When William Jarvis ’77 entered Yale in 1973, one year after the publication of “The Ethical Investor,” the size of and focus on the University’s endowment were quite limited. But after 40 years of growth that has consistently outpaced inflation, Jarvis said the importance of the endowment — and the function it has come to serve in funding education — has grown accordingly.

“These are very visible piles of money,” said Jarvis, who serves as managing director of the Commonfund Institute, an institutional investment firm. “[The endowment is] performing a function that is much more visible than even 10 to 15 years ago.”

According to Yale’s Fiscal 2014 Endowment Report, spending from the endowment to support the University’s operating budget grew from $502 million to $1.0 billion over the past decade. But despite popular conception, this sum of money is not an “undifferentiated honey pot” that the University can dip into whenever it needs some cash, Jarvis said.

In fact, nearly 84 percent of the Yale endowment is restricted in gifts specified by donors to provide long-term funding for designated purposes, which range from financing professorships, endowing fellowships and prizes or supporting scholarships for students. If the University were to make investments based not on purely financial parameters but on a moral rationale instead, Jarvis said, the University would not be respecting donors’ original intents to simply maximize returns for the overall benefit of the institution.

“The point is that the endowment is a contract of the past with the future,” Jarvis said. “And that contract is the contract between the donors who trusted the University to take their hard-earned financial asset and to carry it forward with a purpose in perpetuity.”

According to Christianna Wood, president and chief executive officer of Gore Creek Capital Ltd and a trustee of Vassar College, a university’s endowment should only be defined through the financial responsibilities of its “fiduciaries,” members of the board who are entrusted by the university to protect and grow the institution’s assets.

“I don’t know any governing document of an endowment in any university that says, we are here to use the endowment to advocate for social change,” Wood said. “I have never seen that.”

Even Jon Gunnemann GRD ’75, another co-author of “The Ethical Investor” and a retired social ethics professor at Emory University, said the Yale endowment cannot and should not be used as a tool to influence political issues — even if those causes are praiseworthy and commendable.

Gunnemann said using the endowment to serve a social agenda would require getting all alumni donors  to agree about what issues are consistent with the mission of Yale.

“The endowment is to support the educational goals of the University and not to be used as a social weapon,” Gunnemann said.


But in recent years, there has been growing momentum to expand the scope of what institutions must consider in their investment policy. Activists and outside experts have called upon colleges and universities to use their financial weight to influence social, political and increasingly, environmental matters.

According to the last survey of the Commonfund Institute on the topic in 2013, 18 percent of the 831 responding institutions of higher education participated in environmental, social and governance investing. This approach involves integrating one of these three factors into their investment analyses. And the number of universities engaging in socially responsible investing has only risen over the past three years, experts said. From 2010 to 2012, assets managed under sustainable and responsible investing principles grew by approximately 22 percent from the $3.07 trillion reported in 2010, the Commonfund Study wrote.

The Intentional Endowments Network, which urges schools and other mission-driven organizations to consider the societal ramifications of their investments, is one such organization that has been pushing for schools to redefine the policies guiding their investment principles, particularly in regards to issues of sustainability.

“We felt that higher education should be a model for society in every aspect, and that, to me, includes how they invest their money,” said Tony Cortese, principal of the Intentional Endowments Network. “It is not just what they learn in the classroom, but what you learn as a member of the community at Yale — how the university purchases, how it operates its campus, how it manages all of its buildings, how it works with the local community and how it invests — these are very important parts of an educational strategy for producing the whole citizen.”

He said those who argue that universities should not consider ethical or political factors when investing are using inverted logic. Rather, not paying attention to the social impact of an investment is, in and of itself, a political statement in support of the status quo, Cortese added.

Other experts have also begun to employ the legal argument to justify this more progressive approach to endowment management.

According to Dan Apfel, former executive director of the Responsible Endowments Coalition, universities are held to a higher ethical standard than corporations because their nonprofit status exempts them from federal income tax.

“The primary mission of the school is how an endowment should be managed, as well as with the social purpose given to the school by its charitable status,” Apfel said. “So institutions have a charitable obligation to have a social purpose … and the endowment is purely a tool to allow them to accomplish this.”

Stephen Heintz ’74, president of the Rockefeller Brothers Fund, said every major nonprofit — whether a hospital, museum, foundation or a university — must use its position to serve as a leader in social development.

Heintz and two heirs of the Rockefeller family, Valerie Rockefeller Wayne and Steven Rockefeller, made headlines in the fall when they announced the foundation would divest their $860 million fund from the fossil fuel industry, a symbolic gesture given that John D. Rockefeller created the Standard Oil empire.

