The Dutch University Fund As Socially Responsible Investor: a Research Into Applied Strategies and Ethical Deliberations

The Dutch University Fund as Socially Responsible Investor: A Research into Applied Strategies and Ethical Deliberations

Tijn Melle Croon MSc Thesis in Political Economy (Political Science)

Graduate School of Social Sciences, University of Amsterdam, The Netherlands Under supervision of dr. R.J. Pistorius Second reader: dr. M. Parvizi Amineh June 22, 2018

Abstract The decline of public funding and the subsequent re-emergence of private capital flows towards Dutch universities confront policymakers with multiple dilemmas. This research explores the handling of the ‘fourth flow’, private donations to university funds that can be accumulated on the stock market. Investment could offer a structural complementary source of income, but at what costs? The theory of socially responsible investing (SRI) is therefore explored in this research, with special emphasis on the moral and practical considerations for university funds. It turns out that Dutch university funds prefer moral purity rather than moral effectiveness in their investment portfolios. The former implies the inclusion of companies that have a strong environmental and social governance (ESG) performance and the exclusion of harmful sectors and companies, while the latter implies a more activist approach. The activist approach translates into engagement and voting strategies, which are not applied due to various reasons. This research thus explores the deliberations that drive or dissuade Dutch university fund policymakers to apply SRI strategies. As institutional investors have a short-term perspective due to fiduciary requirements, university funds could have an impact as knowledge-based advocates of a long-term investment policy.

Keywords: Socially Responsible Investing (SRI), Environmental and Social Governance (ESG), Sustainability, Institutional Investors, Active Ownership, University Funds, Higher Education Funding.

Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Table of Contents

1 Introduction 4 2 Developments in the private funding of universities 6 2.1 History of Dutch higher education funding 7 2.2 Re-emergence of private funding in Dutch higher education 11 2.3 Dutch university funds as endowments or intermediaries 18 2.4 University endowment funds in the U.S. 21 2.5 Conclusion 23 3 Moral considerations for the university fund as socially responsible investor 24 3.1 Costs and benefits of ethical investment by universities 25 3.2 Position within financial discourse 28 3.3 Conclusion 31 4 Socially Responsible Investing (SRI) 32 4.1 Historical development of SRI approaches 33 4.2 Predominant SRI strategies 35 4.3 Policy, implementation and accountability 39 4.4 Financial performance of ESG funds 40 4.5 Conclusion 42 5 Methodology 43 5.1 Methodological approach 43 5.2 Case selection 45 5.3 Method of data collection 46 5.4 Ethical considerations 49 6 SRI strategies of Dutch university funds 49 6.1 Case studies into the application of SRI strategies 50 6.1.1 Stichting Leids Universiteits-Fonds 50 6.1.2 Stichting Erasmus Trustfonds 52 6.1.3 VUvereniging 54 6.1.4 Stichting Amsterdam Universiteitsfonds 57 6.1.5 Stichting Groninger Universiteitsfonds 59 6.1.6 Stichting Universiteitsfonds Limburg 62 6.2 Comparative analysis of applied SRI strategies 64 7 Practical and ethical deliberations on SRI strategies 67

2 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

7.1 General remarks on policy and accountability 67 7.2 ESG integration 68 7.3 Positive selection 70 7.4 Negative selection 71 7.5 Voting and engagement 73 8 Conclusion 74 Bibliography 76 Appendix 85

3 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

The Dutch University Fund as Socially Responsible Investor: A Research into Applied Strategies and Ethical Deliberations

Tijn Melle Croon MSc Thesis in Political Economy (Political Science)

10554785 – [email protected] Graduate School of Social Sciences, University of Amsterdam, The Netherlands Under supervision of dr. R.J. Pistorius Second reader: dr. M. Parvizi Amineh June 22, 2018

Keywords: Socially Responsible Investing (SRI), Environmental and Social Governance (ESG), Sustainability, Institutional Investors, Active Ownership, University Funds, Higher Education Funding.

1. Introduction

Socially Responsible Investing (SRI) has been on the rise for the past decades and this development changed policies within the corporate and public spheres (Sparkes, 2003). At present, not only credit risks are taken into consideration during due diligence processes, but

4 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

also risks with regard to Environmental and Social Governance (ESG). This is a promising prospect, since the norms and values of the financial sector have a gigantic impact on sustainable development (Jeucken, 2010). Institutional investors from the U.S. such as pension funds, churches and universities were pioneering this attempt to incorporate ethical demands into profitable funds. The endowment funds of American universities created SRI strategies that range from the exclusion of certain assets to the engagement with companies on issues regarding social, environmental and corporate governance performance. The theory of SRI may comprise a moral pre-eminence that is often challenged by noise traders, but rather hailed by the institutional asset managers that pursue long-term value creation (Sethi, 2005). Besides that, progressive universities might find it hard to turn a blind eye to the fact that their accumulation of capital is at the expense of the social good. Especially with conscious student organizations that have mobilized public and political outrage in the past and present, resulting in divestment from South-African companies in the 80s and a contemporary debate about fossil fuels (Grady-Benson & Sarathy, 2016). In the Netherlands, awareness campaigns on the financial impact of universities commonly focus on the partnerships with banks and pension funds.1 That is because the Minister of Education prohibited the publicly funded universities to invest in stocks from 2003 onward. However, this regulation does not apply to Dutch university funds that consist of donations and therefore have an independent legal status. These university funds are emerging, illustrated by the 25 million euros that the Erasmus Trustfonds raised last year (Van Calmthout, 2017). One of the aims of this thesis is to elaborate on the urgency of this private capital flow. Dutch universities traditionally receive public funding. Although the ambitions and performances of Dutch university funds have not yet been addressed in the academic literature, they might reflect a broader development in the funding of higher education. Huib Pols, rector of the Erasmus University, describes them as “a great gratuity at a time when the resources for universities are in decline as the subsidy per student is dropping” (Van Calmthout, 2017). Nevertheless, the primary aim of this thesis is to research whether the Dutch university funds are using SRI strategies in their asset management. In doing so, it contributes to an academic debate that is extensively set out in the book ‘The Sustainable University:

1 e.g. Christina Marigliano and Tim van Dijk from Fossil Free UvA encourage the University of Amsterdam to engage with its bank and pension fund regarding fossil fuel investments in the following article: https://www.folia.nl/opinie/109163/uva-stop-met-investeringen-in-fossiele-brandstoffen

5 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Green Goals and New Challenges for Higher Education Leaders’ by James Martin and James E. Samels (2012). One of the goals they set for universities, “greening the endowment”, corresponds perfectly with this research (Martin & Samels, 2012: 165-179). The editors acknowledge that universities are at the forefront of efforts to preserve the earth’s resources for future generations, and therefore provide effective and coherent guidance to administrators. SRI strategies could not only serve as an ethical minimum but also as visionary valorisation. It further tries to reflect on the cost-benefit analysis of Simon et al. (1972), and the utter relevance of their policy dilemma between ‘moral purity’ and ‘moral effectiveness’. It therefore tries to find the specific underlying deliberations of SRI strategies for Dutch university funds. The main question is thus as follows:

‘What deliberations drive or dissuade the policymakers of Dutch university funds to opt for an incorporation of SRI strategies in their asset management?’

The thesis is structured as followed. First, the historical developments of higher education funding in the Netherlands are described in the second chapter to give an in-depth background and to explain how Dutch university funds have become investors and why they become more active in the investment market. The third chapter then explores the moral considerations that investing universities should take in mind, with particular attention to the impactful role they could have. Subsequently, the fourth chapter expounds a theoretical framework on SRI approaches and strategies. The fifth chapter then explains the choice for a framework analysis and presents the case studies and data collection methods. In order to answer the main question, we have to answer several sub-questions. First, we have to find out what strategies are actually applied by the university funds: ‘What SRI strategies do Dutch university funds apply?’ This answer is given in chapter 6. Second, we have to analyse the underlying deliberations that support and discourage the policy choices. The supportive deliberations are an answer to this sub-question: ‘Why would policymakers of Dutch university funds opt for particular SRI strategies?’ The discouraging deliberations answer to the following sub-question: ‘Why would policymakers of Dutch university funds refute certain SRI strategies?’ These deliberations are analysed in chapter 7, so that we can answer the main question in the conclusion.

2. Developments in the private funding of universities

The academic community of the Netherlands has been dissatisfied with the declining public funds in the past decades. Professors are nostalgically pining for the 1970s when the Dutch

6 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

government appreciated the value of science and they could do their research independently and yet without financial concerns. At the same time, they feel hesitant about complementary funds from a private capital flow. But how new is this phenomenon of private university funds in the context of time? And are their similarities to the renowned endowment funds in the United States? The paragraph 2.1 thus describes where the post-war momentum of publicly funded higher education came from, and why it is gradually dwindling in the Netherlands. This clears the road for an analysis of the renewed focus of universities on the attraction and accumulation of capital in 2.2. The following paragraph 2.3 explains the difference between Dutch university funds that tend towards endowment funds or act as an intermediary between the donator or testator and the university. Finally, the emergence of Anglo-American university endowment funds is set out, focusing on the income and accumulation of their capital. This explanation is not only relevant because they were ‘early adaptors’ of SRI, but also because theory and interviews show they have set an example for the Dutch university funds. Margot van Sluis-Barten, director of the ‘Erasmus Trustfonds’, acknowledges “the concept was copied from the Anglo-American endowment funds” (personal communication, May 14, 2018). In addition, “the idea of private funded universities is American by nature”, according to the science editor of ‘de Volkskrant’, Martijn van Calmthout (personal communication, May 15, 2018).

2.1 History of Dutch higher education funding

In order to understand the historical background of the Dutch university funds, this paragraph briefly looks into the political and financial context of Dutch universities since their establishment.

Establishment of the first Dutch universities The government of the Netherlands was decentralized in the 16th and 17th century, and wealthy regents ruled the semi-autonomous provinces in the Dutch golden age. It was against this backdrop that the first universities were established. (Knegtmans, 2007: 412) The oldest university of the Netherlands in Leiden was founded by William of Orange in 1575 and initially funded by taxes imposed upon monasteries (Otterspeer, 2015: 44-45). Regents governing the provincial and city administrations financed the other universities that were

7 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

established in the beginning of the 17th century, in order to educate future merchants and leaders (Knegtmans, 2007). 2 On the second day of the Athenaeum Illustre’s inauguration in 1632, Casparus Barleus addressed the local merchants and advocated an eternal bond between merchants and scientists. 3 In this pledge he introduced the term ‘mercator sapiens’, by which he meant that a wise merchant would be well grounded in science (Van der Woude, 1967). According to Dr. Jochem Miggelbrink, historian and development manager of the ‘Amsterdams Universiteitsfonds’, the Dutch universities remained heavily reliant on grants from wealthy merchants in the subsequent centuries (personal communication, May 2, 2018).

Centralisation of the academic system in the Napoleonic era The Dutch political and economic context at the beginning of the 19th century was completely different from the golden age. King Louis Bonaparte, brother of the French emperor Napoleon, ruled a country that was beset by an ailing economy. His administration tried to transform the provincial universities into a centralised and hierarchical academic system. When the Netherlands was incorporated into the French empire, Napoleon planned to make the universities part of his ‘Université Impériale’. (Dorsman & Knegtmans, 2012: 17-23) During this process, two universities were shut down by decree (Dorsman & Knegtmans, 2012: 25-26).4 The continued existence of other universities, like the ‘Rijksuniversiteit Groningen’, was hanging by a thread (C.J. Jepma, personal communication, May 14, 2018). After the fall of Napoleon the Oranges came back to power, but the centralisation of the academic system went ahead and led to the ‘Organiek besluit’ in 1815. This ruling arranged the funding of the national academic system, which excluded technical education. (Otterspeer, 2015: 247) This exclusion accordingly affirmed the disparity between the aristocracy and the working class. Until the last quarter of the 19th century the Dutch academic system remained centralized and predominantly aimed at the education of the upper class. (Bank, Van Buuren, Braun & Draaisma, 2000: 265)

Segregation and political conflict at the end of the 19th century Abraham Kuyper, educated as a liberal minister, developed into the Dutch leader of the Neo- Calvinistic movement at the end of the 19th century. He established a newspaper and the first

2 The university of Groningen was established by the provincial government and the universities of Utrecht and Amsterdam were established by the city government (Knegtmans, 2007: 61). 3 At that time, the official name of the ‘Universiteit van Amsterdam’ was ‘Athenaeum Illustre’ (Knegtmans, 2007). 4 The universities of Franeker and Harderwijk (Dorsman & Knegtmans, 2012: 223-26)

8 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

political party of the Netherlands in the 1870s in order to successfully spread his faith (Bank et al., 2000: 37). 5 The Dutch society was at that time politically segregated and Kuyper saw the centralized universities as restrictive. He therefore dreamed of a Christian university in Amsterdam. Although the ‘Wet op het Hooger Onderwijs’ of 1876 ensured more resources for and an ease of access to the existing universities, it was still utterly impossible to receive public funding for a confessional university due to excessive requirements. (Dorsman & Knegtmans, 2012: 9) In the absence of public funding, the ‘Vereniging VU’ was established in 1878 in order to collect sufficient resources (D.B. Stadig, personal communication, May, 29, 2018). The liberal dominance in the central government eventually led to Kuyper’s decision to establish a private university named the ‘Vrije Universiteit’ in 1880 (Bank et al., 2000: 360). In the first decades of its existence, the Vrije Universiteit was still at the mercy of private contributions. The financial necessity resulted in a strong relationship between the university and its Protestant community, a relationship that had not existed before. (Flipse, 2012: 69-70). At the same time, the private university was in line with Kuyper’s political thinking. He later argued as the Dutch prime minister that the government should rather support private universities than establish or support public universities (Flipse, 2012: 71-72). Kuyper looked with admiration to American universities as Harvard and Penn, as they flourished due to private funding.6 He deplored the inability of Dutch universities to collect donations from the wealthy upper class, with exception of his Vrije Universiteit and the municipal ‘Universiteit van Amsterdam’. 7 Kuyper envisioned a future in which universities would stand on their own feet. Nevertheless, he recognized the change of culture that such a policy would imply, and the consequent political unwillingness. (Flipse, 2012: 72) He therefore introduced legislation to provide his Vrije Universiteit effectus filis, meaning public funding (Bank et al., 2000: 362). However, this did not end the heated political debate

5 The newspaper was called ‘De Standaard’ and was established in 1972 (Bank et al., 2000: 66). The ARP or ‘Anti-revolutionaire Partij’ was established in 1878 (Bank et al., 2000: 39). 6 Handelingen Tweede Kamer 1903-1904 24 februari 1904, available at http://resolver.kb.nl/resolve?urn=sgd%3Ampeg21%3A19031904%3A0000248 7 Kuyper noted that the sponsors of the Universiteit van Amsterdam had another motive than an intrinsic believe in higher education, as they made donations because of urban chauvinism (Flipse, 2012: 72). The Amsterdams Universiteitsfonds, ‘Leids Universiteits Fonds’ and ‘Groninger Universiteitsfonds’ were all established at the end of the 19th century. In the case of the last, it was a group of professors that feared declining public funds and therefore created a fund that could protect their university from political developments in The Hague (C.J. Jepma, personal communication, May 14, 2018).

9 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

on the funding and independence of Dutch higher education, which was part and parcel of the segregation or ‘pillarization’ at the turn of this century (Baggen, 1998). The private foundation of the Vrije Universiteit has always continued to be a part of the university’s identity, as well as the fundraising activities amongst alumni and the Protestant community (D.B. Stadig, personal communication, May 29, 2018).

State-centred governing arrangements in the 1970s and 1980s The public funding of universities quickly increased after the Second World War, hand in hand with the student populations.8 Higher education started to be regarded as a national affair and a public good in the Netherlands, which explains the minor role of private education – or private funding – in the 1960s and 1970s. (De Boer, Enders & Leisyte, 2007: 28) Social elevation of the working class was in the spirit of this age, and subsequent Dutch administrations opted for the ‘Rhineland model’ rather than the Anglo-American model that is explained in 2.4. This meant that “solidarity was preferable to individualism” and “craftsmanship played a central role”.9 (Van der Wal, 2012: 149) The idea of a strong state and a strong academic community was evident, and resulted in academic self-governance with regard to the research content and state regulation with regard to the non-academic matters (De Boer, Enders & Leisyte, 2007: 29). The strong influence by state regulation had paved the way to the university for many underprivileged youths, but there was a downside to this idealism. The public expenditures went up rapidly, and retrenchment policies hardly contained the costs (De Boer, Enders & Leisyte, 2007: 29). The costs of the new laboratories and libraries “rose to dizzing heights”, with as consequence that “each budget exploded” (Baggen, 1998: 8). During the first half of the eighties, state-centred governing arrangements came under pressure, and the political tide shifted to another perspective (Bovens & Witteveen, 1985). There was less faith in the governing capabilities of the academic community, which would lack “corporate rationality” (Neave & Van Vught, 1991: 242).

8 The student numbers went up from 25.000 in 1950 to nearly 190.000 in 2003 (De Boer et al., 2007:29). 9 The general focus on equality led to a small variety in quality among Dutch universities, contrary to Anglo-American universities, and league tables had therefore not existed until recently (De Boer et al., 2007:28).

10 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

New Public Management and cutting of costs The state-centred governing arrangements started to change around 1985, when the government introduced ‘steering at a distance’ as a new way of governance. The government tried to reform the system into a performance-driven and demand-driven network, strengthening “institutional leadership and managerial technologies in the higher education sector”. (De Boer, Enders & Leisyte, 2007: 30) It seemed the state-centred governing arrangements that had channelled the Dutch universities for decades were at their wit’s end, and New Public Management was the new standard. Just like other European governments, the Dutch government was inspired by the Anglo-American countries and started to stimulate privatization and New Public Management strategies in higher education (Pérez-Esparrells & Torre, 2012: 55). The government thus started to demand more efficiency from the Dutch universities, and in the following decades public funding would lag behind in comparison with the growing student populations.10 Endowment funds of an Anglo-American size remained an exception in Western Europe, where public funding continued to be “the principal source of finance for teaching and research” (Salmi, 2009: 23). The budget cuts in relative terms however did increase awareness that other flows of funds, corporate and private capital, would be necessary to complement the first flow of funds, public funding.11 The next paragraph elaborates on the other flows of funds, particularly the fourth flow, and how universities organized their development strategies.

2.2 Re-emergence of private funding in Dutch higher education

It came forward in paragraph 2.1 that private funding of Dutch universities is not an entirely new concept, but largely disappeared after the Second World War. The government subsequently experienced an increase of public expenditures and started to cut costs at the end of the 20th century, demanding more efficiency from the universities. This paragraph looks into the developments in the 21st century, from the stimulation of the second, third and fourth

10 The university population increased by 54%in the period from 2000 to 2015, while the public funding only grew with 12 percent. (Van Dijck & Van Saarloos, 2017: 53) As a result, the Dutch subsidy per student dropped from €19.900 in 2000 to €15.000 in 2016 (VSNU, 2018). 11 This thesis is not aiming to deliver a normative stance on the desirability of a third flow of funds towards universities, although it is wise to point out that there has evolved a lively academic debate in this respect (Bernabela et al., 2015).

