Concept of “Social Injury”
At the heart of The Ethical Investor’s approach to institutional investor responsibility is the concept of social injury. As defined in the “Suggested Guidelines for the Consideration of Factors Other than Maximum Return in the Management of the University’s Investments” contained in the The Ethical Investor (the “Guidelines”), “social injury” means “the injurious impact which the activities of a company are found to have on consumers, employees, or other persons, particularly including activities which violate, or frustrate the enforcement of, rules of domestic or international law intended to protect individuals against deprivation of health, safety, or basic freedoms; for purposes of these Guidelines, social injury shall not consist of doing business with other companies which are themselves engaged in socially injurious activities.”
Guidelines for the Voting of Shares
With respect to the exercise of voting rights, the university relies on the Guidelines, which provide, in relevant part:
A more detailed summary of Yale’s approach to proxy voting as it relates to social issues can be found at the Annual Report page.
CCIR Statement on Proxy Resolutions
Guidelines for the Divestment of Shares
With respect to divestment, the Guidelines provide that:
“Notwithstanding a finding of social injury or grave social injury – a) The university will not exercise its shareholder rights under the foregoing paragraphs, but will instead sell the securities in question, if a finding is made that … (i) it is unlikely that, within a reasonable period of time, the exercise of shareholder rights by the university (together with any action taken by others) will succeed in modifying the company’s activities sufficiently to eliminate at least that aspect of social injury which is grave in character …”
Not all findings of social injury or grave social injury give rise to immediate shareholder engagement and/or divestment. The Guidelines go on to provide:
“Notwithstanding a finding of social injury or grave social injury …
b) If a finding is made that correction of such social injury will impose a serious competitive disadvantage on the company involved (in relation to other companies in the same industry which cause similar social injury), the university will defer taking shareholder action to compel the company to correct the social injury on a unilateral basis until the university has determined that it will not be possible for it or others to induce the management of the company to bring about industrywide corrective action within the constraints, if any, imposed by the antitrust laws.
c) If a finding is made that correction of such social injury cannot reasonably and appropriately be undertaken by company or industrywide action, as compared to government action, the university will not exercise its shareholder rights under the foregoing paragraphs except to communicate with the management of the company to urge it to seek necessary action from the appropriate government agencies.
d) If a finding is made that, because of extraordinary circumstances, university action otherwise indicated under these Guidelines is likely to impair the capacity of the university to carry out its educational mission (for example, by causing adverse action on the part of governmental or other external agencies or groups, or by causing deep divisions within the university community), then the university will not take such action.”
In 1978, the Yale Board of Trustees adopted a policy on investing in companies doing business in South Africa. In subsequent years, Yale engaged scores of companies in dialogue about their responsibilities in the country. When company actions were incompatible with university policy, Yale sold its shares. From 1978 through 1994, Yale divested shares of 17 companies doing business in South Africa, representing a total market value of approximately $23 million. In February 1994, recognizing the positive changes occurring in the country, the Yale Board of Trustees lifted all investment restrictions.
- Embody effective controls on the distribution and marketing of tobacco products to minors
- Contain appropriate restrictions on, and regulation of, the distribution and marketing of tobacco products overseas
- Encourage public education regarding the risks of consuming tobacco products
In 1996, the Corporation Committee on Investor Responsibility voted to supplement the instructions provided to the Advisory Committee on Investor Responsibility in February 1994, by instructing the Advisory Committee on Investor Responsibility to vote, additionally, in favor of well-constructed proxy resolutions which:
- Call upon tobacco companies to place health warnings about the dangers of addiction, disease and death caused by smoking on all advertising and promotional items for tobacco products distributed throughout the world
- Request companies to cease advertising tobacco products to minors, including all uses of the company’s brand names and associated symbols for sponsorships; (c) request tobacco companies to support enforcement mechanisms at all governmental levels to prevent illegal sales of tobacco products to minors
- Request tobacco companies to take actions designed to reduce the health risks to minors
- Call upon tobacco companies to report publicly accurate information relating to the ingredients of their products that have probable adverse health effects
Private Investments and Ethical Oversight
In 2002, the ACIR and the Yale Investments Office took up the issue of ethical oversight of private investments. Applying existing policies to private holdings posed a challenge, because the shareholder resolution activity of the ACIR had no analog in private investment holdings. In the realm of private assets, where corporate control rests with a highly concentrated investment group, shareholder resolutions do not exist.
“When the Yale Corporation, upon recommendation of the Corporation Committee on Investor Responsibility after its consultation with the Advisory Committee on Investor Responsibility, adopts policies regarding ethical investing, those policies will apply to both public and private investments. In the event that the Corporation concludes that Yale’s private investment managers have engaged in socially injurious activity, the University will fashion an appropriate remedy including use of voice, disassociation from the offending investment manager, and, as a last resort, disposition of the tainted partnership interests.”
On January 31, 2006, the ACIR presented a report to the CCIR regarding its findings and recommending a policy of divestment. In February 2006, the Yale Board of Trustees voted unanimously to divest from seven oil and gas companies operating in Sudan, as well as from obligations of the Sudanese government. On February 23, 2013, Yale’s divestment policy was clarified to align with the policy of the U.S. and the international community to support the independence of South Sudan. Click here to read more about Sudan Divestment.
On August 27, 2014, the CCIR issued a public statement on climate change, which incorporated new proxy voting guidelines for implementation by the ACIR. Specifically, the guideline provides:
Yale will generally support reasonable and well-constructed shareholder resolutions seeking company disclosure of greenhouse gas emissions, analyses of the impact of climate change on a company’s business activities, strategies designed to reduce the company’s long-term impact on the global climate, and company support of sound and effective governmental policies on climate change.”
In June 2018, the Yale Board of Trustees adopted the following proxy guidelines for issues relating to private prisons which were drafted by the ACIR and endorsed by the CCIR:
Yale will support reasonable, and well-constructed shareholder resolutions related to improvements in the corporate social responsibility of private prisons. Examples of resolutions that would be supported in the future include those seeking disclosure by private prison companies of their political contributions and lobbying activities and the use of contracts with private prison companies that contain incentives based on objective measures of performance such as lower recidivism rates. Other resolutions that would be supported relate to efforts to reduce prisoner rape and sexual abuse and efforts to reduce the high cost of phone calls made by prisoners at private prisons. The University also would support resolutions that request that the boards of directors of private prison companies obtain independent assessments of their success in reducing violence, use of force incidents, disciplinary and grievance systems, contraband, lockdowns and positive drug tests. These examples are meant to be illustrative and not comprehensive as it is not possible to anticipate precisely the full range of issues that might be presented for shareholder consideration in the future.”
Following an investigation by the ACIR, the CCIR recommended the adoption of a policy that the university not invest in any retail outlets that market and sell assault weapons to the general public. The Yale Board of Trustees adopted the policy in June 2018.
Fossil Fuel Investment Principles
In April 2021, the Yale Board of Trustees adopted principles to guide the university in applying its ethical investment policy to the fossil fuel industry. These principles were developed and proposed by the Committee on Fossil Fuel Investment Principles in its Report.
The ACIR will use these principles to identify fossil fuel producers that, upon approval of the CCIR, will be restricted from investment by Yale. The ACIR established a webform where members of the Yale community may make suggestions. The principles and the restricted list can be found here.
In October 2021, based on the recommendation of the ACIR, the Yale Board of Trustees adopted a policy making the two largest private prison operators, CoreCivic and GEO Group, ineligible for investment by Yale’s endowment. The CCIR’s statement can be found here.