“These institutions have missions that are specific in nature and not just economic, and in fact, not even primarily economic — they are primarily civic in the broad use of that term,” Heintz said. “Saying that I am only going to invest in those things that are giving me the short term economic benefit I am looking for, and not looking at the consequences of how I am investing — I think that is hypocritical.”


But defining which investments fall outside Yale’s mission has often raised more questions than answers.

Last Friday, Simon turned to page 171 of “The Ethical Investor” and read aloud the definition of “social injury” — the heart of Yale’s approach to delineating the “good” investments from the “bad.”

“Social injury is the injurious impact which the activities of a company are found to have on consumers, employees or other persons,” Simon read.

In other words, the University carries a moral obligation to avoid any investments that perpetuate such activities as “the deprivation of health, safety or basic freedom,” he added. The book listed some types of investments that fell into the category of “social injury,” including companies that “manufactured napalm” or “failed to hire or house blacks.” These examples are outdated or, at the very least, uncontested.

But over the past four decades, other causes have come to test the very definition — and more importantly, Yale’s willingness to adhere to it.

During the mid-1980s, for example, Yale students invoked “The Ethical Investor” to argue that the University must withdraw its shares in companies that operated in apartheid South Africa.

This movement has often been heralded as a model for campus divestment movements, since students used a combination of administrative persuasion and protest tactics, including the construction of shantytowns on Beinecke Plaza, to achieve limited success. By the early 1990s, the University had divested its shares in 17 companies doing business in South Africa, representing a total market value of approximately $23 million.

But more than the specific arguments in favor of or against divesting from South Africa, it was the University’s view on the role of the endowment that presented an obstacle to the movement, said Matthew Countryman ’86, one of the students involved in the movement.

Countryman recalled that following a debate over divestment from South Africa, Yale’s Chief Investment Officer David Swensen argued that there should be no politics involved in the University’s investments in foreign countries.

“I responded that all foreign investments are political interventions,” Countryman said. “What distinguishes an educational institution from other investors is precisely these ethical questions.”

However, Swensen denied that he said any remark that indicated opposition to divestment from companies with business in South Africa.

“I fully supported Yale’s policy, which included intensive corporate engagement and divestment when companies failed to meet Yale’s standards,” Swensen wrote in an email.

Since the anti-apartheid divestment movement, activists challenging Yale’s investments in the tobacco industry in the 1990s and investments in Sudan in the early 2000s have also cited the language of “The Ethical Investor,” forcing the University to grapple with these guidelines in practice.

Eric Bloom ’08, a former co-chair of the Yale chapter of Students Taking Action Now: Darfur, said many students, faculty and administrators recognized that Yale’s investments in South Sudanese firms were in clear contradiction to the core values of the University.

Though both the apartheid and Sudan divestment movements ultimately saw a degree of success, the University administration and its Corporation Committee on Investor Responsibility, Yale’s highest body on policy matters related to ethical investing, are now facing a new challenge.


On Thursday morning, 48 students from Fossil Free Yale burst through the doors of Woodbridge Hall, the seat of the Yale administration, and staged a daylong sit-in.

At 5 p.m., University Secretary and Vice President for Student Life Kimberly Goff-Crews stood before the group of students sitting in the marble foyer of the building, flanked by portraits of long-gone University leaders and other historical figures.

Silence fell over the room as Goff-Crews pulled out a sheet of paper and read the prepared statement on behalf of the University. In addition to urging students to vacate the building and reassuring that the University respected their right to free expression, she once again reminded students about the standard in which their demands would be considered.

“The principles established in ‘The Ethical Investor’ provide a guidepost for the consideration of arguments,” Goff-Crews told protesters. “[That] includes any new arguments in favor of divestment.”

However, the debate about fossil fuel divestment has raised the stakes of the University investment policy.

Stephen Mulkey, president of Unity College, the first institution of higher education to divest its endowment from fossil fuels, said issues of climate change are in a separate moral category, the gravity of which makes divesting from South Africa seem like “small potatoes.”

“I don’t care what your institution of higher education is all about — your mission in an ultimate sense is the maintenance and renewal of civilization,” Mulkey said. “The problem with fossil fuel companies is — either intentionally or not — they have a business model that includes the destruction of civilization, and there is no way to put lipstick on that pig.”

But the University has countered that unlike past calls for divestment for humanitarian reasons, which have had a clear connection to the violation of human rights, fossil fuel companies still “remain essential to some degree.”