11 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

flow of funds to a renewed effort from Dutch universities to attract and accumulate private capital.

Stimulating the second, third and fourth flows of funds to universities While we are already familiar with the first flow of funds, direct public funding from the Ministry of Education, Culture and Science, there are three more flows to explore. The second flow of funds represents the competitive allocation of funds from independent public organisations.12 Because an organization such as the NWO has a ‘top sector policy’, it means technical, medical and beta sciences receive relatively more funds from the second flow than the humanities. 13 Researchers from the Rathenau Institute concluded in 2016 that the increase of EU funds and associated increase of ‘matching pressure’ are becoming of greater importance for universities, and that these developments are causing more competition between universities.14 (Koier, Van der Meulen, Horlings & Belder, 2016: 29-35) The third flow of funds, contract research, also increases the competitive element of research (Van Dijck & Van Saarloos, 2017: 54). It is often provided by private institutions, but governments, the EU and NGOs can also contribute to the third flow of funds. The vast majority of this contract research is project-based. It therefore brings in market elements, and signifies a commercial choice of research topics. The Anglo-American countries were pioneers of the third flow of funds, resulting in various joint ventures.15 In the Netherlands, the third flow of funds has grown significantly in the past decades.16 (Kojer, Van der Meulen, Horlings & Belder, 2016: 35-37) The fourth flow of funds is a relatively new concept. It was introduced in 2005 in a report of recommendations to the Dutch cabinet.17 This report by ‘Innovatieplatform’, named ‘Geven voor weten: de vierde route’, suggested regulatory and fiscal policies to stimulate

12 Dutch examples are NWO, KNAW, ‘Technologiestichting STW’ and ZonMw (Koier et al., 2016:29). 13 The Netherlands Organisation for Scientific Research. 14 ‘Matching’ means the external funding of indirect research costs such as office space and other facilities. The research of Koier et al. emphasizes two different outcomes that ‘matching pressure’ could have. The first implies that it could efficiently lever the first flow of fund, while the second suggests it could hurt the independence of a university (Koier et al., 2016: 57-58). 15 Wellcome Trust (U.K.) and National Institutes of Health en de National Science Foundation (U.S.) are Anglo-American examples. Continental European examples are Volkswagenstiftung (Germany) and QuTech from The Netherlands. (Kojer, Van der Meulen, Horlings & Belder, 2016: 36) 16 From less than €50 million in 1990 to more than €600 million in 2014 (Kojer, Van der Meulen, Horlings & Belder, 2016: 37). 17 This report was written by members of the ‘Innovatieplatform’, a think-tank that was established to stimulate the Dutch knowledge-based economy, chaired by the Dutch prime minister Jan-Peter Balkenende (Nauta, 2008).

12 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

private donations towards Dutch universities. While referring to the American endowment funds, the Innovatieplatform described how the government had an important role in creating an attractive philanthropic atmosphere. It also encouraged universities to engage in fundraising activities among alumni, under the flag of one university-wide fund. Moreover, this university fund ought to professionalize its asset management in order to acquire a higher Return on Investment (RoI). (Innovatieplatform, 2005) The Dutch cabinet reacted positively to the report with a number of reforms and measures, mainly fiscal incentives, to stimulate ‘unconventional funds’ (Balkenende, 2006).

Attracting donations from alumni The Innovatieplatform’s first suggestion to universities was that the university funds should raise donations from alumni. Some of the Dutch universities quickly responded to this appeal, although it is evident that a change of culture was necessary. The donation of private money to universities had not been common practice for Dutch alumni in the 20th century, mainly because higher education was regarded as a public good and thus urgency was missing (Sanders & Hoornstra, 2006). This theory was accepted by the domain leader Finance of VSNU who stated, “the utilization of private money had never been a priority for Dutch universities because the public funding was in line with the student population” (D. Smeets, personal communication, April 10, 2018).18 A study by Mora and Nugent discovered several more reasons for the subdued donations towards European universities compared to their American equivalents, varying from a lack of effort to cultural difference (1998). The domain leader Accountability of VSNU thus believes “we should learn from American and Israeli universities” in terms of the attraction of donations (R.L. van Brakel, personal communication, April 10, 2018). Van Dijck and Saarloos add that these donations would not only indicate complementary funds, but could also contribute to the support for science in society (2017: 69). The idea that universities should approach their alumni and companies for donations has been embraced, but is still in its infancy in the Netherlands. Miggelbrink emphasizes that the University of Amsterdam as biggest university of the Netherlands only started with fundraising in 2007 and that it was considered a ‘dirty business’ before that.19 He states that the arrival of dr. Louise Gunning-Schepers as chair of the Executive Board in 2012 was a

18 VSNU is the ‘Association of Universities in the Netherlands’. 19 The University of Amsterdam has 32.588 students (VSNU, 2017).

13 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

turning point in the alumni relations of the university, as the focus shifted to fundraising.20 (personal communication, May 2, 2018) Gunning-Schepers called this the “culture of contribution” in an interview (Okker, 2012: 6). Figure 1 shows how the university fund of the Netherlands’ biggest university has transformed since then regarding the received donations, grants and bequests. 21

Figure 1 - Donations, grants and bequests to the AUF 2007-2016.

Other university funds have also scaled up their fundraising activities, with special attention to the Erasmus Trustfonds. As mentioned before in the introduction of this chapter, the fund has followed the example of the American endowment funds. The board began to approach wealthy alumni only since 2016 and has already attracted €25 million of pledged endowment. (M.M. Van Sluis-Barten, personal communication, May 14, 2018) The difference between endowment and ordinary donations is explained in 2.3. Figure 1 shows an aggregate of the

20 This was in fact a renewed focus on fundraising, since the University of Amsterdam had only built an auditorium in the Oudemanhuispoort after a private fundraiser in 1889 (Bureau Alumnirelaties en Universiteitsfonds, 2015). 21 This data has been derived from the annual reports of the Amsterdam Universiteitsfonds. Visit their website for more information: http://www.auf.nl/over-het-fonds/verantwoording/verantwoording.html

14 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

total donations, grants and bequests eleven university funds have received from 2012 to 2016.22

Donations, grants and bequests to university funds 2012-2016

14.000.000

12.000.000

10.000.000

8.000.000

6.000.000

4.000.000 Total donations in Euros

2.000.000

0 2012 2013 2014 2015 2016 Fiscal year

Figure 2 - Donations, grants and bequests to Dutch university funds from 2012 to 2016.

The fundraising activities are still in their infancy compared with their Anglo-American equivalents. However the differences between the Dutch universities are quite sufficient, the large majority has boosted its alumni relations and thus the attraction of donations. Recent efforts of the Amsterdams Universiteitsfonds and the Erasmus Trustfonds have shown that the ‘culture of contribution’ is not solely an American phenomenon.

22 This data has been derived from annual reports of the following university funds: Leids Universiteits Fonds, Erasmus Trustfonds, Amsterdams Universiteitsfonds, Groninger Universiteitsfonds, Universiteitsfonds Delft, Utrechts Universiteitsfonds, Radboud Fonds, Universiteitsfonds Twente, Ubbo Emmiusfonds, VUmc Fonds and Universiteitsfonds Tilburg. The annual reports of the university funds such as VU-Vereniging, Universiteitsfonds Limburg, University Fund Wageningen and Universiteitsfonds Eindhoven did not date back to 2012.

15 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Accumulating capital and contemporary regulation of private capital flows The Innovatieplatform’s second suggestion was that the university funds ought to professionalize their asset management and utilize their capital more economically. This paragraph elaborates on the regulatory history of Dutch universities’ financial management, and indicates that the university funds are enhancing their investment activities. It had been lawful for Dutch publicly funded universities to invest public money in the stock market during the 20th century. However, minister Hermans of Education, Culture and Science proposed the ‘Regeling beleggen en belenen door instellingen voor onderwijs en onderzoek’ in 2001, banning the public funds of universities from the stock market as of 200323. He believed that the investments were too risky, and that public money should go directly to public affairs. This ruling changed the financial regulatory environment for Dutch universities dramatically. At that time, the universities had investment portfolios of around 600 million guilder on aggregate, of which 157 million was invested in stocks. (De Volkskrant, 2001) Hence, the universities had to form portfolios that consist of bonds and real estate with their publicly funded assets. The subsequent Ministerial Regulation of 2009 did not contain radical changes that are relevant to this thesis, except for the addition that universities would be obliged to do business with banks with an AA- minus status (Botter, 2013: 233).24 The consensus of different administrations preserving the judgment of minister Hermans touches upon a wider debate concerning the relationship between publicly funded economic activities and fair competition, resulting in the Wet Markt & Overheid in 201225. This law set a framework under which conditions the government or semi-public authorities could involve in commercial enterprises with tax revenue (Mohammad, 2013: 194). The latest Ministerial Regulation on the financial policy of Dutch publicly funded universities, ‘Regeling beleggen, lenen en derivaten OCW 201626’, left out the banking status and elaborated on the actual theme of derivatives. Because the university funds are independent and fall under the regulation for charity foundations, it is possible for them to invest on the stock market if they take fluctuations of income into account (Belastingdienst, 2018).27 It is therefore feasible for university funds to accumulate their private capital flow under Dutch law, but that does not mean that the board

23 M.R. of July 13 2001, Uitleg. OCenW-regelingen Gele katern, 18a, deel 1. 24 M.R. of September 16 2009, Stcrt. 2009, 14404. 25 Wet Markt en Overheid of July 1 2012, Stb. 2012, 254. 26 M.R. of June 6 2016, Stcrt. 2016, 30576. 27 A.N.B.I. regulation.

16 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

of every university fund has decided to invest in stocks. First of all, the difference between an endowment structure and an intermediary structure is explained in 2.3. Second, the tendency in Anglo-American direction among some university funds regarding the accumulation of capital is deepened in 2.4. Finally, the university funds that invest in stocks vary significantly in risk strategies, from moderately defensive to offensive, which is clarified in chapter 5.28 It is in any case noticeable that the investment activity of Dutch university funds is increasing. The aggregation of all securities owned by these funds had grown to slightly over €100 million as of December 31, 2016. In the five years prior to this date, the aggregate had increased by 40,4%. This development is visualized in Figure 3.29

Security aggregate of Dutch university funds 2012-2016

120.000.000

100.000.000

80.000.000

60.000.000

40.000.000 Securities in Euros Securities

20.000.000

0 2012 2013 2014 2015 2016 Fiscal year

Figure 3 – Security aggregate of seven Dutch university funds 2012-2016.30

This regulatory context for Dutch universities has gradually changed, just like the funding of higher education has transformed. The fourth flow of funds has been embraced, and the government stimulates universities to attract and subsequently accumulate private donations

28 Not everyone agrees that stocks are more risk bearing than bonds, because economists think the interest rates will increase in the coming years (C.J. Jepma, personal communication, May 14, 2018). 29 The majority of the university funds does not differentiate between bonds and shares, which is why ‘invested capital’ shall be construed as ‘securities’. The receivables and liquidities are thus not included. 30 Leids Universiteits Fonds, VU-Vereniging, Erasmus Trustfonds, Amsterdams Universiteitsfonds, Groninger Universiteitsfonds, Universiteitsfonds Delft and Universiteitsfonds Delft.

17 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

through university funds. Although their fundraising activities are still in their infancy, recent efforts from the Amsterdams Universiteitsfonds and especially the Erasmus Trustfonds have shown that the ‘culture of contribution’ is not exclusively an Anglo-American phenomenon. Until now, the investment activities have been barely comparable to those of the American endowment funds as 2.4 illustrates. However, the aggregate investment activity grew by more than 40% in the last five years. This indicates that at least some Dutch university funds opted for endowment instead of direct distribution. The following paragraph explains the difference between these two university fund structures.

2.3 Dutch university funds as endowments or intermediaries

The previous paragraph described how the Dutch government mobilized and stimulated private funds towards universities, and how the fourth flow of funds requires independent university funds to attract donations from alumni and companies. This paragraph explains how the university funds have a choice to make regarding their organizational structure. They either try to accumulate capital with an investment policy, or they act as transitory safe havens between the donor and an academic purpose.

Varying policy choices Ultimately, all university funds aim to contribute financially to the academic pursuits and student life within their universities.31 The board generally decides what the money from the annual budget is used for, and this could vary from university facilities to student conferences and from scholarships to endowed chairs. The amount of assets they annually spent also differs, as some university funds use fixed amounts based on their total assets or on recent investment returns, while others just spend the obtained capital. In the Netherlands, charitable organizations are not allowed to hold own funds longer than the time reasonably needed for the continuity of foreseeable operations, unless the donor or testator explicitly stated this (Belastingdienst, 2018). This means Dutch university funds must request permission from a donator or testator in order to accumulate donations, grants and bequests in the long-term through investment. Only if such permission is given the university fund may treat the donation, grant or bequest as an ‘endowment’. An endowment is defined in this thesis as “gift of money or property to a person or organization, which may be

31 This is a general summary of the objectives drafted in various policy plans of Dutch university funds.

18 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

invested to produce regular income, or the accumulated sum of such gifts used by a non-profit organization such as a university to fund its activities” (Kariithi, 2007: 46).

Complications concerning endowments There are a few odds and ends when it comes to the endowment structure. In contrast to operating and annual funds, facilities support and legacy gifts, the donator or testator must be sure that an institution is able to manage assets (Pérez-Esparrells & Torre, 2012: 56). In addition, the donator or testator loses control over the destination of the funds. This is particularly unappealing for somebody who wants to contribute to a specific academic purpose. If a wealthy ex-patient wants to donate to a teaching hospital’s section that has taken good care of him, it may be difficult to convince him that his donation could also be submitted to the central administration (D.B. Stadig, personal communication, May 29, 2018). Other possible reasons to directly siphon funds are that the short-term interests prevail in the financial management of universities, or that they are hesitant to engage in active asset management.

Opportunities concerning endowments However, there are also reasons why an endowment structure could be attractive to the university fund’s management, or the donators and testators. First, it can be expected that an endowment fund is able to contribute structurally to the university with the annual RoI. Instead of spending the donation under time pressure, the university could utilize the money perpetually.32 The unlimited investment horizon that universities have is often referred to as a unique characteristic of their endowment funds (Brown, Garlappi & Tiu, 2010: 291). Second, it is important to point out the economy of scale in terms of financial, human and technical resources. When a board is able to manage one major endowment fund rather than several individual funds this would offer cut advantages due to the scale of operations and investments (Stichting Erasmus Trustfonds, 2018: 3). Finally, paragraph 2.4 shows how actively managed endowment funds in the U.S. have accumulated large amounts of capital and therefore provided academic funding.

32 Henry Hansmann, a famous critic of the American endowment funds, claims that investments in market securities would in any case be more useful to society than “less efficient forms of accumulation” as “useless facilities or excessive esoteric research” (1990: 40).

19 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Endowment ambitions of Dutch university funds The Dutch university funds currently find themselves in a quandary. Transforming into an endowment fund has its benefits, but there are some complications. As mentioned before, the Erasmus Trustfonds is the first Dutch university fund that announced the ambition to become an endowment fund. A major fundraising campaign among wealthy alumni was required in order to attract sufficient capital. Miggelbrink is allegedly impressed with this outcome: “All Dutch universities should be proud of this.” (personal communication, May 2, 2018) Becoming an endowment fund is also one of his aspirations, in agreement with the Amsterdam Universiteitsfonds’ administration and the Executive Committee of the university: “That is the next stage (...) so that we can structurally offer assistance to people who need that due to the financial benefits.” (Miggelbrink, personal communication, May 2, 2018). Another interesting reflection of this policy dilemma is the situation in Groningen. The Rijksuniversiteit Groningen has two university funds that offer a fourth flow of funds: the ‘Groninger Universiteitsfonds’ and the ‘Ubbo Emmius Fonds’. The former does not attract private donations as an independent organization, but is able to contribute out of a RoI that is the product of its treasurer, Professor Jepma. The latter is part of the university and does attract donations, due to active fundraising efforts. However, the Ubbo Emmius Fonds is not active in the stock market or in any investment (2017).33 The situation of the two university funds has gradually developed in this manner, according to Jepma: “but there is now debate going on” (personal communication, May 14, 2018). If it was up to him, the university ought to paint a broader picture of the aforementioned dilemma towards the donator, instead of solely executing acquisition for its own intermediary fund. As opposed to the previous two university funds, the ‘Leiden Universiteits Fonds’ is devoted to spend its donations, grants and bequests at shorter notice than what is currently the case. Director Alumni Relations and Fundraising, Lilian Visscher, asserts that her fund watches American endowment funds with interest, although legislation there is different and the RoI generally significantly higher. She recognized that the donations her fund receives are aimed at “realizing an impact” and her goal is therefore “to start a conversation with donators in order to spend their donations within a few years, which is a trend also evident in the U.S.” (personal communication, May 16, 2018).

33 The Ubbo Emmius Fonds collected more than €2 million in the fiscal year 2016 (Ubbo Emmius Fonds, 2017).

20 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

The former paragraph showed that the donations, grants and bequests to Dutch university funds have increased greatly in the past years, and that they have simultaneously become more active in the investment market. While the discussion of becoming an endowment fund is lively within the management of the university funds, the Erasmus Trustfonds is the only one that shows a tangible outcome. This means that the funds still hesitate to become active asset managers, and Figure 4 illustrates this. Since 2012, the total amount of income from private donations has grown faster than the (un)realised financial benefits on the investment market.

2012 2013 2014 2015 2016

(un)realised investment gains donations, grants and bequests

Figure 4 – The total income of seven Dutch university funds divided in the share of donations, grants and bequests and the share of financial benefits.34

This paragraph exemplifies the policy dilemma in which Dutch university funds find themselves. On the one hand, becoming an endowment fund implies a structural flow of funds and could make the organization more efficient. On the other hand, donators could turn out to be sceptical about the lack of direct impact. This hesitance is still noticeable among Dutch university funds, considering the situations in Amsterdam, Groningen and Leiden. The following paragraph briefly looks into the famous endowment funds of American universities, as some Dutch university funds deliberately adopt the Anglo-American type structure (M. van Calmthout, personal communication, May 15, 2018).

2.4 University endowment funds in the U.S.

The previous paragraph disclosed developments in the Dutch higher educational sector that show resemblance with the Anglo-American status quo. While expressing the ambitions of

34 Leids Universiteits Fonds, VU-Vereniging, Erasmus Trustfonds, Amsterdams Universiteitsfonds, Groninger Universiteitsfonds, Universiteitsfonds Delft and Universiteitsfonds Delft.

21 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

his university fund to become an endowment fund, Miggelbrink referred with a nod to Harvard: “although they possess a few billion” (personal communication, May 2, 2018). This paragraph briefly looks into the university endowment funds in the U.S., focusing on their explosive growth in the last century.

The American culture of contribution The amount of private capital contributed to American and British university endowment funds has increased dramatically in the last century, particularly in the former. American alumni who made a fortune started to endow capital to the universities that educated them in the 20th century. The share of the total university income covered by endowment therefore rose to a quarter on average, and to almost half in the case of Harvard (Gottfried & Johnson, 2006: 268). A study by Monks and Ehrenberg discovered a positive correlation between university rankings and the amount of university endowment (1999). At the same time private universities with a greater financial capacity are able to pay their professors and presidents more salary, which makes “the best academics tend to seek employment there” (Salmi, 2009: 25). Such a vicious circle would increase the assets of the biggest universities funds even more, which creates domestic inequality and international inequality between universities. Some American universities became the best of the world, but the unequal distribution of private money has caused a great imbalance between higher education institutions in the U.S. (Dearie & Geduldig, 2013). The average university fund from the U.K. does not match up with the American endowment funds, and only the universities of Cambridge and Oxford are able to compete on a global level in terms of endowment (Salmi, 2009). These are the only two British universities that manage endowment funds over $1 billion, while there are 97 American universities that surpass this sum.35

U.S. endowment funds as progressive asset managers Besides the fundraising activities, the American endowment funds have magnified their assets by using clever investment policies. Before the thirties, the universities were bound by law to solely invest in obligations and real estate. It was Stanford University by name of former U.S. president Herbert Hoover

35 Supplementary data on the American endowment funds are available in the press release (NACUBO, 2018). For more information on the trends in philanthropic support for UK higher education see the Ross-CASE Survey: https://www.case.org/Documents/Research/Ross- CASE/Ross_CASE_UK_2017_v5.pdf

22 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

to ask a federal judge to give permission for integration of stocks into the investment portfolio. Hoover argued in 1936 that the financial freedom of endowment funds was needed to create a hedge against inflation, which the judge agreed on. (Graham, 1949: 8) Lerner, Schoar and Wang describe how many of these funds have outmatched average institutional investors, reaching net real returns of 12% in the nineties and therefore tripling the mean return (2008: 208).36 They were often early adopters of certain asset classes, following the results of economic research. They began investing in venture capital already in the 70s, while corporate pensions only followed in the 80s and public pensions just in the 1990s.37 (Lerner, Schoar & Wang, 2008: 221). The large endowment funds in the U.S. are professional organizations that can afford own personnel, which is why they relatively resemble the best financial performance (Cejnek et al., 2014: 32). Endowment funds that are actively managed have between three and six percent more return than passively managed funds (Brown, Garlappi & Tiu, 2010: 291). While the management of the endowment fund has developed into a cardinal element of the financial management of American universities, governing boards of colleges and universities have been rarely involved in its strategy (Cary & Bright, 1974: 24). 38

2.5 Conclusion

This chapter sets out the historical and regulatory context of the fourth flow of funds to Dutch universities. The first paragraph demonstrated that although this is not the first time that universities are stimulated to attract donations, Dutch higher education was for a long time regarded as a national affair and a public good during the second half of the 20th century. This changed in the 1980s and since then public funds have decreased in relative terms in order to

36 The mean return was calculated on the basis of the Standard & Poor’s 500 index (Lerner, Schoar & Wang, 2008: 208). 37 At that time, venture capital firms had already raised equity stakes from outside investors to professionalize many start-up companies. Ivy League endowment funds had invested in new tech companies as Apple, Microsoft and Google in an early and extremely profitable stage by virtue of their keen eye for venture capital (Dearie & Geduldig, 2013). After the 1990s, funds consist mainly of public equity and fixed income, and the venture capital’s share of the portfolios has dropped (Brown, Garlappi & Tiu, 2010: 273). 38 According to the NACUBO-Commonfund Study of Endowments, a nationwide study of the endowments of 809 US colleges and universities, the funds returned an average 12.2 percent in the 2017 fiscal year. Despite this impressive return, the average of the last decade dropped from 5.0 to 4.6 percent return, because the pre-crisis fiscal year 2007 had a return of no less than 17.2 percent. To bring this percentage into vision, the 809 endowment funds represented $566.8 billion in asset management. (NACUBO, 2018)

23 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

cut expenditures. The second paragraph explains how developments in the early 21st century indicate a change towards the ‘culture of contribution’. The fundraising activities only just began, but the aggregate of donations, grants and bequests has shown an increasing trend. This growing amount of private capital implies a policy dilemma for Dutch university funds, as the third paragraph outlines. Transforming the organizational structure into an endowment fund implies a structural flow of funds, but some funds are still hesitant. The last chapter paints a view of how American endowment funds have attracted and accumulated assets in massive volumes. After all, the share of private funding that Anglo-American universities need in order to stay competitive is still far away for Dutch universities. The government remains the most important supplier of research budgets, and will stay that in the foreseeable future. However, it will become increasingly relevant to research other flows of funds. This thesis looks into the accumulation of the fourth flow of funds, attracted capital by way of endowment. The following chapter addresses the moral considerations policymakers of university funds should take in mind when increasing investment activities.

3. Moral considerations for the university fund as socially responsible investor

The previous chapter demonstrated how Dutch university funds have become more active in the investment market, and that this upward trend will presumably continue to develop. The endowment funds of American universities have been active investors ever since the thirties, as 2.4 pointed out. This chapter looks into the unique position a university fund has as an investor, and the moral considerations the executive policymakers should take in mind when the university fund enters the investment market. Universities are usually diverse entities that consist of students, researchers and staff who are educated to think critically. Rens van Tilburg, director of the Sustainable Finance Lab, identifies more and more Dutch universities that change their official mission from the sole purpose of knowledge creation to a positive impact on society: “this means they cannot get away anymore with an investment policy purely based on financial returns” (personal communication, May 23, 2018).39 Simon, Powers and Gunneman were the first scholars to analyse the costs and benefits that ethical investing would represent for American endowment

39 Van Tilburg specifically names the universities of Delft and Utrecht as examples.

24 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

funds. Their assessment is summarized in the first paragraph of this chapter. The second looks ahead to the future of investment and the unique role of universities. As all institutional investors have come under public scrutiny for the environmental and social outcome of their investments, this is certainly the case for the investment practices of universities. It also explains why SRI strategies of universities could catalyse systemic change.

3.1 Costs and benefits of ethical investment by universities

This paragraph first gives a prudent insight into the costs and benefits that ethical investing implies for universities, before we look at the systemic change certain policies of universities could bring. Yale scholars Simon, Powers and Gunneman were the first to publish a book about the social aspects of the policy dilemma in 1972: ‘The Ethical Investor: Universities and Corporate Responsibility’.40 This cost-benefit analysis is essential to an understanding of this thesis, since it examines the social complications and advantages of SRI strategies used by universities and their funds. They also mention the “polluting practices of corporations”, although Simon et al. wrote their book before environmental concerns became genuinely prominent (1972: 106).41 What they advocate is a ‘basic policy’ that ensures a ‘moral minimum’ for the financial management of universities (Simon et al., 1972.) They refrain from a detailed definition of that moral minimum, aside from the notion that the “responsibility of the shareholder to take such action as he can to prevent or correct corporate social injury extends to the university when it is a corporate shareholder” (Simon et al., 1972: 65). They notice possible costs and benefits of their basic policy for universities.

Costs On the one hand there are the costs of ethical investment strategies, which are divided into the non-fiscal and fiscal costs. First, the non-fiscal objections, which involve the endangerment of the academic freedom within a neutral institution, by Simon et al. referred to as the ‘Academic Context’. Certain ethical investment strategies would mean a politicization of the university as an institution, and would thus harm an open debate of conflicting opinions.

40 Barleus however dictated the merchants who founded the University of Amsterdam as early as 1632 that they ought to distinguish honest profit from dishonest profit (Van der Woude, 1967: 62). 41 It was six years later that J.F. Black, an Exxon researcher, presented an accepted climate model that predicted that a doubling of the CO2 concentration in the atmosphere would produce a mean temperature increase of about 2°C to 3°C over most of the earth (Black, 1978).

25 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

(Simon et al., 1972.) Simon et al. refer to Irving Kristol, conservative critic of ‘liberal universities’, who acknowledged “no university is merely a community of scholars” and it needs an administration “which manages money and real estate and employees and relations with the world outside” (Kristol, 1970: 234). That is why the organizational administration of a university cannot avoid participation in an economic system and its position within that system always reflects particular values (Simon et al., 1972: 72). Concerning the investing activities this means that holding a stock suggests approval and, as some would argue, “simply approving of an immoral action is immoral” (Larmer, 1997: 400). Existing investment policies that do not reflect social and moral considerations could therefore impose an even greater cost. Simon et al. perfectly clarify how in a situation like this insensitivity to students and faculty members could turn out to be counterproductive to universities42 (1972: 156-64). In order to protect the institutional neutrality of the university, Simon et al. propose principles that require ‘distance’ and ‘minimal distraction’ of the academic community towards investment policies. Those outside the academic community should have final decision-making authority, because otherwise investment values would establish orthodoxies within the academic community. (Simon et al., 1972: 76-77). Simon et al. subsequently outline possible fiscal costs regarding administrative expenses, reduced endowment returns and decreasing contributions from private donors. Firstly, the objection that an ethical investment policy costs money is acknowledged albeit put in perspective. Additional administrative manpower in terms of personnel that executes due diligence and engages with companies would improve the SRI performance (Simon et al., 1972: 103). Nowadays, investment banks have formalized and professionalized their ESG finance activities (Sparkes, 2003: 110). This makes more administrative manpower for the university less necessary. Secondly, the financial impact of ethical investment policies represents another common objection. Simon et al. stress that it is not clear whether it would enhance or hurt the endowment’s RoI (1972: 192).43 Thirdly, the objection that implies shrinking private donations is rebutted by means of empirical research, which points out that most alumni would approve a ‘basic policy’ (Simon et al., 1972: 104). Current research on this subject reveals the same proof, which means university endowment funds that integrated

42 At the same time, an ethical investment policy could be experienced as a starting signal for even more political actions by the university in the future. If this does not follow critical students might be disappointed, whilst institutional neutrality can be put in real danger when the university follows this course. Although Simon et al. do not identify this a likely scenario, they emphasize that a university must be precise in its communication why a certain policy is developed to prevent misinterpretation. (Simon et al., 1972: 103) 43 Paragraph 4.4 puts forward a meta study about the SRI consequences for the RoI .

26 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

SRI strategies into their portfolio do not suffer an endowment reduction (Smith & Smith, 2016; Swann, 2015). However, Miggelbrink of the ‘Amsterdams Universiteitsfonds’ indicated that his alumni constitute a “fairly homogeneous group that does not care much for sustainable goals but truly wants to see financial returns” (personal communication, May 2, 2018). Altogether, the fiscal costs are not easily to ratify or to refute.

Benefits On the other hand, Simon et al. also presented the benefits of an ethical investment policy. The most obvious one is the ‘reduction of social injury’, which is the actual reason a basic policy is demanded from institutional investors such as university funds. However, this is not a static concept, because social injury is “contingent upon both the degree and nature of the society’s problems” (Simon et al., 1972: 99). The authors recognize the benefits of both divestment and shareholder engagement as SRI strategies, but prefer the latter. They believe voting on shareholder resolutions and raising formal or informal questions with corporate management is a more effective approach, since this is a way to constructively correct the socially harmful practices of a company. (Simon et al., 1972: 105) Divestment could nevertheless be helpful for the cause of awareness. If a university, even with a relatively small fund, would inform the company or sector with a public statement of the reasons for divestment, this “may have some effect on management attitudes” because “such action could bring home to the company a sense of outrage felt by at least one responsible constituent” (Simon et al., 1972: 92-93). It could also remain the only remaining option, for instance when a company refuses to improve its social impact or when the RoI significantly decreases after a company has precisely done so (Simon et al., 1972: 95). There is however a more rational interpretation of ethical investment policies of university funds aiming at the reduction of social injury. The actual reduction of social injury ought not to be considered as the primary purpose, but the public image might give universities an incentive towards ethical investment. Smith and Smith argue that less selective schools in the U.S. are much more likely to use SRI strategies than elite schools, because they use ethical finance as a branding instrument (2016). Simon et al. put an emphasis on the fact that a university will outweigh competing universities in social effectiveness if it is “not compelled to participate in necessitous economic activities” (1972: 106). After all, Simon et al. conclude that the ‘moral minimum’ obligation for universities should prevail in the absence of proof that the costs of ethical investment strategies would outweigh benefits. Considering the pros and cons of ethical investment strategies for university funds almost half a century later, it is difficult to come to another conclusion. The costs are still impossible to calculate fiscally, but most of them can be averted following the

27 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

abovementioned principles. The following paragraph envisions the social impact that ethical investment of universities could have.

3.2 Position within financial discourse

The previous paragraph described the costs and benefits of ethical investment for the university itself, while this paragraph looks at the role and impact of institutional investors generally and university funds specifically in the financial discourse.

Institutional investors under scrutiny While the academic debate about the purpose and intentions of institutional investors is lively and on-going, most scholars could agree with the explanation that an institutional investor is “a financial institution” that “invests large amounts of money in securities, commodities and foreign exchange markets, on its own behalf or on the behalf of its customers” (Kariithi, 2007: 65). The most important institutional investors are pension funds, whether publicly or privately managed, and investment managers, consisting of investment companies, bank trusts and insurance companies. Useem, Bowman, Myatt and Irvine state that non-profit organizations with private endowments, such as hospitals, churches, universities and foundations, are also named institutional investors, although they constitute a “heterogeneous array”. (1993: 176) There is already a widespread acceptance that businesses must do their part in the areas of environmental protection, sustainable development and human rights (Sethi, 2005: 112). This is named corporate social responsibility (CSR), which can be defined as a “movement aimed at encouraging companies to be more aware of the impact of their business on the rest of society, including their own stakeholders and the environment” (Kariithi, 2007: 29). Since the growing economic power of institutional investors is a global trend, critics have started to dispute the passive attitudes of certain institutional investors.44 Especially the major institutional investors are encouraged to strive for active ownership and SRI. Since they are

44 It is important to expand on the magnitude of institutional investors in order to put their relevance in perspective. The institutional investors in the U.S. have grown substantially at the end of the 20th century (Hummels, 2007: 17). Hawley and Williams calculated that institutional owners increased their ownership share of the largest one thousand American firms from 46.6% in 1987 to 59.9% in 1997 (2000: 5). This number had even grown to 73% in 2010 (Tonello & Rabimov, 2010). The numbers from the U.K. show the same trend, as institutional owners saw their ownership share grow from 30.3% in 1963 to 51.9% in 1999 (Myners, 2001: 27). It is quite ambiguous how the Dutch ownership share of institutional investors has shifted, but it is clear that they are accumulating wealth quickly (CBS, 2015). Their ownership share is now around 80% (Abma, 2016).

28 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

‘universal owners’, which means that their holdings are diversified and long-term, their actions at individual companies can have impact on the entire corporate sector. They are both shareholder and stakeholder. (Hawley & Williams, 2000) Van Tilburg believes institutional investors have waited too long with SRI, but notices that it is now the ‘talk of the town’: “there is a shift in ambitions, everyone embraces the Paris Agreement” (personal communication, May 23, 2018). Sparkes even believes that institutional investors are going to cause a ‘paradigm shift’ in public awareness, with “pension funds and charitable foundations starting to question the conventional wisdom that the sole purpose of investment is the maximisation of short-term financial returns” (2003: 5). In this case, strategic movements of institutional investors towards SRI would not only shift their financial flows, but also influence individual investors.

A paradigm shift The paradigm shift that Sparkes believes in is defined best by Hall: “(…) a particular set of ideas and a specific discourse which is used as a mean to structure the policy making process” (1993: 290). Sparkes thus claims that the financial discourse can shift towards a longer-term perspective when institutional investors change their risk assessments. Van Tilburg indicates that a long-term perspective would suit institutional investors and in particular university funds, because these are institutions that will probably exist perpetually (personal communication, May 23, 2018). The unlimited investment horizon that universities have is also mentioned in the literature as one of the unique characteristics of university endowment funds (Brown, Garlappi & Tiu, 2010: 291). An important driving force is the fossil fuel divestment movement, which tries to alert institutional investors to get rid of fossil fuel stocks. The scale of this movement is considerately growing, as some funds heed this call to action and invest money in climate- friendly alternatives rather than fossil fuel (Ayling & Gunningham, 2017). Researchers warn for ‘stranded assets’, which means that unsustainable assets will “suffer from unanticipated or premature write-offs” (Ansar, Caldecott & Tilbury, 2013: 2) This could happen with fossil fuels due to a combination of risk factors: first and foremost the evolving social norms, but also environmental challenges, changing resource landscapes, new government regulations, falling clean energy technology costs and litigations (Ansar, Caldecott & Tilbury, 2013).

Small funds with significant impact If a university, even with a relatively small fund, would inform the company or sector with a public statement of the reasons for divestment, this “may have some effect on management

29 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

attitudes” because “such action could bring home to the company a sense of outrage felt by at least one responsible constituent” (Simon et al., 1972: 92-93) Van Tilburg underlines the comments by Simon et al. that small funds could also have impact with the right strategy. However, he emphasizes that they are able to create a larger scale by joining forces. If the university funds would unite as one and take a stance, perhaps even include foreign university funds, they could have an impact. Van Tilburg refers to churches, as they represent an ethical component. University funds are “shrouded in an aura of science”, and everyone is watching their steps because they are seen as an actor with a knowledge advantage. (R. van Tilburg, personal communication, May 23, 2018) This assumption of a knowledge advantage is in line with the invention of venture capital, as mentioned in 2.4. Rob Bauer, professor of finance at Maastricht University, agrees with Van Tilburg.45 He thinks that university funds would collectively have more impact with SRI strategies, but stresses the practical complications: “It is very hard to make these actors work together (…) first and foremost because they have never thought about it, and in the first stage they would disagree and seek exemptions.” Bauer thinks engagement with companies is not worthwhile due to the small financial impact. However, if the university funds would find each other at one particular issue and simultaneously make this public, it could make a difference: “You would have a certain ‘reputation-impact’. Companies would feel addressed.” (R.M.M.J. Bauer, personal communication, June 19, 2018)

Purpose and stakeholder preferences of university funds Especially since the economic crisis of 2008, customer satisfaction and therefore stakeholder preferences have been critical in the financial services industry (Estelami, 2012). Where you would expect that institutional investors know exactly what the social preferences of asset owners, donators or participants are, this is nevertheless not the case. To illustrate this, Borgers and Pownall were the first to empirically study the effects of social preferences on pension investment decisions in 2014. They came to the conclusion that beneficiaries in the Netherlands have positive attitudes towards social responsibility in their pension investments. (Borgers & Pownall, 2014) Van Tilburg believes it is crucial that institutional investors invest the assets in the interests of the beneficiaries (personal communication, May 23, 2018).