“In order to justify taking action against a company, Yale’s policy requires that the targeted company be causing social injury, and in the case of divestment, grave social injury, through its actions,” the CCIR stated in its August announcement. “The buildup of atmospheric [greenhouse gases] through fossil fuels use is caused by the combustion of fossil fuels, not by … bringing fuel to market.”

Still, the University conceded that climate change was a “critical challenge” and warranted using the endowment in some way to pressure change in corporate behavior.

Most notably, Swensen sent a letter in September to all of Yale’s active external money managers urging them to consider the consequences of climate change in their investment decisions.

This act alone, said Bennett Freeman, senior vice president for sustainability research and policy at Calvert Investments, demonstrated Yale’s willingness to expand the traditional definition of how the endowment can be used to address broader social problems.

In September, Swensen told the News he believed the letter was based on economic principles and would affect the University’s portfolio in a much more nuanced way than divesting from fossil fuels would. Over the long run, Swensen added, the letter will help move the University’s assets away from firms with higher greenhouse gas emissions. While not explicitly promoting divestment, Swensen said the letter may have a similar effect on the endowment.

“It was motivated from the right thing to do from an investment perspective,” he said at the time. “The bottom line is that if Yale’s managers do not act in a manner that is consistent with the University’s goals, Yale will terminate the relationship.”


In 1972, then-Yale President Kingman Brewster said the endowment must balance “the terrible tension at the moment between the imperative of University neutrality and the imperative of University morality.”

But in the 40 years since he uttered those words, this particular tension has extended far beyond “the moment” and even beyond the bounds of Yale’s investment policy.

“In many ways, endowments have changed dramatically over the last 100 years; they were nothing on the scale to the institution as they are today,” Apfel said.

Apfel added that as the size of endowments continues to expand, the scope of the endowments’ responsibilities will grow as well.

Still, others argue that the Yale endowment should remain in its capacity as a financial asset to be invested for greatest return. Allowing ethical considerations to supersede investment decisions could cost the University.

“This is where these notions that … endowments should be a different thing really bumps up against the hard facts,” Jarvis said. “If donors feel that the future is going to mess with their intent, they aren’t going to give.”

And even some former student divestment activists were hesitant to label the Yale endowment as a tool to be wielded for social or political change.

Bloom said the endowment’s purpose should be largely focused on financial considerations.

“There are funds out there specifically focused on social impact or social responsibility, and the Yale endowment is not one of those,” he said.

Simon, however, reflecting on the impact of “The Ethical Investor,” conceded that there will never be consensus on how the University endowment ought to be managed. The governing guidelines for the Yale endowment are unique because they were structured to be open for interpretation to acknowledge that “legitimate competing considerations” exist on this issue, Simon said. Yale should not wield its financial assets as a political instrument, but it also should not ignore the ethical implications of its investments, he added.

“The whole point is that yes, we are not doing the proactive thing to change the world with our endowment,” Simon said. “But when we are sitting there with something that stinks, we should do something about it.”

Correction, April 15

Due to an editing error, a previous version of this article mistakenly omitted several words in David Swensen’s quote on Yale’s relationship with its external money managers.

  • td2016

    More dreadful, empty reporting from the YDN. There is not even a note that any effort was made to contact the Yale investment office for comment.

    David Swensen has articulated carefully his reasons for opposing the ill conceived divestment movement. But this article does not report those reasons or attempt to address a single one of them. Without understanding those reasons and Swensen’s thinking on this matter, it is not possible to understand the meaning and significance of his letter to the university’s outside investment managers. Yet this article attempts to make much of Swensen’s letter without any coherent understanding of his reasons and its meaning. Instead we get input from the likes of Bennett Freeman, whose claim to fame and meaningful accomplishments are exactly what? It’s all really appalling. To say the reasoning in this article is junk food for the mind would be unfair to Twinkies and Ho-Hos.

    The basic facts are that David Swensen is far more talented, insightful and knowledgeable than the author of this article, and disagrees for principled and cogent reasons with the author’s views expressed here in rambling, bad prose not meeting basic journalistic standards. The author’s attempt to mask the intellectual poverty of his thinking with a rehearsal of unconfirmed claims that Swensen disapproved divestment from South African companies is an irrelevant distraction, a creepy attempt by a reporter of little apparent understanding to delegitimize (a fancy word for “smear”) with unsubstantiated allegations that would be irrelevant even if they WERE substantiated.