45 Van Tilburg and Bauer are both members of the Sustainable Pension Investments Lab, see https://spilplatform.com/

30 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

The beneficiaries of the university funds are the university’s personnel and students, deduces Bauer. But there are more important stakeholders, as the donators also have certain preferences in what should be carried out with the donations. The preferences of these stakeholders should be measured, because the university fund’s aim is ultimately to meet their demands: “Students lead the way in sustainable operations here at the university (…) the funds that are made available for these students should therefore be invested in a sustainable manner.” (R.M.M.J. Bauer, personal communication, June 19, 2018) Van Tilburg states that university funds should reflect on their purpose, but understands that universities need financial resources to acquire knowledge and thus see the university fund as a vehicle for that cause. At the same time, more and more Dutch universities focus their missions on the social impact of research rather than the gathering of knowledge alone. (R. van Tilburg, personal communication, May 23, 2018)

3.3 Conclusion

This third chapter described the costs and benefits of an ethical investment policy for university funds and defined their role as small but significant institutional investors. The cost-benefit analysis of Simon et al. has not become less complex after nearly half a century. They conclude that the costs of an ethical investment policy are difficult to grasp, especially the non-fiscal objections. In any case, the objection that a ‘moral minimum’ would hurt the institutional neutrality can be overcome if policymakers outside the academic community have final decision-making authority. Fiscal objections such as administrative expenses, financial impact of SRI policies and less donations are also rejected. Administrative expenses are minimal if an external asset manager is in charge, there is no evidence of a lower RoI from ethical investments, and neither for an endowment reduction. However, a basic ethical policy could not only reduce social injury. It would also put a positive spin on the university brand, and therefore be decisive in the attraction of prospective students. Furthermore, the second paragraph looked into the financial discourse university funds find themselves in. Institutional investors are encouraged to take non-financial risks into consideration, because a focus on short-term gains does not constitute a sustainable financial system. Some scholars even believe in a paradigm shift when this rising but highly differentiated array of investors divests from certain sectors due to a longer-term scope. Subsequently, researchers suggest a role for university funds in this perspective, regardless of their capital strength. Other actors keep an eye on their movements, because the American endowment funds have shown a knowledge advantage in the past. University funds should thus take into account that they have a small but significant role in the financial discourse.

31 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

And above all, the policymakers of the university funds should not forget the preferences of their stakeholders. In conclusion, the judgment of Simon et al. that the benefits of an ethical investing policy would outweigh the costs is still relevant, although they remain ambiguous about the conduct. Furthermore, if university funds decide to implement such a policy, this would not only serve their purpose and their stakeholders. It could also serve a greater goal in a paradigm shift, because the policy of university funds is perceived as knowledge-based.

4. Socially Responsible Investing (SRI)

As explained in chapter 3, institutional investors such as university funds can incite systemic changes if they use ethical investment strategies, but what does that mean? A wide variety of terms is being used alongside the term ‘socially responsible investing’ that is from here on used in this thesis.46 Some examples are ethical investing, sustainable investing, values-based investing and mission-driven investing, but there are many other ways to describe the phenomenon. Before SRI became the commonly used concept, ‘ethical investing’ had been prevalent in the ‘70s and ‘80s of the last century. However, most concepts “are synonymous”, as Russell Sparkes acknowledges. (2001: 195). The most important reason that there are so many terms that describe about the same is that fund managers want to stand out and therefore adjust the existing terminology (Collie & Myers, 2008: 2). As these terms all refer to the same meaning, the basic definition of SRI is best expressed by Sparkes: “the key distinguishing feature of socially responsible investment lies in its combination of social and environmental goals with the financial objective of achieving return on invested capital approaching that of the market” (2001: 201). Ransome and Sampford agree with Sparkes on the fact that socially responsible investors must have the ambition to make a profit47. Hence, this condition excludes charitable capital flows from the SRI spectrum. They add that the investors need to have ownership stakes – shares or stocks –

46 It might be confusing that the previous chapter referred to ethical investment, but this is the term Simon et al. were consistently applying. 47 If the investment is not profit-based, it might imply Socially Directed Investment (SDI). That means, “a subnormal return is voluntarily accepted for community development or other purposes” (Sparkes, 2003: 195). This thesis does not merely focus on SDI – although impact investments come close - but there is a lot of academic theory written on the concept (Cayer, Martin & Ifflander, 1986; Gustavsson, 2012).

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in companies, which implicitly excludes funds that only invest in bonds and real estate. (Ransome & Sampford, 2016: 11). These profit- and equity-based characteristics are key conditions for the SRI as defined in this thesis. Now the definition of SRI is clear, the historical development of SRI approaches is discussed in the following section. After that, it is time to take a closer look into five related SRI strategies and to determine three different components of SRI: policy, implementation and accountability. The final paragraph looks into

4.1 Historical development of SRI approaches

The previous part explained the concept of SRI, which makes a look into the history of this investment philosophy a bit less ambiguous and a bit more coherent. Domini and Kinder emphasized three historical developments in the SRI approaches: the avoidance, the activist and the positive approach (1984). First, we look at the avoidance of markets in investment portfolios. It is often claimed that this approach had been pioneered by religious funds in the US during the first half of the 20th century. These would be the first funds to exclude shares affiliated with tobacco, alcohol and gambling from their investment portfolios 48 . (Brown, 1998; Vogel, 1983) Other institutional investors such as pension funds, universities and labour unions were early adaptors, and started to avoid controversial investments in the 1960s and 1970s49 (Proffitt & Spicer, 2006). The motives for the approach of avoidance have differed significantly. Whereas the religious funds focused on the addictive consequences of sectors, other investors feared to profit from wars, exploitation and other social injury. The Vietnam War and apartheid in South Africa were issues that catalysed the approach of avoidance, because institutional investors realized their asset owners and benefactors wanted nothing to do with the disputed practices overseas. (Sparkes, 2001: 196) In recent decades, environmental issues have come to the foreground. American universities have adopted a leading role regarding the avoidance of fossil fuels in their portfolios (Swann, 2015).

48 Sparkes found evidence that American churches began with these ethical investment constraints in 1926, while the British churches started in 1948 (1995: 150). 49 It was 1968 when the first university decided to avoid certain sectors and products in its investment policy, when the faculty of Cornell University voted 522 to 166 in favour of this policy change (Simon et al., 1972: 103).

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Second, we turn to the activist approach. There are several ways how an asset owner could execute ‘shareholder activism’ (Domini & Kinder, 1984). Filing social proxies or at least voting in favour of activist resolutions at shareholders’ meetings is one way. The first time this occurred was the annual general meeting of General Motors in 1970, when a group of investors drafted nine resolutions regarding the social needs of workers, minorities and consumers (Sparkes, 2003: 50). Religious institutions in the U.S. were not only laying the groundwork for the divestment and exclusion of certain sectors and companies, but also championed shareholder activism. Proffitt and Spicer analysed 2158 activist shareholder resolutions in the U.S. from 1970 to 2005 and found out that religious organizations had sponsored or co-sponsored 1312 of them (2006). Another way of shareholder activism is engagement, which is a relatively new phenomenon. It is for a long time considered undesirable or at least unconventional that investors engage with the management of a company apart from the shareholders’ meeting (Domini & Kinder, 1984: 158). However, in the 1980s and 1990s institutional investors started to prefer engagement rather than avoidance. The prevalent thought was that a constructive conversation would be more influential than screening “to influence corporate behaviour”. (Sparkes & Cowton, 2004: 50) The shareholders’ participation at the annual general meetings has never been so great in the Netherlands, with 70% of the stock capital voting on resolutions that are going to a vote. This increase is mainly due to institutional investors such as Dutch pension funds, asset managers and insurance companies. (Abma, 2016) Finally, the third historical development in SRI is the positive approach. This means that the asset manager does not only validate assets on financial criteria and that a company’s performance on environmental, social and governance (ESG) issues is somehow integrated in – part of – the investment portfolio (Domini & Kinder, 1984: 8). These non-financial issues differ from the employment of ethnic minorities to the best environmental practice (Sparkes & Cowton, 2004: 48). There is no unanimity regarding the time and place funds started to select positively on ESG performance.50 A recent study of Bengtsson claims that the Swedish AktieAnsvar Aktiefond, which was established by religious movements in 1965, was the first existing ethical fund (2008). The screening capacities of asset managers have increased comprehensively since then.

50 Positive selection is often claimed to have emerged in the US during the 1970s (Brown, 1998; Vogel, 1983).

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The SRI strategies ‘ESG integration’ and ‘impact investment’, which are extensively addressed in 2.2.3, are examples of the positive approach. They have been the two fastest growing strategies in the last few years and thus further develop the significance of the positive approach (Eurosif, 2016). Ruud van de Ven, wealth manager at Van Lanschot, recognizes a shift from the avoidance approach to the positive approach: “from exclusion and ‘do not harm’ on the basis of ESG criteria to inclusion and ‘do good’ on the basis of the Sustainable Development Goals” (R.P.J. van de Ven, personal communication, June 18, 2018). The avoidance, activist and positive approaches each have their own theoretical and historical background. This paragraph however alluded to certain clashes between the approaches, which will be further examined in the following paragraph by reference to the five predominant SRI strategies that are closely linked to the approaches.

4.2 Predominant SRI strategies

As the previous paragraph introduced the avoidance, activist and positive approaches within SRI, we now divide them into commonly used strategies: ESG integration, exclusion, impact investing, voting and engagement.51

ESG integration The integration of ESG means that an investor or its asset manager actively and continuously screens stock market listed companies or other financial products on their ESG performance (Schuurmans et al., 2017: 33). The ESG performance of a company is defined as “the impact of the company's activities” on different issues that reflect “performance indicators in the areas of social relations, environment, and corporate governance” (Kocmanova & Simberova, 2012: 485). In order to integrate ESG criteria in an investment policy, investors first need to figure out what indicators are the most relevant to their portfolio. There are a great variety of indicators, which can make ESG integration seem like an ambiguous SRI strategy. Jessen mapped the indicators into several areas: community and society, customers, corporate governance,

51 These five SRI strategies are acknowledged by VBDO (Dutch Association of Investors for Sustainable Development), which is one of the leading research institutes into SRI (Schuurmans, Verstappen, Menge & Schmidt: 2017). It also corresponds greatly with the strategies that are established by Eurosif (2016).

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employees, environment, human rights and controversial business activities. (2012: 1829- 1830). As stated before, many investment banks have screened a large number of their financial products on these ESG issues (Sparkes, 2003: 110). However, asset managers do not only differ in the way they quantify ESG performances, but also in amount of funds and shares they have already screened (R. van Tilburg, personal communication, May 23, 2018). Nearly every Dutch asset manager has signed the United Nation’s Principles for Responsible Investments, but the level of integration varies: “Triodos and ASN Bank are the most advanced, and the rest follows” (R.P.J. van de Ven, personal communication, June 18, 2018). University funds that do not have the resources to screen the stock market could therefore critically choose an asset manager that is able to do so (R.M.M.J. Bauer, personal communication, June 19, 2018). This strategy is conditional for a thorough assessment of the other four strategies, and therefore essential to SRI. Without an ESG rating mechanism, an investor is not able to make an informed decision on positive selections, negative selections, shareholder’s resolutions or the engagement with companies. As mentioned in 2.2.1, the strategy of ESG integration is part of the positive approach.

Positive selection When an investor uses the aforementioned ESG data to choose socially responsible stocks over others, this is called the SRI strategy of ‘positive selection’. One method that is based on this strategy is the ‘best-in-class method’, in which companies are selected that achieve better than their competitors. This signifies that companies that do relatively well in an overall damaging sector could still be included, for example producers of fossil fuels (Schepers & Sethi, 2003: 24). The asset manager positively selects the top ten to thirty per cent of the companies in an industry and includes them in their indexes. Although Scholtens acknowledges that this method “is not very discriminating between more and less responsible firms as all sectors are included”, he highlights the great advantage of the best-in-class method, as its methodology is “open and transparent, whereas the existing approaches are only so to a limited extent”. (Scholtens, 2009: 162) Another method is impact investing. This involves investments made in companies and organizations with “the intention to generate social and environmental impact alongside a financial return” (Scholtens, 2014: 383). This could also include funds that are obliged to sustainable growth. Unlike the best-in-class method, impact investing does not cover generally damaging sectors, but only the sectors and companies that score best in ESG performance. Prime examples of such sectors are low-income housing, renewable energy and

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micro-finance (Bugg-Levine & Goldstein, 2009: 34). For asset managers it is a question of aligning the asset owner’s portfolio with social value and social impact (R.P.J. van de Ven, personal communication, June 18, 2018) The positive selection aims to bridge environmental, social and financial impact and it stands to reason that it falls within the positive approach.

Negative selection Negative selection or ‘exclusion’ calls for the screening of companies on the basis of products and attributes that are considered ‘sinful’ or ‘harmful’ (Schepers & Sethi, 2003: 18). Dutch banks generally apply sector exclusions (Scholtens, 2009: 167). The term divestment implies that a negative selection is applied on the investment portfolio rather than the investment market. Investors apply the SRI strategy of negative selection in order to publicly disassociate themselves from certain products or markets. Gunnemann argued that society might see the holding of and profiting from shares in a company as an expression of support (1972: 193). On the contrary, negative selection that is formally established in policy “sends out a strong signal” to other investors. However, there is no solid evidence that the negative selection of investors has set companies in motion yet (R.an Tilburg, personal communication, May 23, 2018).52 As stated in paragraph 3.2, unified divestment sends out an even stronger signal. Sparkes and Cowton remind us that there is “no definitive set of beliefs” among investors, and that it is difficult to find funds that perfectly meet all exclusion wishes (Sparkes & Cowton, 2004: 56).53 The SRI strategy of ‘negative selection’ or ‘exclusion’ is consequence of avoidance, the oldest approach described in 2.2.1.

Voting This SRI strategy takes place at the shareholder’s meetings where investors have the right to vote. It means that the investor either files and supports shareholder resolutions or (proxy) votes in favour of activist resolutions (O’Rourke, 2003: 228) So far, institutional investors that are formally obliged to financial fiduciary have predominantly translated SRI into this participation in decision-making at shareholders’

52 There is no evidence yet, but professor Bauer is currently working on a research into the possible scenarios that the current developments of tobacco exclusion will bring (personal communication, June 19, 2018). 53 However, the investment market has significantly developed since 2004 and it can be expected that the specific exclusions per fund have diversified. This has probably led to a wider choice for the investor, but to my knowledge this has not yet been properly researched.

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meetings (Hawley & Williams, 2000: 21). Institutional investors could take a stance at AGMs, by publicly addressing the company management with ESG concerns. The obvious difference with divestment is that the investor not only expresses concerns, but also constructively aims to steer the management in a certain direction. However, institutional investors tend to vote safely when the company’s management is really challenged. (R. van Tilburg, personal communication, May 23, 2018).54 A way for university funds to apply the strategy of voting is to critically select an asset manager that votes in a sustainable manner (R.P.J. van de Ven, personal communication, June 19, 2018). This SRI strategy has already been introduced in paragraph 4.1 as part of the activist approach, along with engagement.

Engagement Engagement is a strategy in which shareholders actively try to open a conversation via this strategy. ESG issues are discussed and CSR concerns are posited through interaction with company management. (Schuurmans et al., 2017: 36) Engagement is therefore an SRI strategy from the activist approach in which the investor does have to publicize the ESG concerns, as would occur in shareholder voting (Wagemans, Van Koppen & Mol, 2013). This discussion could facilitate an exchange of information on delicate issues, and could therefore promote understanding between both parties (Sparkes & Cowton, 2004: 51). Wagemans et al. conclude “the legitimacy of the investor influences the effectiveness of engagement, whereas the number of shares is less important” (2018: 1). The engagement strategy works the same as the exclusion strategy in the exponential power of joint efforts. Although this strategy could steer companies in a more socially responsible direction, it is an obvious risk that the outcome of engagement might be a superficial gesture that provides no added value. (R. van Tilburg, personal communication, May 23, 2018) It is difficult to prove the decisive impact of this strategy, although recent studies are moderately positive about the effectivity of engagement (Gössling & Buiter, 2017;

54 Van Tilburg recalls the example of institutional investors opposing or abstained from voting on the green resolution of FollowThis at the 2018 Annual General Meeting of Shell, see both; - Vaughan, A. (2018, May 20). Shell faces shareholder challenge over climate change approach. The Guardian. Retrieved May 28, 2018, from https://www.theguardian.com/business/2018/may/20/shell-faces-shareholder-challenge-over- climate-change-approach-paris-climate-deal and - Gilblom, K. (2018, May 22). Shell Sees Off Controversial Votes on Climate Change, CEO Pay. Bloomberg. Retrieved May 28, 2018, from https://www.bloomberg.com/news/articles/2018-05-22/shell-sees-off-controversial-votes-on- climate-change-ceo-pay

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Wagemans, Koppen & Mol, 2013)). However, encouragement has developed into a poorly studied component of SRI, relative to the academic focus on the general subject. Just as voting, engagement is part of the activist approach and has already been introduced in 4.1.

Moral purity or moral effectiveness Taking these different strategies in account, it seems that there is a challenge to preserve both ‘moral purity’ and ‘moral effectiveness’. The former is demonstrated by the avoidance approach and the exclusion strategy. The objective of moral purity is based on the thought that “the righteousness of any monetary return is conditional on the absence of the exploitation of customer, workers, creditors and suppliers” (Mills, 1996: 2). Nevertheless, Simon et al. call it “hopelessly naïve” to think structural avoidance would be possible, because the capital market is very interconnected. They think investors should be interested in affecting the ESG performance of companies instead of keeping the investment portfolio clean. (Simon et al., 1972: 26) This moral effectiveness resembles the activist approach. The positive approach combines both goals, and has been on the rise in recent history. All in all, the strategies within both the avoidance as well as the activist approach have advantages and disadvantages. The following paragraph describes how these strategies should result in formal policy, decent implementation and accountability.

4.3 Policy, implementation and accountability

At this point, it is important to stress the difference between the policy, implementation and accountability of these strategies. Before one or several SRI strategies are adopted, an investor should draw up an SRI policy. In order to comply with the SRI requirements of VBDO, the policy should not only consist of basic principles for investment and a long-term vision with targets regarding ESG issues, but also be accessibly documented and published (Schuurmans et al., 2017: 22). Smaller-scale investors have the opportunity to outsource the SRI policy to their asset managers, if clearly indicated in the policy plan (Hummels, 2007: 13). In this case, it is important to explain thoroughly why the decision for a certain asset manager has been made and why this asset manager excludes certain investments (R.M.M.J. Bauer, personal communication, June 19, 2018). After a description of the SRI policy, it is most crucial that the described strategies are implemented in the investment practices. Hummels notices that

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the reality rarely lives up to the ambitious policy, because of a lack of management time, resources and alacrity (2007: 14). Finally, investors should actively inform stakeholders about the implementation of the policy via responsible investment reports or a separate chapter in the annual report (Schuurmans et al., 2017: 41). Nowadays, nearly every bank publishes a sustainability report (Scholtens, 2009: 165). Bauer suggests it would be wise for a university fund to copy the highlights from the sustainability report into the own annual report (personal communication, May 19, 2018). Furthermore, Scholtens mentions that reporting by the industry is often not very informative, and that overestimation is the rule rather than the exception (2014: 384). Van Brakel acknowledges that it is not always an even interesting reading, but affirms accountability to the public has to be exercised when it comes to the investments of university funds specifically (R.L. van Brakel, personal communication, April 10, 2018). As 4.1 and 4.2 explained the variety of SRI approaches and strategies, this paragraph puts the emphasis on public accountability. It is important that a socially responsible investor publishes a thorough policy plan prior to implementation and regularly a report of the implemented SRI strategy or strategies. The following paragraph is looking into the financial effects of SRI with special regard to ESG integration.

4.4 Financial performance

This chapter has thus far set up a theoretical framework for SRI policies. What impedes the implementation is the short-term perspective of many institutional investors. This paragraph therefore contradicts the assumption that SRI policies cost money. Institutional investors such as pension funds and charitable endowments are obliged to aim at the best possible financial return available, fiduciary in the Netherlands and even statutory in the US and UK (Sparkes, 2003: 254). Asset owners normally value their fund managers quarterly on the basis of investment yield, set against the market monitoring of a global benchmark such as the MSCI World Index55. This pressure encourages short-term value creation, and therefore discourages an active shareholder’s interest in how a company is managed. This is especially the case if funds rather invest in other funds than in the stock market. (Wong, 2010) David Swensen, the successful fund manager of the Yale endowment,

55 The MSCI World Index is a global equity index that represents equity performance across 23 developed markets countries. See https://www.msci.com/world

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stated, “no one should invest with a fund of funds” because “you should know where the money is going” (Brewster, 2009). What this basically means that it has become a debate on the beneficiary financial impact of SRI in the short-term, but before we look into this theoretical debate, let us respond to a bigger picture in the literature. If institutional investors would integrate a corporation’s long-term issues such as environmental protection, sustainability, and good corporate citizenship into their risk assessment, this would stabilize the entire financial market on the long-term (Carbon Tracker Initiative, 2012; Sethi, 2005). Institutional investors are professional investors from whom one could expect certain rationality56. Schmeling described that most institutional investors manage their assets in stable portfolios in contrary to “noise traders” who are led by “individual sentiment” (2007: 142). Jessen subsequently argues that it in order to meet the fiduciary duty, institutional investors need to incorporate specific ESG criteria in their SRI policy that are relevant to their investment strategy (2012). However, investors will not easily be persuaded into this long-term perspective, and the financial performance of SRI on the short-term is therefore more relevant. Extensive research into the financial performance of ethical funds has delivered equivocal outcome to this question (Cowton, 2004). That is why Friede, Busch and Bassen decided to collect every study into the relationship between ESG criteria and financial performance from the beginning of the 1970s until their publication year (2015). This amounted to aggregate evidence from about 2.200 empirical studies. The results show that making a case for ESG investing is empirically very well founded. The vast majority of the studies reports positive correlation and the positive impact of ESG criteria on financial performance appears stable over time, which means that SRI is profitable both on the short-term and the long-term. (Friede, Busch & Bassen, 2015) This evidence was later put in perspective by Krukover, who analysed the actual SRI level of thousands of mutual funds based on ESG criteria of rating agency Morningstar. She found out that it depends on a researcher’s definition of risk whether SRI funds score better on investment efficacy or not. They regularly have the same RoI, but a lower volatility. (Krukover, 2017)

56 This difference in rationality between institutional and individual investors remains contested. Fisher and Statman (2002) for instance, argue that behavioural biases had equal effect on both investor categories. In support of Fisher and Statman’s assumption that institutional investors are not entirely rational, the academic community has proposed several biases of institutional investors. In general, institutional investors remain irrational due to the fact that they easily overestimate their own cognitive abilities (Shiller, 2002). It has also been said that they overvalue the status quo assets on the financial market (Freiburg & Grichnik, 2013).

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Altogether, the literature shows that the integration of ESG risks into the financial assessment of investors could be both profitable for short-term gains and long-term stability. A comment by Bauer sums up the previous paragraph as follows: “it is just silly to ignore ESG criteria when the outcome is material” (personal communication, June 19, 2018).

4.5 Conclusion

This chapter explored the theoretical debate on SRI. It presented different approaches that investors can choose, and related strategies that they can undertake. The debate is about the dilemma between different approaches, with regard to moral purity or moral effectiveness. This emphasis on the strengths and weakness of the implementation does however not detract from the importance of documented policy and accountability. It appears that there is academic disagreement over the choice for an avoidance approach or an activist approach. The former stands for moral purity and the latter for moral effectiveness. In the avoidance approach, the strategy of negative selection is executed. This means that investors exclude certain sectors or companies from the investment portfolio, because these are regarded immoral. The investors publicly disassociate themselves from the unethical corporate activities and the portfolios remain or become clean. However, in the activist approach, a strategy of voting or engagement is applied. These imply that the investors make active use of their shareholder’s rights or influence. They try to effectively spur the corporate actor to a stronger ESG performance through participation at AGMs or through conversation with company management. Simon et al. believe that negative selection or exclusion sends a signal to corporate actors, but it is disputed that a public divestments have set them in motion yet. The activist approach seems more effective, although investors tend to vote conservatively when their votes really count. Recent studies on engagement do show a positive image, but there remains a lack of research into this strategy. What evidently derives from the literature is that a collective application of SRI strategies makes the impact exponentially stronger. This applies to joint efforts of exclusion, engagement, and obviously voting. The collective strategy then has to be formalized and publicized in policy plans and reports. The SRI strategies ‘ESG integration’ and positive selection are examples of the positive approach. The former is overarching in the sense that screening and rating of the stock market is important to all the other strategies. The latter means that companies with a strong ESG performance are positively selected. This strategy is becoming more popular, not only because of ethical reasons, but also because the financial performance of their stocks

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stands out favourably both in the short-term and the long-term. Positive selection exists in various forms, with the best-in-class method and impact investment. The theoretical debate about moral purity and moral effectiveness is not over, but there is consensus that joint efforts are most impactful. Furthermore, the fact remains that the positive approach gains ground, as positively selected companies on the basis of ESG criteria have performed well in recent history.

5. Methodology This chapter aims to construe the methodology used in this thesis research. It first explains why the framework analysis is chosen as approach, and how it combines descriptive and exploratory features. Subsequently, the case selection is introduced with particular reference to the selection criteria. Then the literature study, document analysis and semi-structured interview are described as data collection techniques. Finally, the ethical considerations of the research regarding trustworthiness, potential biases and limitations are discussed.

5.1 Methodological approach

The general aim of this study is to determine which SRI strategies Dutch university funds use. In addition, it tries to find out the underlying ethical deliberations of the policymakers regarding these strategies. This paragraph explains why a framework analysis is an appropriate approach to describe the former and explore the latter. According to Creswell, the aim of qualitative research is to “explore a social or a human problem” in which a researcher “builds a complex, holistic picture, analyzes words, reports detailed views of informants and conducts the study in a natural setting” (1998: 15). Framework analysis is a qualitative method within the social sciences developed by Jane Ritchie and Liz Spencer. The primary objective is to describe and interpret what is happening in a particular setting. It is properly suited for applied policy research, just as ‘grounded theory’. The difference is that framework analysis specifically suits a research that has specific questions, a limited time frame, a pre-designed sample and a priori issues. (Srivastava & Thomson, 2009: 73) Since all of these circumstances apply to this research, a framework analysis is a valid approach. Moreover, the multi-use of methods has two explicit advantages. Firstly, the interpretative part accounts for an in-depth data set. Secondly, the various data sources could increase the validity and reliability of the findings. (Yin, 2003) Ritchie and Spencer differentiate four categories of questions a qualitative research into applied policy research can answer (1994: 174):

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• the contextual category identifies the form and nature of what exists; • the diagnostic category examines the reasons for, or causes of, what exists; • the evaluative category appraises the effectiveness of what exists; • the strategic category identifies new theories, policies, plans or actions. The first two categories match the aims of this research best. The contextual part of the study concerns the various SRI strategies that Dutch university funds use or not use, whereas the diagnostic part of the study relates to the underlying ethical deliberations.

Category Goal Sub question Identifying the form and nature of What SRI strategies do Dutch Contextual what exists. university funds apply? Examining the reasons for, or Why do policymakers opt for Diagnostic causes of, what exists. particular SRI strategies? Figure 5 – Research categories, goals and sub questions57

Since the sub questions are quite wide-ranging, it helps that the framework analysis is a comprehensive approach that allows “a full rather than partial or selective, review of the material collected” (Srivastava & Thomson, 2009: 77). The framework analysis helps to define concepts, determine scale and seek explanations, and could thus lead to a comparison within a case or between cas es (Ritchie & Spencer, 1994: 176). A single case requires less time and resources, but a "comparative" or “multiple-case” research is considered more compelling than a single-case research (Yin, 2003: 45). Now it is clear why this research uses the framework analysis, we will go through the multi step process of this methodological approach. A framework analysis consists of five stages (Ritchie & Spencer, 1994: 178-192):

1. Familiarization concerns the process during which the researcher becomes acquainted with the already collected data (transcripts, policy documents, academic literature, etc.). The researcher notes the most important themes and issues in this familiarization process. 2. Identifying a thematic framework, which addresses the research questions. These emerging themes or issues may have arisen from a priori themes, but it is important to devise and refine the thematic framework based on the data. The framework can be used to filter and classify the data. 3. Indexing involves the identification of certain sections or components of the data that correspond with themes and issues within the framework. This process is applied to all the data that is derived from reports, policy documents and interview transcripts. 4. Charting follows directly after the indexing, and means that the indexed textual sections are placed in the charts of the themes. These charts consist of the topics and subtopics that are identified in the thematic framework.

5. Mapping and interpretation form the last stage of the framework analysis. As a result of the previous steps, it is possible to set up a schematic diagram that reflects the key characteristics as outlined in the charts. The diagram can be analyzed and interpreted based on the same charts. Figure 6 – Stages of framework analysis (Ritchie & Spencer, 1994: 178-192) 57 This figure has been derived from the division of research categories of Ritchie & Spencer (1994: 174).

44 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

5.2 Case selection

As mentioned earlier, a multiple-case research is considered more compelling than a single- case research and it is also possible to compare the different cases when conducting a framework analysis. This paragraph discusses the chosen sample and subsequently introduces the researched cases. It followed from the conceptualization of SRI at the beginning of chapter 2.2 that there are two conditions linked to this investment policy. The first is the condition that an investor must have the ambition to make a profit, while the second adds that an investor must possess ownership stakes (Ransome & Sampford, 2016: 11). This rules out Dutch university funds that either invest assets without a pursuit of RoI or without stocks or shares in their investment portfolios. Although the Dutch university funds fall under the regulation for charity foundations (A.N.B.I.) because they structurally contribute to the academic community, it is possible for them to invest assets on the stock market if they take fluctuations of income into account (Belastingdienst, 2018). Even if it is feasible for a university fund to accumulate acquired private capital flow under Dutch law, this does not mean that all university funds include stocks or shares in their investment portfolio. As pictured in Figure 3 on the following page, the investment portfolios from the fiscal year 2016 differed quite considerably with regard the share of securities.58 The ‘Radboud Fonds’ and the ‘Utrecht Universiteitsfonds’ do not have securities in their portfolios and are automatically therefore excluded from this research, which leaves ten Dutch university funds that are able possibly to implement SRI strategies. In order to put sufficient time and thought in the conducted case studies, this thesis narrows the case selection down to the six university funds which own securities worth over five million euros.59 This means this thesis conducts a multiple-case study on the ‘Leids Universiteits Fonds’, ‘VU-Vereniging’, ‘Erasmus Trustfonds’, ‘Amsterdams Universiteitsfonds’, ‘Groninger Universiteitsfonds’ and ‘Universiteitsfonds Limburg’.

58 The annual reports only display how many securities the funds own. Securities can be debt securities (e.g. bonds), equity securities (e.g. stocks) or deritaves (options). 59 With a return of 1,8% on securities, it is likely that the ‘Universiteitsfonds Delft’ has more bonds than stocks in its portfolio. Still, a lot of donations interesting other research? The ‘Universiteitsfonds Delft’ had not yet published its annual report of 2016. Even though the total amount of securities does not go near a worth of five million euros, it would have made sense in this light to contact the fund’s policymakers for more portfolio information.

45 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor * in million euros

Figure 7 – Equity capital of Dutch university funds divided into assets that are invested in securities or non-securities

5.3 Method of data collection

The multiple-case study is not limited to one specific manner of methodology or data collection (Yin, 2003). Generally, qualitative research makes use of textual data such as interview transcriptions or organizational documents (Srivastava & Thomson, 2009: 74). This research draws on multiple methods of data collection, which are described in this paragraph.

Literature review This first stage of the data collection process implied a search for syntheses in the academic literature. The historical background of Dutch higher education funding, the ethics of investment for universities and the theories of SRI were focus of this review. In order to give a comprehensive background to the developments in the private funding of Dutch universities, historical literature was reviewed. Most of the historical literature was found online, although some books were borrowed from three libraries of the University of Amsterdam: ‘Roeterseiland’, ‘Universiteitsbibliotheek Singel’ and ‘Bijzondere Collecties’. The ethical complications for universities as investors were largely derived from Simon et al. (1972), a book that was imported from the U.S. The SRI theory was obtained trough an assessment of literature from various academic journals and books. The themes that a priori determined the common thread in the semi-structured interviews were derived from this literature.

46 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Semi-structured interviews In an early stage of the data collection process I reached out to each of the six university funds. Attached to the sent e-mail was a questionnaire, which can be found in the appendix, with the request to complete it before the start of the interview.60 This strategy turned out to be convenient, because interviews tended to go into details on the ethical and practical concerns of the SRI strategies. The interviews with the six policymakers of the university fund were semi-structured and consisted of two parts. First, the interview went into details on the perception of SRI and the growing urgency of private capital flows generally and SRI specifically for universities. When interviewees did not directly have the required information at hand, I sent e-mails for the missing data afterwards. Second, the answers of the questionnaire were refined and explained. These ethical deliberations were addressed in the latter part of the interview, because they included more sensitive information (Gill, Stewart, Treasure & Chadwick, 2008: 292). To facilitate an in-depth and extensive interview, I proposed to come over to the interviewee’s place of work (Gill et al., 2008: 294). This happened in four of the six cases.61 On average, the interviews lasted 45 minutes. The majority of the interviews was recorded and transcribed word for word with the permission of the participants. The cited comments in this thesis were translated from Dutch into English as accurately as possible. During the interviews, it came clear that the a priori established themes were maintained. However, the ‘voting’ and ‘engagement’ were combined in the sixth and seventh chapter, because it turned out during the indexing progress that the comments on both subthemes were jumbled up. In order to acquire in-depth knowledge on the theoretical and practical background of this thesis, I interviewed six more experts. Those interviews were also semi-structured, These experts include two directors of the sector organization of Dutch universities, a newspaper editor, a serving asset manager and two researchers specialized in SRI. All interviewees are below in Figure 8.

60 The questionnaire in the appendix is in Dutch, because all interviewees were native Dutch speakers. 61 The interviews with Miggelbrink, Van Sluis-Barten, Jepma and Stadig were conducted face to face, and the interviews with Kievits and Visscher were conducted by telephone.

47 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor Date Organization Function Name Director 10-4-2018 VSNU Drs. R.L. van Brakel Accountability

10-4-2018 VSNU Director Finance Drs. D. Smeets

Amsterdams Relationship Dr. J.J.M. 2-5-2018 Universiteitsfonds manager Miggelbrink Universiteitsfonds 9-5-2018 Director Drs. J.M.G. Kievits Limburg/SWOL Drs. M.M. Sluis- 14-5-2018 Erasmus Trustfonds Director Barten Prof. Dr. Mr. C.J. 14-5-2018 Groninger Universiteitsfonds Treasurer Jepma Drs. M. van 15-5-2018 Volkskrant Editor of Science Calmthout

16-5-2018 Leids Universiteits Fond Director Drs. L.B. Visscher

23-5-2018 Sustainable Finance Lab Director Drs. R. van Tilburg

29-5-2018 VU-Vereniging Treasurer Drs. D.B. Stadig

18-6-2018 Van Lanschot Wealth manager R.P.J. van de Ven

Prof. Dr. R.M.M.J. 19-6-2018 Maastricht University Professor in Finance Bauer Figure 8 – Conducted interviews during data collection

Policy documents The third method of data collection involved the analysis of policy documents of university funds, universities, asset managers and research organizations. The policy reports were retrieved from the Internet, with a few exceptions. First, there is a recent investment report of the VUvereniging, given by Stadig. The annual reports of the VUvereniging and the GUF have not yet been publicized at the release date of this thesis, but they were sent to me by mail. In some cases, the policymakers shared specific investment reports and personal communication with asset managers. While a share of the data used in chapter 6 was derived from interviews, this was complemented with data from the policy documents of the university fund in question and its asset manager or managers.

48 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

5.4 Limitations, and ethics

This paragraph reflects on the limitations and ethics of this research.

Limitations The interviewees made statements about SRI policy based on their interpretation. The fact that I subsequently interpreted these statements implies double hermeneutics (Giddens, 2013). Another limitation is that policymakers could be too optimistic about their own efforts. This hurts the internal validity of the research. I tried to prevent this from happening by verifying data as much as possible. The various data sources could increase the validity and reliability of the findings (Yin, 2003). I believe that some of the deliberations stated by the university fund policymakers were not solely meant for one particular strategy, but they were indexed in the strategy that best suited the context. Furthermore, I have used the information from interviews with specialists across the whole thesis. However, with a framework analysis based on a thematic approach, interview data frequently tells more about various aspects of the research (Braun & Clarke, 2006: 79). Because the policymakers of the Dutch university funds have own attitudes, the outcome of this research does not tell us more about the universal deliberations. Still, the research contributes in an exploratory way, and the outcome should be tested in another context. A research into the applied SRI strategies and underlying ethical deliberations of university funds from another country would make the outcome more valid. A research into the Dutch university funds at another time would make the outcome more reliable.

Ethics As mentioned before, I preferred to record all interviews, but this was not universally accepted. That is why I did my best to take notes and I can ensure that I have not cited quotes that I am not entirely sure of. I tired to keep my bias towards SRI away from this research, both in interviews and in desk research.

6. SRI strategies of Dutch university funds

This chapter contains six case studies of Dutch university funds into what SRI strategies they apply, and to what extent. The findings form a matrix that makes it easier to subsequently compare the different cases with regard to the applied SRI strategies.