    One should also note that while Kingman Brewster had many admirable qualities and aspirations, management of the university’s finances by Brewster and his appointees was absolutely dreadful, as even a cursory review of the endowment’s performance and Yale’s deficit-plagued budgets during his term reveals. Of course, the author of this article could not be bothered to actually review the relevant facts and financial history. He’s too busy pontificating. Reviewing economic facts and history is a job for boring professionals looking for actual and meaningful investment correlations … such as David Swensen, who does an awful lot of that.

    • Guest

      I think I may have a little crush on you, intellectually speaking, of course.

    • Veronica

      Firstly, it is unnecessary to attack the author of the piece. And secondly, the investment office’s motivation behind not divesting is to make more money. That’s it! Yale is very comfortable profiting from the destruction of the environment and the social issues that come along with it — that is problematic.

      • td2016

        As usual, your writing is shallow, wrong and marked by mere irritable pique. Contrary to your reductive and erroneous denial, Swensen has articulated cogent and well reasoned bases for rejecting divestment. You and FFY (but I repeat myself) continue to mindlessly (and, in the case of your comment, expressly) deny the very existence of his articulation. But simply ignoring what those who disagree with you have to say, and even denying that they have spoken, is antirational.

        That this reporter has here perpetrated a bad article, both poorly reasoned and written, is an entirely appropriate comment, regardless of whatever diktat you choose to issue about what is or isn’t “necessary.” And I have NOT attacked the author of this piece. I have instead criticized his grossly deficient writing, reasoning and research. Your insistence otherwise is another thuggish attempt to shut down legitimate dialogue. You seek to cast the author and yourself as victims of injustice, but as has been said: Injustice is relatively easy to bear; what stings is justice. Yours is the cry from such a sting.

        • Veronica

          there is no more hope for this world

          • td2016

            Shallow, wrong and marked by mere irritable pique again.

        • carl

          Yale is tax-exempt because it serves a public purpose. It is perfectly fair to ask Yale, as it benefits from tax exemption, to broaden its view of its public purpose, and to suggest that it invest with environmental sustainability in mind.

          Such a broadening would also be in Yale’s self-interest. Last time I checked, New Haven was quite close to a shoreline.

          • td2016

            So tax exemption applies only to entities that have a public purpose? Thanks for explaining that to me. Who knew? Here I was thinking that private charities are tax exempt because they have private charitable purposes. Thank goodness you set me straight. Thanks to your explanation I now know that churches, synagogues, mosques and temples, for example, are tax exempt because they have “public purposes.” Are the Episcopal or Congregational Churches now again arms of the state or do they just serve its purposes? Does the ישיבה גדולה near you pay no taxes because it’s important to Connecticut that people read the Talmud? Is the Pope investing the next president? When was the First Amendment repealed?

            And now we get the disconnect “Yale is tax exempt implies Yale should divest.” I would question the reasoning here, but no actual reasoning is even involved! It’s just “perfectly fair” and has something to do with the university being close to the water (the last time you looked). Or is it “Yale has a public purpose (whatever that is) implies Yale should divest?”

            One of the more amusing aspects of the divestment movement is the way its justifications keep moving around as each one is shown to be inapprpropriate or inadequate or downright perverse. The movement is like Groucho but without the self awareness: “Those are my principles, and if you don’t like them… well, I have others.” Hey, is FFY really a troupe of stand-up comedians? Am I the only one not in on the joke? I hate it when that happens!

          • td2016

            The most common type of tax-exempt nonprofit organization falls under category 501(c)(3), whereby a nonprofit organization is exempt from federal income tax if its activities have the following purposes: charitable, religious, educational, scientific, literary, testing for public safety, fostering amateur sports competition, or preventing cruelty to children or animals.

      • benevolentfascist

        “…the investment office’s motivation behind not divesting is to make more money.”

        Yale is not a hedge fund. It is not owned by individuals who might profit from the returns on its endowment. There are no profits being accumulated by any private person. The only individuals in line to benefit from the health of the endowment are undergraduates who rely on it for their financial aid and academic and extracurricular opportunities, graduate students who rely on it for their stipends, professors who rely on it for their salary, and administrators and staff who work to keep the university running smoothly (as it has, more so than many of its peers, over the past twenty five years).

        If you see investment in fossil fuels as unethical, call for divestment as you wish, but don’t characterize investment in fossil fuels as a petty money-making scheme – Swensen and Takahashi do it for YOU.

    • carl

      Speaking of “relevant facts and financial history,” Kingman Brewster was President of Yale from 1963 to 1977. During the 1970s–the years of “stagflation”–there was probably not a university in the country that wasn’t running deficits and suffering from bad endowment performance.