49 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

6.1 Case studies into the application of SRI strategies

Before we can execute a comparative analysis, the SRI strategies of the individual university funds are analyzed. Paragraph 4.3 indicated that besides the implementation, formalized and publicly accessible policy plans and accountability reports of SRI practices are important as well. That is why the case studies each start with an overview of the general and SRI-specific investment policies. They are presented in order of assets size.

6.1.1 Stichting Leids Universiteits-Fonds / LUF (1890)

Policy and accountability The treasurer of the LUF has a leading role in the investment policy’s direction, in coordination with the board. The audit committee monitors the asset manager Van Lanschot Kempen. Furthermore, the LUF has an alumni office, of which interviewee Lilian Visscher is the director. The LUF has a moderately offensive investment strategy, with a portfolio that consists for 57,5% of equity funds and 42,5% of risk-averse financial products. The capital maintenance regime is essential, which is why the LUF and its asset manager actively pursue a maximum RoI considering an acceptable level of risk: “if we wanted to avoid all risk, we would transfer the assets to a savings account.” The maximum RoI cannot be obtained at the expense of everything else, and sustainable funds are preferable. There is an informal SRI policy, as the LUF de facto follows the SRI policy of its asset manager. (L.B. Visscher, personal communication, May 16, 2018) The annual report of the LUF is publicly accessible, in contrary to a longer-term policy plan. The former does not contain SRI ambitions or remarks about the implementation of SRI strategies (LUF, 2018).

University Total assets Yield Risk profile Asset manager Leiden €42.846.826 7,3% Mod. offensive62 Kempen Figure 9 – General information on the LUF’s asset management

62 In the absence of a standard from the Dutch central bank or AFM (Dutch Authority for the Financial Markets), this thesis uses the ABN AMRO standard. This standard has six categories: highly defensive, defensive, moderately defensive, moderately offensive, offensive and highly offensive. For further information on the standard [In Dutch], see https://www.abnamro.nl/nl/prive/beleggen/beginnen-met- beleggen/beleggersprofiel/de-zes-risicoprofielen.html

50 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

ESG integration The asset manager of the LUF is Kempen, a business of the investment bank Van Lanschot, which takes the ESG integration into the risk assessment seriously. They include the carbon footprint of their funds into the SRI report. Kempen has screened three quarters of the companies that it invests in. The asset manager has te ambition to create a stable outperformance on the long-term with full integration of ESG criteria. The ESG rating agency MSCI delivers the ESG data. (Kempen, 2018) Visscher indicates that the choice for Kempen as the LUF’s asset manager was made before she came into office (personal communication, May 16, 2018).

Positive selection At this moment, impact investing is not yet a cornerstone of the LUF’s investment policy. The issue has been discussed, but it is not yet in development. (L.B. Visscher, personal communication, May 16, 2018) Kempen offers the opportunity of impact investment at least with two of their own equity funds: the ‘Kempen Sustainable Value Creation Fund’ en de ‘Global Impact Pool’. (2018: 8) What is interesting is the fact that of all of LUF’s equity funds, the Kempen European Smallcap Fund has the largest unrealised gain.63 This fund scores relatively well on ESG performance, and thus also on financial performance (2018: 90).

Negative selection The exclusion policy has always been discussed intensively with the asset manager. Kempen officially excludes 35 companies from its asset management and ‘avoids’ 24 companies (2018: 82-84). It is the LUF’s audit committee that ultimately decides whether a portfolio proposed by Kempen goes through or not. The LUF has not asked Kempen to exclude more companies or a whole sector from the investment portfolio. (L.B. Visscher, personal communication, May 16, 2018)

Voting and engagement The LUF does not directly engage with companies as a shareholder, although its asset manager Kempen has extended its engagement practices extensively last year. It was one of the institutional investors that supported the Follow This resolution on Shell’s AGM (2018: 13). There is no mention of any encouragement by the LUF.

63 Lilian Visscher sent an investment report on May 25 with an overview of all administered equity.

51 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Figure 10 describes the policy, implementation and accountability of the SRI practices of the LUF, chapter 6 elaborates on the ethical deliberations.

ESG Integration MSCI provides ESG ratings to Kempen.

Negative selection Child labour and controversial weaponry.

Positive selection No impact investments, green bonds or micro finance.

Voting Has not spurred Van Lanschot Kempen.

Engagement Has not spurred Van Lanschot Kempen .

Figure 10 - SRI strategies applied by the LUF

6.1.2 Stichting Erasmus Trustfonds (1913)

Policy and accountability Director Margot van Sluis-Barten states that there are no members of the Erasmus Trustfonds’ board, which decides the investment policy, part of the academic staff. This university fund is thus entirely independent from the Erasmus University.64 An Investment Committee that includes three external investment specialists assists the board. The fund’s ambition is to reach a RoI of 7% or 8% and grant this annual return to the academic community. (M.M. van Sluis-Barten, personal communication, May 14, 2018) The Erasmus Trustfonds currently has a moderately defensive investment portfolio with 38,2% equities or equity funds, 55,9% fixed income securities and 5,9% liquidities. The outcome of this risk profile was a 3,4% RoI. (Erasmus Trustfonds, 2018) The Erasmus Trustfonds’ pursuit of “sustainable investments in which people and nature are respected” is fragmentally, albeit formally, constituted in the annual report (Erasmus Trustfonds, 2018: 24). Both this report and the longer-term policy

64 The fund’s personnel is not on the university’s payroll but on that of the Erasmus Trustfonds (M.M. van Sluis-Barten, personal communication, May 14, 2018).

52 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

plan are publicly accessible, and the former briefly reports on the financial outcome of micro finance activities (Erasmus Trustfonds, 2018: 26).65

University Total assets Yield Risk profile Asset manager Erasmus €28.273.088 3,4% Mod. defensive66 MeesPierson & WMP67 Figure 11 - General information on the asset management of the Erasmus Trustfonds

ESG integration The asset managers of the Erasmus Trustfonds, WMP and MeesPierson, differ in their ESG integration. First, WMP does not integrate ESG criteria in its asset management.68 Second, MeesPierson assesses the ESG performance of corporate activities and corporate processes using data from Sustainalytics (ABN AMRO MeesPierson, 2018: 10). The financial balance between the two asset managers is not available. Van Sluis-Barten did not recall an SRI- related reason to choose for either one of the asset managers (personal communication, May 14, 2018).

Positive selection MeesPierson has positively selected an unknown share of the investment portfolio, in contrary to the other share of WMP. Furthermore, impact investment is “explicitly preferred” and the Erasmus Trustfonds implemented an unknown amount of micro finance in the harbour of Rotterdam “in order to help initiatives that can help Rotterdam to make progress” (M.M. van Sluis-Barten, personal communication, May 14, 2018). The annual report of 2017 states that this micro finance made less profit than expected with a RoI of 3,2% (Erasmus Trustfonds, 2018: 26).

65 The policy plan will be renewed in the near future (M.M. van Sluis-Barten, personal communication, May 14, 2018). The current policy plan, made in 2017, can be found here: https://www.trustfonds.nl/wp-content/uploads/2018/02/Beleidsplan.pdf 66 In the absence of a standard from the Dutch central bank or AFM (Dutch Authority for the Financial Markets), this thesis uses the ABN AMRO standard. This standard has six categories: highly defensive, defensive, moderately defensive, moderately offensive, offensive and highly offensive. For further information on the standard [In Dutch], see https://www.abnamro.nl/nl/prive/beleggen/beginnen-met- beleggen/beleggersprofiel/de-zes-risicoprofielen.html 67 Wealth Management Partners. 68 For more information on the Dutch asset manager WMP, see https://wmp.nl/onze_firma.html

53 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Negative selection The policy of MeesPierson is comprehensive. This will be discussed in 6.1.4, as MeesPierson only manages a share of the assets from the Erasmus Trustfonds, and the exclusion policy has to be subject to the whole ‘clean’ portfolio. The board of the Erasmus Trustfonds is working on a detailed and thorough negative selection, but currently excludes child labour, tobacco and weaponry (M.M. van Sluis-Barten, May 14, 2018).

Voting and engagement The Erasmus Trustfonds does not directly engage with companies as a shareholder, and has not encouraged its asset managers to do so. Van Sluis-Barten cannot imagine this will happen in the future. (personal communication, May 14, 2018)

Figure 12 describes the policy, implementation and accountability of the SRI practices of the Erasmus Trustfonds, chapter 6 elaborates on the ethical deliberations.

Sustainalytics provides ESG ratings to MeesPierson for a share of ESG Integration the assets. WMP does not use ESG integration for the other share.

Negative selection Child labour, tobacco and weaponry.

A share of the portfolio was positively selected by MeesPierson. An Positive selection unknown quantity of micro-finance has been implemented.

Voting Has not spurred its asset managers.

Engagement Has not spurred its asset managers.

Figure 12 - SRI strategies applied by the Erasmus Trustfonds

6.1.3 VUvereniging (1879)

Policy and accountability The organization of the VUvereniging is different from the other researched university funds, as it is an association instead of a foundation. This means that the treasurer, Duco Stadig, and the board constitute a financial policy in liaison with a financial committee and ultimately the Council of Members (VUvereniging, 2018: 23). The chairs of the Vrije Universiteit and

54 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

VUmc are board members of the VUvereniging.69 Stadig applies a moderately defensive investment policy, aiming at the preservation of assets. It is established that the VUvereniging disburses 3% of the total assets to academic matters on an annual basis. (D.B. Stadig, personal communication, May 29, 2018) The investment portfolio consists for of 73,4% of securities, 25,4% of real estate and 2,2% of receivables. The risk profile translates into the composition of the securities, as 63,5% is risk-averse and 36,5% shares. (VUvereniging, 2018: 30) The real estate in the portfolio was a bequest, with a specified mission of social justice.70 “Securities are a different matter”, comments Stadig, as the VUvereniging has consequently not yet established an SRI policy for its investment activities. (personal communication, May 29, 2018) The annual report of the VUvereniging is comprehensive and shows the complete investment portfolio, although SRI is not part of the release. The longer-term policy plan is also publicly accessible, but out of date.

University Total assets Yield1 Risk profile Asset manager Vrije Universiteit €25.137.000 3,6% Mod. defensive1 Kempen (UBS until 2017) Figure 13 - General information on the VUvereniging’s asset management

ESG integration As the VUvereniging has not adopted SRI policy, the previous asset manager UBS was not deliberately chosen for its sustainable finance.71 The selection procedure had been executed before Stadig’s term of office, but he has no complaints so far. UBS and subsequently Kempen enforce the policy framework Stadig and his board have set up. When UBS was still the asset manager, Stadig asked whether environmental issues could be integrated into the asset management: “UBS indicated that it was difficult to find fund managers to execute this”. (personal communication, May 29, 2018) The ESG integration of Kempen was already briefly described in 5.1.2.

Positive selection As 6.1.1 indicated, Kempen offers a spectre of impact investing possibilities. The VUvereniging has not yet invested in these equity funds, but has implemented positive

69 Prof. dr. Mirjam van Praag of the Vrije Universiteit and Wouter Bos of the VUmc. 70 The bequest comprised real estate in Amsterdam that is worth over €6 million. It was formalised in the testament that the VUvereniging would provide social housing rather than rents based on market terms. Stadig believes this is also a way of SRI. (personal communication, May 29, 2018) 71 Van Lanschot Kempen acquired the Netherlands branch of UBS Wealth Management during the fiscal year 2017 (Van Poll, 2017).

55 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

selection regarding the risk-averse securities. The ‘UBS ETF US Liquid Corp Sustainable’, which consists of American corporate green bonds, is part of the investment portfolio. These green bonds comprise around 3% of the invested capital. (VUvereniging, 2018: 9)

Negative selection Stadig explains that it is not strictly relevant to implement an exclusion strategy when it comes to corporate or government bonds. He refers to the international consensus that asset managers should not invest in controversial weaponry, and points out that UBS brought a proposal forward of companies that it would avoid. Furthermore he questions whether a university fund is able to individually exclude sectors from its investment portfolio. (personal communication, May 29, 2018) Apart from the list of companies, mentioned in 6.1.1, Kempen also excludes controversial weaponry, and additionally child labour practices.

Voting and engagement The VUvereniging has not yet adopted SRI strategies of the activist approach. Stadig explains that the VUvereniging is not a direct shareholder, because it invests in equity funds: “perhaps they exercise their right to vote”. The VUvereniging has not encouraged its asset manager to vote at AGMs or to engage with companies. (personal communication, May 29, 2018)

In Figure 14 below is an overview of the applied SRI strategies. Chapter 6 elaborates on the ethical deliberations of Stadig and his board.

ESG Integration MSCI provides ESG ratings to Kempen.

Negative selection Child labour and controversial weaponry.

Positive selection Around 3% of the portfolio consists of green bonds.

Voting Has not spurred its asset managers.

Engagement Has not spurred its asset managers.

Figure 14 - SRI strategies applied by the VUvereniging

56 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

6.1.4 Stichting Amsterdams Universiteitsfonds / AUF (1889)

Policy and accountability The treasurer defines the AUF’s investment policy in accordance with the rest of the board while the asset manager Triodos MeesPierson brings this policy into practice, according to development manager dr. Jochem Miggelbrink. The AUF has a moderately defensive investment strategy with a balance between shares, bonds and cash in the portfolio. This strategy resulted in an unrealised gain of 3,9% in 2017 (J.J.M. Miggelbrink, personal communication, May 2, 2018). The annual grant to the academic community is related to the RoI, and limited to a maximum rate of 3,5% of the total assets (AUF, 2018: 15). The AUF has a formal SRI policy that is integrated in a publicly accessible policy plan. It explicitly mentions ESG integration, positive selection and negative selection as applied SRI strategies. (AUF, 2017: 7-8) The annual report is also publicly accessible and mentions the same strategies, but does not report on the implementation and results of the applied SRI strategies. (AUF, 2018).

University Total assets Yield Risk profile Asset manager Amsterdam72 €24.482.569 3,9% Mod. defensive73 MeesPierson Figure 15 - General information on the AUF’s asset management

ESG integration The AUF board chose MeesPierson already in 2010 for its ESG integration.74 This decision was made because the AUF did not have the professional expertise for individual SRI policies, and did not want the responsibility for this. The ESG integration of MeesPierson is therefore not monitored by the AUF itself. (J.J.M. Miggelbrink, personal communication, May 2, 2018). The AUF mentions in its annual report that MeesPierson uses data from Sustainalytics in order to integrate ESG criteria (AUF, 2018: 10).

72 The University of Amsterdam, as 4.1.2 describes the SRI strategies of the university fund of VU Amsterdam. 73 In the absence of a standard from the Dutch central bank or AFM (Dutch Authority for the Financial Markets), this thesis uses the ABN AMRO standard. This standard has six categories: highly defensive, defensive, moderately defensive, moderately offensive, offensive and highly offensive. For further information on the standard [In Dutch], see https://www.abnamro.nl/nl/prive/beleggen/beginnen-met- beleggen/beleggersprofiel/de-zes-risicoprofielen.html 74 Which was a joint venture named Triodos MeesPierson at that moment.

57 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Positive selection This data has been used by MeesPierson to positively select certain companies and equity funds. In addition, impact investments in terms of green bonds, micro finance and FMO Impact Funds belong to the priorities of this asset manager. The portfolio is positively selected on the basis of the best-in-class method, described in 4.3. The AUF’s investment portfolio consists for 4,5% of these impact investments, and MeesPierson believes these investments will account for a proper RoI in the future.75 (J.J.M. Miggelbrink, personal communication, May 2, 2018)

Negative selection The AUF follows MeesPierson in its most sustainable exclusion policy, which is a standard named ‘Duurzaam beleggen mandaat’. The complete list of excluded sectors in the questionnaire has been ascertained by MeesPierson: animal testing, child labour, coal, conflict minerals, conflict minerals, corruption, fur, gambling, industrial farming, natural gas, nuclear energy, oil and weaponry.76 (J.J.M. Miggelbrink, personal communication, May 2, 2018) While this is the de facto implementation of the exclusion strategy, the AUF’s policy formally excludes “corporations that are involved in a number of non-sustainable products or corporate processes” (Amsterdams Universiteitsfonds, 2018: 10).

Voting and engagement The activist approach is not yet part of the discussion on SRI policies, and the AUF has therefore not encouraged MeesPierson to actively engage with corporations or equity funds on ESG issues (J.J.M. Miggelbrink, personal communication, May 2, 2018). The asset manager does however have an own engagement and voting policy.

In Figure 16 on the following page is an overview of the applied SRI strategies. Furthermore, the reasons for AUF’s policy are included in chapter 6.

75 The percentage of impact investments was derived from personal communication between Miggelbrink and the asset manager. 76 This data was also derived from personal communication between Miggelbrink and the asset manager.

58 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

ESG Integration Sustainalytics provides ESG ratings to MeesPierson.

Alcohol, animal testing, child labour, coal, conflict minerals, Negative selection conflict minerals, corruption, fur, gambling, industrial farming, natural gas, nuclear energy, oil, pornography and weaponry. The entire portfolio was positively selected by MeesPierson based Positive selection on best-in-class method, 4,5% of the portfolio is impact investment.

Voting Has not spurred MeesPierson.

Engagement Has not spurred MeesPierson .

Figure 16 - SRI strategies applied by the AUF

6.1.5 Stichting Groninger Universiteitsfonds / GUF (1893)

Policy and accountability The GUF’s treasurer, economics prof. Jepma, defines the investment policy in agreement with the rest of the board and in consultation with ING as asset manager. The GUF aims at an aggressive investment strategy with a globally widespread diversification of its portfolio. The portfolio consists for more than 80% of listed shares and equity funds. This strategy has generated an above-average RoI in recent years, and resulted in an unrealised gain of 9,7% in 2017. The annual grant to the academic community is fixed at 4% of its total assets, which is formally incorporated in the fund’s Articles of Association along with, inter alia, a paragraph that reflects the SRI policy. (C.J. Jepma, personal communication, May 14, 2018) This policy document or longer-term policy plans are not publicly accessible. Nevertheless, there has been a discussion within the GUF’s board of trustees three years ago on whether the fund should adopt SRI, primarily sustainable investing. At that time, the selection of shares and funds just prevented the adverse excesses. This discussion was specified in an old annual report (Groninger Universiteitsfonds, 2013: 5). The GUF always publicizes the annual reports on the website, and the investment portfolio is included for the first time this year.77 However, they do not report on SRI implementation.

77 The annual report of 2017 has not yet been publicized on the website of the GUF, but Jepma shared the draft for this thesis. It will be placed online on the following website: https://www.rug.nl/about- us/support-the-university/groninger-university-fund/jaarverslagen

59 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

University Total assets Yield Risk profile Asset manager Groningen €8.318.917 9,7% Offensive78 ING Figure 17 – General information on the GUF’s asset management

ESG integration What emerges is the fact that ING is actively engaged in ESG integration, although Jepma did not choose GUF’s asset manager on SRI criteria because “nowadays all banks are capable of this” (personal communication, May 14, 2018). ING is currently offering eight different financial products regarding sustainability, and has screened companies for positive selection using data from Sustainalytics. (ING, 2018: 4-6) The asset manager offers besides the financial risk analysis of investment also a non-financial risk analysis, which is measured with ‘environmental, social and societal’ factors (ING, 2016).