      A “cursory review” of “financial history” would show that the S&P 500 returned -15% in 1973 and -26 percent in 1974. That’s worse than the -37% in 2008.

      • Nancy Morris

        By any measure Yale lost considerable ground relative to its peers during Brewster’s term, which even a cursory review of the relevant financial history easily discloses. Your fulminations won’t change that fact. That the whole country was badly managed in that era also doesn’t change the fact.

        • carl

          “[T]he whole country was badly managed.”

          No, the whole country was subject to the same macroeconomic conditions. There’s a difference.

          • td2016

            O, yes, and that “difference” supports your defense of Brewster exactly how?

            And, by the way, the country WAS badly managed in the period in question.

  • ShadrachSmith

    These AGW warriors must assume extralegal control over other people’s property because any Social Justice Warrior who sets out to control other people’s lives will soon face the alternative of either using extralegal and dictatorial coercion or abandoning her plans, so the AGW warriors must to choose between disregard of existing laws and ordinary morals or failure…ht, Hayek

  • DopamineIsGood

    Comparing apartheid and fossil fuels is ridiculous. One is a blatant human rights violation, another is a necessarily component in energy generation. I agree that we must do whatever we can to preserve the environment, but as of right now, fossil fuels are an essential component in society today. Everyone uses it.

    People who call for Yale’s divestment in fossil fuels are nothing but hypocrites. Why don’t you lead by example and stop using fossil fuels in your daily life then?

  • Nancy Morris

    The political steam is escaping from the Global Warming balloon despite all the increasingly aggressive, frantic and downright hysterical gestures of FFY and the rest of the “Divest” crowd, gestures that bear an increasing resemblance to Bluto Blutarsky’s determination to do “some really stupid” in Animal House. It’s time for a alarm over new collective threat to all humanity demanding some vague but ultra-expensive and likely ineffective “preparation” measures and “remediation” must be next! So, how about volcanoes? After all, the science is settled!


    The billions a year suggested is just the earnest or seed money. The first thing we need to do is spend $1 Trillion to hire a whole bunch of UN directed pseudo-scientists to determine what we need to do! Then, of course, we’ll need lots more government power and spending.

    Then, of course, we will need a vastly expanded community of academic volcanologists to spread the alarms and protest that notwithstanding their funding coming ENTIRELY in the form of politicized government grants that would not be available if volcanoes pose no real extraordinary risk, there is no reason to suspect their research is plagued by conflicts of interests. The mere fact that all serious predictions of these “scientists” are all incorrect will not be allowed to undermine their credibility. They will simply be allows to modify their models retroactively and continue to claim they were right all along.

    These are just the basics. No doubt the details will be much more expensive.

    Yes, the shallow and shortsighted deniers among us will argue that the volcanic activity that likely triggered the Permian extinction is not likely to be reproduced by current continental configurations for another 300 million years. But recent research has disclosed that volcano caused the Little Ice Age. Krakatoa caused significant global cooling and crop failures. Those weren’t even big volcanoes in the scheme of things. Yosemite is actually one huge supervolcano, and it is overdue for an eruption. Supervolcanos in the past were causes of major global catastrophes. It’s obviously time to prepare NOW, and the corrupt capitalist system is insensitive to the NEED!

    The emergent “Prepare for Volcanoes” movement already has a catchy, jaunty theme song whose lyrics (such as they are) properly emphasize our collective want of preparation for the looming catastrophe:

    Volcano Jimmy Buffett – YouTube

    Yes, this Prepare for Volcanoes movement has all the trappings of the Next Big Thing. In what seems like a moment, idiot college students everywhere will no doubt be complaining that no one is listening to their heart-felt cries, and occupying this or that administration building where they don’t belong or blocking some public thruway – all to to draw our attention to the urgency. That desperate student activity, of course, will be a sure sign that it’s time to move on to whatever constitutes the post-Prepare-for-Volcanoes urgency.

  • Joo Song

    The people who are most vocal about divestment are often also the most uninformed about what the Yale endowment actually is. The Yale endowment is a fund of funds – which means that it does not invest directly in stocks, but rather in hedge funds and other asset managers. So it can’t really divest from any companies unless it withdraws it assets from funds that invest in fossil fuels, which comprise a significant chunk of the endowment. Divestment would have a severely negative impact on returns – which, by the way, support Yale’s financial aid programs.

    You can have divestment, or you can have financial aid, but you can’t have the best of both worlds. People need to grow up and realize that the world works because resources are scarce and sacrifices need to be made. It’s basic economics.