Positive selection The investment policy has changed driven by these questions. Jepma relocated a part of the assets, around 10%, to sustainable funds. Jepma regards it as a good move: “these funds have performed relatively well.” (personal communication, May 14, 2018). An example is the ‘F&C stewardship’ fund, which invests in companies with sustainable activities in the energy, health care and mobility sector. As a result, the fund’s carbon intensity is 44% below the MSCI benchmark’s standard (ING, 2016). The annual account of 2017 revealed an impressive unrealised gain of 12,1% for this fund. Jepma decided not to invest in micro finance, because of its complex structure (personal communication, May 14, 2018).

Negative selection Apart from the sustainable funds, the GUF invests in a range of equity funds and is a direct shareholder of 60 different quoted companies. Almost half of its direct shares in companies consist of shares in two companies, Royal Dutch Shell and ING Groep.79 (GUF, 2018) Jepma decided to follow the exclusion policy of ING, although this has not established in the articles of association yet. (C.J. Jepma, personal communication, May 14, 2018) ING has developed

78 In the absence of a standard from the Dutch central bank or AFM (Dutch Authority for the Financial Markets), this thesis uses the ABN AMRO standard. This standard has six categories: highly defensive, defensive, moderately defensive, moderately offensive, offensive and highly offensive. For further information on the standard [In Dutch], see https://www.abnamro.nl/nl/prive/beleggen/beginnen-met- beleggen/beleggersprofiel/de-zes-risicoprofielen.html 79 Most shares are bequested (C.J. Jepma, personal communication, May 14, 2018).

60 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

its exclusion policy in recent years, and now avoids companies that have directly or indirectly been involved in practices like alcohol, animal testing (or abuse), child labour80, corruption81, coal, gambling, human rights violation82, nuclear energy, pornography, tobacco and weaponry (ING, 2017).

Voting and engagement The GUF has not yet adopted the strategies of the activist approach, and Jepma does not plan to change this policy. ING however has professionalized its engagement capacities, advised different fund managers on ESG issues and worked with VBDO in engagement practices (2018: 7).83 There is no mention of any encouragement by the GUF.

While this paragraph describes the policy, implementation and accountability of the SRI practices of the GUF, chapter 6 elaborates on the ethical deliberations of professor Jepma. In Figure 18 below is an overview of the applied SRI strategies.

ESG Integration Sustainalytics provides ESG ratings to ING.

Alcohol, animal testing (or abuse), child labour, corruption, coal, Negative selection gambling, human rights violation, nuclear energy, pornography, tobacco, weaponry.

Positive selection Around 10% of the portfolio is impact investment.

Voting Has not spurred ING.

Engagement Has not spurred ING.

Figure 18 – SRI strategies applied by the GUF

80 Companies that received “substantial fines” for labour laws and codes (ING, 2017: 4-5). 81 Companies that are engaged in subornation or blackmailing (ING, 2017: 4). 82 When there is convincing evidence that a company is involved in violations of human rights (ING, 2017: 5). 83 The Dutch Association of Investors for Sustainable Development

61 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

6.1.6 Stichting Universiteitsfonds Limburg / UFL (1965)

Policy and accountability The UFL’s treasurer is responsible for the management of the investment policy, but confers with the rest of the board, asset manager ING and the regular personnel. The day-to-day activities are managed by the regular personnel, which consist of a director, in the person of interviewee Jos Kievits, and two employees responsible for communication and administration. The investment portfolio is made up for approximately 30% of equity funds, and for around 70% of risk-averse financial products. However still a defensive strategy, the fund reinforced its investment activities last year, aiming for an annual RoI of 4 to 5%. Kievits also notes that a widespread diversification of the portfolio is important. (J. Kievits, personal communication, May 9, 2018) The latest policy plan of the UFL, which is publicly accessible, reports that there will be examined what the SRI investment opportunities are, “with a vigilant gaze for its charity mission and A.N.B.I. status” (UFL, 2016: 10). This policy will make its entry in 2019 (R.M.M.J. Bauer, June 19, 2018). The annual report states that the investment portfolio had been critically assessed with regard to moral and ethical values in 2017 (UFL, 2018: 10).

University Total assets Yield Risk profile Asset manager Maastricht €8.529.687 5,8% Mod. defensive84 ING Figure 19 - General information on the UFL’s asset management

ESG integration The asset manager of the UFL, ING, has already screened companies on ESG criteria, as mentioned in 6.1.5. Kievits thinks it is important that the UFL is becoming more professional and that this includes the integration of SRI policy, but does not recall SRI-related considerations in the search of an asset manager (personal communication, May 9, 2018). Bauer, who is in the SRI committee, considers other asset managers if they turn out to be progressive in the integration of ESG criteria (R.M.M.J. Bauer, personal communication, June 19, 2018).

84 In the absence of a standard from the Dutch central bank or AFM (Dutch Authority for the Financial Markets), this thesis uses the ABN AMRO standard. This standard has six categories: highly defensive, defensive, moderately defensive, moderately offensive, offensive and highly offensive. For further information on the standard [In Dutch], see https://www.abnamro.nl/nl/prive/beleggen/beginnen-met- beleggen/beleggersprofiel/de-zes-risicoprofielen.html

62 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Positive selection Just like the GUF, the managing asset manager of this fund is ING, although the new SRI policy might imply the choice of another asset manager. ING is currently offering eight different financial products regarding sustainability (ING, 2018: 4-6). In contrary to the GUF, the UFL has thus far not embraced any positively selected funds or impact investments into its portfolio. Kievits aims either way for a balance between sustainability and RoI. (personal communication, May 9, 2018).

Negative selection Kievits has not yet instructed ING to divest certain sectors or companies. He predominantly follows the asset manager on its exclusions. (J. Kievits, personal communication, May 9, 2018). ING avoids companies that have directly or indirectly been involved in practices like alcohol, animal testing (or abuse), child labour85, corruption86, coal, gambling, human rights violation87, nuclear energy, pornography, tobacco and weaponry (ING, 2017). Additionally, Kievits has disposed individual equity funds “that were not kosher”, because these concerned “companies that received bad press.” This was “not based on policy, but on instinct” (J. Kievits, personal communication, May 9, 2018).

Voting and engagement The UFL does not yet directly engage with companies as a shareholder. ING has become more involved in the activist approach, as is portrayed in 6.1.5. There is no mention of any encouragement by the UFL. However, Kievits thinks it is not enough to let the bank monitor the ethical validation of the equity funds, and wants to work with partners that know the specific SRI policy of UFL and control SRI issues at AGMs in the future. (personal communication, May 9, 2018)

Figure 20 on the following page sums up the outcome of this case study. Furthermore, the decisive ethical deliberations of Kievits are expanded in detail in chapter 6.

85 Companies that received “substantial fines” for labour laws and codes (ING, 2017: 4-5). 86 Companies that are engaged in subornation or blackmailing (ING, 2017: 4). 87 When there is convincing evidence that a company is involved in violations of human rights (ING, 2017: 5).

63 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

ESG Integration Sustainalytics provides ESG ratings to ING.

Alcohol, animal testing (or abuse), child labour, corruption, coal, Negative selection gambling, human rights violation, nuclear energy, pornography, tobacco, weaponry (+ certain “not kosher” funds).

Positive selection None

Voting Has not spurred ING (but there are future ambitions)

Engagement No impact investments, green bonds or micro finance.

Figure 12 - SRI strategies applied by the UFL

6.2 Comparative analysis of applied SRI strategies

Now the SRI strategies of the individual university funds are analyzed, this paragraph executes a comparative analysis. The findings of 6.1 form a matrix on page 66, as is customary in the framework analysis. This makes it easier to compare the different cases with regard to the applied SRI strategies.

Policy and accountability The university funds differ greatly regarding SRI policy and accountability. Only half of the university funds has formalized SRI in the policy plan, of which AUF is the only one that explicitly mentions certain SRI strategies in its policy plan. The Erasmus Trustfonds states the ambition of SRI, but does not go into detail, while only an annual report from 2013 explained a new SRI strategy of the GUF. The LUF and the VUvereniging have informal SRI policies, which are explained with their asset managers. The UFL is currently in the process of constituting an SRI policy. All university funds publicize annual reports, but only one reports on the implementation of SRI strategies. The UFL indicates that the investment portfolio had been critically assessed with regard to moral and ethical values. Half of the university funds includes the investment portfolio in this report.

ESG integration Because all the university funds work with professional asset managers, ESG criteria are mainly integrated in the risk assessments of the investment policy. An exception is the Erasmus Trustfonds and one of its asset managers WMP, that does not screen the stock market on the basis of ESG issues, or fails to report this. This means a share of the fund’s portfolio has not been screened. The asset managers use Sustainalytics and MSCI for ESG

64 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

ratings. None of the policymakers stated that the asset manager was chosen for its ESG integration policies.

Positive selection MeesPierson is responsible for the entire asset management of the AUF and a share of that of the Erasmus Trustfonds, and positively selects these portfolios based upon the best-in-class method. In addition, both apply impact investment. The AUF by means of an impact fund, and the Erasmus Trustfonds in the form of micro finance. The GUF relatively has the greatest amount of impact investment. Furthermore, the VUvereniging has a small amount of green bonds in its portfolio. The LUF and the UFL do not have impact investments, green bonds or micro finance.

Negative selection Before the difference in negative selection is stressed, it is important to note that the exclusion lists are originating from the asset managers. Only the Erasmus Trustfonds has created own negative selection, which adds to the exclusion policy of its asset manager WMP. The assets of the VUvereniging and the LUF are managed by Kempen, which excludes child labour and controversial weaponry from their portfolios. The Erasmus Trustfonds has thus decided to add tobacco and generalize weaponry in the aforementioned negative selection.88 The GUF and the UFL do business with ING, that additionally excludes alcohol, animal testing (or abuse), corruption, coal, gambling, human rights violation, nuclear energy, pornography, and weaponry. The UFL negatively selected some other companies based on instinct. MeesPierson, the only asset manager of the AUF, has the most profound negative selection, and excludes conflict minerals, industrial farming, natural gas and oil besides the already mentioned sectors.

Voting and engagement What is the most striking conclusion that can be drawn from the comparative analysis, is that none of the university funds has spurred its asset manager or managers to vote at AGMs or engage with companies from the portfolio. It has not even been part of a policy discussion yet. Accordingly, the strategies from the activist approach are thus not applied, although some asset managers have implemented these strategies themselves.

88 MeesPierson, one of the asset managers of the Erasmus Trustfonds, has a much larger exclusion policy.

65 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor .

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! ! 66 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

7. Practical and ethical deliberations on SRI strategies

The previous chapter revealed which SRI strategies and approaches are applied by the university funds, and how they have given them substance. This chapter elaborates on the practical and ethical deliberations that the interviewed policymakers have or do not have regarding these same strategies and approaches. It therefore goes beyond the actual implementation of SRI practices, and explores the motives behind them.

7.1 General remarks on policy and accountability

The paragraphs hereafter discuss specific policy choices, but first it is important to show the different starting positions of the policymakers. During the interviews they gave notice of their relationship with the university, long-term perspective and transparency considerations.

Relationship between university and university fund It was brought up in 5.1.1 that Van Sluis-Barten and her personnel are not employees of the Erasmus University. The Erasmus Trustfonds is in fact entirely independent from the university, which is unique in the Netherlands: “I think that when a university fund is able to operate autonomously it makes other decisions” (M. M. van Sluis-Barten, personal communication, May 14, 2018). The GUF is formally independent, but its board consists of university professors and the chair of the university’s Executive Committee is also part of the GUF’s board of trustees. Jepma emphasizes the independency, but admits that he listens to sensitivities of the university. (personal communication, May 14, 2018) Miggelbrink argues that the AUF’s investment policy is not based on the mission of the University of Amsterdam; “but because we are affiliated with the university, and certain ethical standards and values are imposed on the university, they are absolutely imposed on us” (personal communication, May 2, 2018).

Long-term perspective The policymaking of Kievits is in line with the last comments of Miggelbrink, which means that the SWOL will not invest in individual funds anymore: “Speculating is not part of our mission, because we received the donations for the faraway horizon” (J. Kievits, personal communication, May 9, 2018). This faraway horizon is also the thought behind the investment policies of the Erasmus Trustfonds: “As an endowment fund that still exists in a hundred, two hundred or three hundred years, you have a long-term scope and you should look differently to your risk profile” (M.M. van Sluis-Barten, personal communication, May

67 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

14, 2018). As described in 5.1.5, the GUF has an offensive risk profile, but Jepma indicates that this will commonly change on the long term. When the interest rates are increasing, it is profitable to include a majority of shares in an investment portfolio. Furthermore, Jepma adds that corporate bonds could also turn out to be risk-bearing on the long term. (personal communication, May 14, 2018)

Transparency Stadig puts a lot of importance on accountability, and the VUvereniging goes above and beyond the requirements regarding transparency: “Because you need a good story to bring in new members (…) show them you have got nothing to hide.” Stadig refines that this is going to change when the organization is split up to a university fund and an association, although he adds that the requirements for charitable organizations are also significant.89 (personal communication, May 29, 2018) The AUF also went beyond these requirements, because it retrieved the official accreditation for charitable organizations.90 In order to retrieve this, the AUF had to go through an extensive reporting process. (J.J.M. Miggelbrink, personal communication, May 2, 2018) During the interview, Kievits refers to student movements that are becoming more proactive, following their universities and demanding moral choices. However, he believes he has no responsibility to show them details of the SWOL investment policy. (J. Kievits, personal communication, May 9, 2018)

7.2 ESG integration

When it comes to ESG integration there are two complications that came forward from the interviews. On the one hand, there remains uncertainty whether ESG integration can encompass sustainable policy. On the other, the interviewees confirm a theoretical assumption: the integration of environmental, social and governance issues can be quite subjective.

Effectiveness First, the doubts about the focus of ESG integration are discussed. Miggelbrink questions the effectiveness of the rating systems: “I think it disappoints how sustainable these ‘sustainable

89 The VUvereniging has already been recognized as a charitable organization (A.N.B.I.) by the Dutch tax authority. 90 CBF accreditation, see https://www.cbf.nl/nieuwsbericht/amsterdams-universiteitsfonds- allereersteuniversiteitsfonds-met-cbf-erkenning

68 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

investment profiles’ are when you really dive into it.” He points to the fact that ING falls within the category of the most sustainable companies in AUF’s investment portfolio, according to the ESG rating of Sustainalytics. Nevertheless, Miggelbrink is glad that asset managers nowadays integrate ESG performance on such a scale, compared to previous practices. (personal communication, May 2, 2018) Kievits thinks it is important that a balance is found between RoI and ESG issues. He is aware that this involves making difficult ethical decisions, and that “someone else might think something is defensible while you believe the opposite, and vice versa.” (J. Kievits, personal communication, May 9, 2018) Moreover, Jepma emphasizes that most companies are spontaneously moving towards CSR in their business operations. He provides examples as Unilever, DSM and AkzoNobel, illustrating the fact that even companies not known for their extremely sustainable practices are in a transition process: “The system itself is also greening”. (C.J. Jepma, personal communication, May 14, 2018)

Call for objectivity Second, there is consensus that it is complicated to constitute an objective standard for ESG integration. Jepma is probably the most favourably disposed to objectivity: “It is able to objectify (…) if you do not want to invest in tobacco, weaponry or another sector, you subsequently will not invest in companies that extract more than half of their profit from it.” He thinks these are indicators for ESG integration, but at the same time, he realizes that it is delicate where one sets the boundary. (C.J. Jepma, personal communication, May 14, 2018) Van Sluis-Barten and her Erasmus Trustfonds are in the middle of a search for a detailed ESG integration: “behind the scenes we are looking if we can pick up on an applied standard that makes it easier to explain why you opt for something” (personal communication, May 14, 2018). Visscher acknowledges that objectivity within ESG issues is difficult. When she informs donators how the LUF is going to invest their donations she mentions some SRI strategies that are applied, but there always remains a grey area: “I have never found an objective standard, because there are so many interpretations. It is therefore crucial that you find your own guideline or policy.” She adds that if you find yourself in a grey area, it is all the more important that you maintain a good rating system. Fortunately, it does not constitute a major problem if you are still in doubt after this professional assessment, because “there are so many alternatives”. (L.B. Visscher, personal communication, May 16, 2018) The discussion about alternative investments is discussed in the following paragraph.

69 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

7.3 Positive selection

As Visscher concluded in the previous paragraph, there are plenty of alternatives investments at the stock exchange. The interviews revealed that the positive selection of the university funds is considerably diverse in terms of scope and surprisingly profitable, and that a qualified asset manager is vital in the financial wilderness.

Variety in impact investments Van Sluis-Barten pointed out in 6.1.1 that her Erasmus Trustfonds has aimed at regional initiatives and invested in a harbour fund that has a positive impact on the city of Rotterdam: “we want to stimulate precisely this with our capital, because we want to contribute to the overall objective of the Trustfonds and our university”. The Erasmus University chose three main social themes: ‘dynamics of inclusive prosperity’, ‘smarter choices for better health’ and ‘vital cities and citizens’. Van Sluis-Barten indicates that the Trustfonds wants to reflect these themes in the investing policy. Early in the interview, she admits that targeted investments in sustainable companies are not yet an essential element in the policymaking process: “Not that it is not important, or that we neglect it, but it is not top priority”. (M.M. Van Sluis-Barten, personal communication, May 14, 2018) Jepma highlights that the biggest companies are ahead in the awareness of transition processes. He refers to climate policies, green energy systems, women’s empowerment and unequal distribution of income: “looking to the future in a professional way means recognizing trends and anticipating them”. (C. J. Jepma, personal communication, May 14, 2018)

Strong financial performance It already came forward in 6.1.5 that the impact investments of the GUF did relatively well, and Jepma believes this has everything to do with ‘forward-thinking’. According to his judgement, green companies are almost by definition future oriented in their operations and strategy. That is why relatively green companies are generally the stronger companies. Jepma recalls that all the green funds in which the GUF invested have performed rather well: “we could just combine greening and the desired return”. (personal communication, May 14, 2018) Kievits of the SWOL also believes that “sustainable investing is not financially unprofitable” (personal communication, May 9, 2018). However, Miggelbrink states that his AUF has often been given the rebuttal by stakeholders that impact investments do not provide not that much financial profit, but that his asset manager refutes this analysis: “they say that green investments also have good yields” (personal communication, May 2, 2018).

70 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Necessity of a professional asset manager Miggelbrink finally emphasizes the need for expertise and acknowledges that his AUF lacks this proficiency; hence his contentment with the positive selection MeesPierson applies (personal communication, May 2, 2018). Kievits also thinks the university fund depends on the asset manager or other partners: “we have limited resources with a workforce of four or five people”. That is why the asset manager is supposed to come up with certain impact investments, being conscious of the specific demands. (J. Kievits, personal communication, May 9, 2018) It would be possible for Jepma to be involved in the criteria for positive selection of his investments if he wished this. Nonetheless, he is not eager to interfere due to the complex selection process. This is also the reason he opts for green bonds or impact funds rather than micro finance. (C. J. Jepma, personal communication, May 14, 2018)

7.4 Negative selection

This paragraph explains why university funds make the choice not to invest in certain industrial products or activities. It elaborates on specific deliberations, other than purely ethical aspects. It is however important to realize that this decision-making process is de facto a combination of different factors that play a role: “sometimes it is the long-term financial risk that obstructs an investment, another time it is the reputational risk and the next time the social contribution that the LUF wants to realize” (L.B. Visscher, personal communication, May 16, 2018).

Long-term financial risks Stadig revealed along with Miggelbrink that the avoidance of investments that are considered immoral is one of the most important drivers of the investment policy. This is however not the only reason to exclude stocks from his portfolio, as he signals the long-term financial risks of certain sectors: “we definitely discussed exclusion, also because investments in oil and gas might be less profitable financially” (D.B Stadig, personal communication, May 29, 2018). Jepma indicates that the GUF could exclude companies that are stuck in old-fashioned business processes, surely when the belief in a transition fades (personal communication, May 14, 2018).

Avoiding internal or external conflicts The interviews also demonstrated that pressure from within the academic community or outside the university walls could lead to this strategy.

71 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

First, it is evident that there are forces inside the university that foster a negative selection. Kievits already mentioned the growing student movements and their critical attitudes before. Furthermore, Stadig has experienced this in practice: “People from ‘DivestVU’ came by my office, and called for an exclusion of fossil fuels” (personal communication, May 29, 2018). Jepma thinks the investment policies of the university funds could become an issue within the academic community. He thus imagines a movement of professors that calls for a greener investment portfolio, but concludes that such motives would mean you apply this strategy just for each other rather than for the society as a whole. (C.J. Jepma, personal communication, May 14, 2018) Van Sluis-Barten could also imagine that you want to avoid conflicts with the rest of the university population, although she calls attention to the fact that there are more than two thousand researchers working at the Erasmus University. This means that you can take a swing at the avoidance of conflicts, “but god knows where everyone is involved with and what comes across”. (M.M. van Sluis-Barten, personal communication, May 14, 2018) Second, there is also external pressure to exclude companies or sectors. “Apart from our ethical balance of interests, which weighs heavily, we are also closely scrutinized as a charitable organization”, explains Miggelbrink (personal communication, May 2, 2018). The role in society is especially decisive when the affiliated university has certain social goals, says Kievits, because “you cannot promote a mission as university and invest in the opposite as university fund” (personal communication, May 9, 2018). Just as he can imagine an internal pressure, Jepma considers external pressure to exclude natural gas from his portfolio a real possibility. He regards everything a possibility, even the municipality council of Groningen that calls for divestment. He estimates that there are around twenty or thirty charitable funds of substance in the northern part of the Netherlands. “Imagine that there is some sort of movement (…) against natural gas due to the trouble we experienced here, and it would be a broad-based movement, then it could be consequence that within the GUF it is said: ‘let us see if we could replace some of these energy shares that we do not want’. That is conceivable. That we feel appealed to a regional sentiment.” Jepma recalls that this has not happened yet, but does not rule out the possibility that it will happen in the subsequent five years. (C.J. Jepma, personal communication, May 14, 2018)

Reputational risks

The avoidance of reputational damage can be considered one of the most important deliberations of an exclusion strategy for the Erasmus Trustfonds (M.M. van Sluis-Barten, personal communication, May 14, 2018). This also applies to the AUF, and Miggelbrink

72 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

immediately points to the affiliated university: “The UvA does not always get positive attention. We have to be careful, since we do connect to that institute.” (J.J.M. Miggelbrink, personal communication, May 2, 2018) Jepma adds that you do not want trouble when this is totally pointless. He emphasizes that his GUF is independent of the Rijksuniversiteit Groningen, and that the exclusion policies of the former strictly have nothing to do with the latter: “it is not an issue because we imposed accents, but it could become one, not formally but if it gets inflated publicity-wise” (personal communication, May 14, 2018).

7.5 Voting and engagement

As chapter 6 showed, none of the Dutch university funds has opted for a strategy from the activist approach. However, the grounds for this decision, or non-decision, vary. On the one hand there is the disbelief that so little stocks could make a difference, and on the other hand there is the notion that private actors neither have influence on the university. These reasons are not compatible while another reason, the lack of resources, shows overlap.

Insufficient capital to have an impact Miggelbrink thinks these strategies form the activist approach have never been discussed within the AUF, and doubts whether the fund has enough shares to have an impact: “I think it would disappoint” (personal communication, May 2, 2018). Jepma applies for both the strategies of voting and engagement the same argumentation: “The total amount of equity is way too small for that.” He had worked as an advisor for a pension fund with three to four billion euros of assets, and recalls the fact that even in that case the strategies were not applied. Jepma therefore believes a university fund worth nine million would not have an impact (C.J. Jepma, personal communication May 14, 2018).

Reciprocal non-interference Van Sluis-Barten cannot imagine that the Erasmus Trustfonds would vote at AGM’s or actively engage companies in the future: “We are not a political lobby club or anything like that. If we would not agree with certain policy I think we would instead withdraw our investment.” She thinks university funds should not take up the role that results from these strategies, because universities expect to execute their research activities independently at the same time, irrespective of private and corporate donations. When companies make donations, the university demands that they will not interfere, and Van Sluis-Barten believes this also works the other way around. (personal communication, May 14, 2018)

73 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Ancillary activity Another frequently mentioned reason that the voting and engagement strategies are not being applied is the fact that the board membership is an ancillary activity. Because it is a position on voluntary basis you have to prioritize and “the target is the allocation of subsidies” in the case of the VUvereniging (D.B. Stadig, personal communication, May 29, 2018). Miggelbrink shares this deliberation, as “the board keeps its distance and is not involved in every operation.” Still, he does not rule out an activist approach of his AUF in the future “if it is really necessary” (J.J.M. Miggelbrink, personal communication, May 2, 2018). Kievits suggests that the voting strategy could be outsourced to an independent partner, an option that the SWOL is exploring (personal communication, May 9, 2018).

8. Conclusion

The scale of the investment activities of Dutch university funds is increasing, while more and more institutional investors are embracing SRI strategies. This research focused on the application of strategies by the university funds and the reasons that policymakers have to apply or not to apply them: ‘What deliberations drive or dissuade the policymakers of Dutch university funds to opt for an incorporation of SRI strategies in their asset management?’ In order to answer this research question, we first have to answer the question ‘What SRI strategies do Dutch university funds apply?’ It came forward from interviews with the policymakers of six actively investing university funds and policy reports of their asset managers that the strategy of ESG integration has been greatly implemented. The literature dictates that this is an overarching strategy that is required for an informed policy choice on the rest of the strategies. The strategies of positive and negative selection have been implemented to varying degrees. The strategies of voting and engagement have not at all been implemented by the university funds, as none of them has encouraged their asset managers to vote at AGMs or engage with companies or based their choice of asset manager on this activist approach. Subsequently, the following question on the supportive deliberations has to be answered: ‘Why would policymakers of Dutch university funds opt for particular SRI strategies?’ The motivations to apply the strategies of ESG integration and positive selection showed overlap, as they both originate from the positive approach. On the one hand, positive selection was implemented because of the ESG related impact it could have, although certain elements of ESG were differently weighted. Simon et al. (1972) also named the reduction of social injury as the main benefit of ethical investing. On the other hand, the strong financial performance of companies that did well in ESG ratings was mentioned to be a motive to

74 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

apply positive selection. This is in accordance with the contemporary research that shows the short-term and long-term financial gains. Surprisingly, there were only presented reasons in favour of applying the strategy of negative selection. However, the deliberations that supported exclusion were based on practical concerns about the absence of a negative selection. The policymakers stated that this would imply long-term financial risks, conflicts within the academic community or in society as a whole, and reputational risk. These deliberations are also in line with the literature as to the preference for moral purity, because the policymakers did not consider the impact of a negative selection. The policymakers did not come up with advantages of an activist approach. However, the study of Wagemans et al. (2013) showed evidence of engagement success. University funds could have impact when they try to steer companies in the right direction, because they are regarded as knowledge- based actors. Such an effort would be exponentially more powerful when executed collectively. The last conclusion could be decisive in forthcoming policymaking of Dutch university funds, as the GUF is sensitive to collective fossil fuel divestment of regional actors. Finally, the question on the discouraging deliberations has to be answered: Why would policymakers of Dutch university funds refute certain SRI strategies? The policymakers of university funds have embraced ESG integration, but there remain doubts about the effectiveness of the best-in-class methods and an objective interpretation of ESG issues. Both concerns are acknowledged in the literature and remain a challenge for scholars writing on SRI. What deterred policymakers from the positive selection strategy was the lack of resources and the need for a professional and assertive asset manager. The former was also named a reason not to implement voting and engagement, but there were more deliberations that discouraged policymakers not to apply these strategies. First, the interviews showed a prevalent thought that university funds were not able to have impact through voting and engagement. This is not in line with the theory, which explains that small funds can have a significant impact. Second, the role of a university fund as a political lobby club was refuted. In contrary, Simon et al. believed that the institutional neutrality of the university could be secured when the ultimate decision-making process of the investment activities is placed outside the academic community. This is the case with the Dutch university funds and their asset managers. This brings us to an answer to the main question of this thesis: deliberations based on moral purity rather than moral effectiveness have driven the choice of Dutch university funds to apply certain SRI strategies. However, the policymaking was not only established through ethical considerations, but also through practical calculations. This thesis made a small contribution to the greater discussion of SRI. The discussion ‘at what cost’ the university funds contribute to the academic budgets will become all the more relevant in the future, as

75 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

the investment activities of Dutch university funds is growing. Lastly, the underlying ethical deliberations of university funds to apply SRI strategies form a gap in the academic literature, and while this thesis contributes to a better understanding of the subject, the outcome is not of general validity and binding for all university funds.

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Appendix

UNIVERSITEITSFONDSEN EN DUURZAAM BELEGGEN

Deze vragenlijst over uw beleggingsbeleid is opgedeeld in drie delen: • A. Beleid: welk beleid gehanteerd wordt en of duurzame criteria daarbij een rol spelen. • B. Uitvoering: welke instrumenten gebruikt worden om het beleggingsbeleid uit te voeren. • C. Verantwoording: op welke manier u (publieke) verantwoording aflegt over uw gehanteerde duurzame beleggingsbeleid.

Sla vragen die niet van toepassing zijn gerust over.

A. BELEID

1. Wat zijn de belangrijkste factoren die het beleggingsbeleid richting geven? (meerdere antwoorden mogelijk) ! Een maximaal financieel rendement ! Instandhouding van het vermogen ! Groei van het vermogen ! Vermijden van investeringen die als immoreel beschouwd worden ! Investeren in bedrijven die bijdragen aan duurzaamheid ! Investeren in bedrijven die overeenstemmen met de doelen en de missie van het universiteitsfonds ! Vermijden van investeringen die in conflict zijn met het doel van onze universiteitsfonds ! Anders, namelijk ......

2. Wie bepaalt de criteria waaraan het beleggingsbeleid moet voldoen? ! Penningmeester ! Bestuur ! Econoom/financieel economisch adviseur ! Beleggingsadvies commissie ! Vermogensbeheerder, namelijk...... ! Anders, namelijk ...... Waarom het bestuur?

3. Heeft uw universiteitsfonds een duurzaam beleggingsbeleid? ! Nee ! Nog niet, het is in ontwikkeling ! Ja, het is een informeel beleid ! Ja, het is een formeel beleid

85 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

Zo ja, kunt u dan aangeven waar we meer informatie over dit beleid kunnen vinden (website, jaarverslag) of een beleidsnotitie meesturen?

Zo nee, kunt u aangeven in hoeverre duurzaam beleggen onderdeel uitmaakt van het financieel beleid van uw universiteitsfonds? ! Nog niet besproken ! Wordt in de komende jaren besproken ! Is besproken, maar afgewezen, omdat (meerdere antwoorden mogelijk) ! te complex om dit vorm te geven ! onvoldoende informatie ! onvoldoende duurzame beleggingsproducten verkrijgbaar ! afgeraden door een externe partij ! financieel rendement gaat boven sociaal/milieu rendement ! ons universiteitsfonds heeft andere prioriteiten ! ons universiteitsfonds haar missie al in praktijk brengt door giften of renteloze/laagrentende leningen ! Anders, namelijk ......

ALS U ‘NEE’ HEBT GEANTWOORD VOOR VRAAG 3, GA AUB DOOR NAAR VRAAG 6

4. Wat zijn de belangrijkste redenen om een duurzaam beleggingsbeleid te hanteren? (meerdere antwoorden mogelijk)

! Het meewegen van ! Druk van alumni en andere financieel relevante donateurs en sponsoren sociale, milieu- en ! Druk van studenten ethische risico’s ! Druk van bestuursleden ! Het vermijden van ! Druk van personeel reputatierisico ! Druk van de media ! Maatschappelijke noodzaak ! Druk van andere personen vanwege milieu- en sociale en/of organisaties doelen et cetera ! Druk van (landelijke) ! Het vermijden van koepelorganisaties conflicten met de doelen ! Invloed van financieel en activiteiten van uw adviseurs universiteitsfonds ! Anders, namelijk ......

5. Spelen duurzaamheidscriteria een rol bij de selectie van uw vermogensbeheerders? (zoals hun visie op duurzaam beleggen, hun kennis en ervaring met duurzaam beleggen) □ Nee □ Nog niet, het is in ontwikkeling □ Ja

Zo ja, kunt u dan aangeven waar we deze duurzaamheidscriteria terug kunnen vinden?

86 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

B. UITVOERING

6. Geef aan in welke categorieën uw universiteitsfonds belegt en welke daarvan onder het duurzaam beleggingsbeleid vallen:

Wordt in % van Valt onder het belegd? belegd duurzaamheidsbeleid? (ja/nee) vermogen (ja/nee)

Beursgenoteerde aandelen % Bedrijfsobligaties % Staatsobligaties % Onroerend goed % Cash & deposito’s % Alternatief (hedge funds, private equity, % commodities, enz.) Omschrijf: ……… Impact investeringen91 % Missiegerelateerde investeringen92 % Anders (omschrijf) ……… 100%

Selectie van investeringen

7. Uitsluitingen: een belegger kan kiezen om in bepaalde bedrijven en/of sectoren NIET te beleggen aan de hand van specifieke criteria (negatieve selectie). Hanteert uw fonds uitsluitingen op uw beleggingen? ! Nee ! Nog niet, het is in ontwikkeling ! Ja

Zo ja, welke van de volgende criteria neemt u mee in uw investeringen door middel van negatieve selectie.

! Aardgas ! Aardolie ! Bio-industrie

91 Impact investeringen: Investeringen die gericht zijn op positieve ontwikkelingen op het gebied van sociale of milieukwesties, terwijl het financieel rendement niet in het geding is.

87 Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

! Bont ! Conflictmineralen ! Controversiële wapens ! Corruptie ! Dierproeven ! Gokken ! Kernenergie ! Kinderarbeid ! Schaliegas ! Steenkool ! Tabak ! Andere, namelijk ......

Zo ja, wat is/zijn de reden(en) dat u ervoor kiest deze bedrijven en/of sectoren niet in uw investeringsportfolio op te nemen?

! De financiële risico’s op de lange termijn ! Het vermijden van reputatierisico ! Maatschappelijke noodzaak vanwege milieu- en sociale doelen et cetera ! Het vermijden van conflicten met de doelen en activiteiten van uw universiteitsfonds ! Druk van buitenaf. Zo ja, druk van ...... ! Anders, namelijk ......

8. Positieve selectie: positieve selectie is het investeren in bedrijven die duurzaam ondernemen, die positieve producten en diensten produceren of die aandacht besteden aan milieu- of sociale problemen. Maakt uw universiteitsfonds gebruik van positieve selectie t.a.v. uw beleggingen? ! Nee ! Nog niet, het is in ontwikkeling ! Ja

Zo ja, welke van de volgende criteria hanteert u t.a.v. uw investeringen door middel van positieve selectie? ! Maatschappelijke ! Behandeling van betrokkenheid belanghebbenden ! Energie ! Afvalbeheer ! Behoud van natuurlijke ! Waterbeheer hulpbronnen ! Ander, namelijk ...... ! Eerlijke handel ! Groen vervoer ! Mensenrechten ! Personeelsmanagement ! Microfinanciering ! Dierenwelzijn ! Groene energie ! Duurzaam beheer in de productie- en consumptieketen ! Duurzame bosbouw

9. Impact investeren: Impact investeringen zijn investeringen die gericht zijn op positieve ontwikkelingen op het gebied van sociale of milieukwesties, terwijl het financieel rendement optimaal is (bijv. green bonds, microfinanciering en/of bedrijven die actief bijdragen aan energietransitie). Maakt uw fonds gebruik van impact investeren t.a.v. uw beleggingen? ! Nee ! Nog niet, het is in ontwikkeling ! Ja

Zo ja, hoe geeft uw fonds dit impact investeren vorm?

Actief aandeelhouderschap

10. Stemmen: Aandeelhouders kunnen actief invloed uitoefenen op bedrijven waarin zij investeren door te stemmen tijdens aandeelhoudersvergaderingen. In een stembeleid, moet niet alleen aandacht worden besteed aan het overkoepelende beleid, maar ook aan sociale en milieukwesties.

Maakt u gebruik van uw stemrecht? ! Nee ! Incidenteel ! Nog niet, het is in ontwikkeling ! Ja

Zo ja, geef een beschrijving van uw stembeleid en de uitvoering hiervan (bijvoorbeeld via uw vermogensbeheerder) en/of geef aan waar meer informatie hierover gevonden kan worden.

11. Engagement: Aandeelhouders kunnen actief invloed uitoefenen op bedrijven waarin ze investeren door een dialoog te voeren met het bedrijf, om het bedrijf zover te krijgen dat ze haar praktijken verbetert. De dialoog kan zich richten op milieu-, sociale en beleidsonderwerpen en kan direct of in samenwerking met andere institutionele beleggers worden gevoerd.

Maakt u gebruik van engagement? ! Nee ! Nog niet, het is in ontwikkeling ! Ja, vanuit de eigen organisatie ! Ja, via onze vermogensbeheerder

Zo ja, geef een beschrijving van uw engagementbeleid en de uitvoering hiervan en/of geef aan waar meer informatie hierover gevonden kan worden.

Thesis by T.M. Croon – The Dutch University Fund as Socially Responsible Investor

C. VERANTWOORDING

12. Verantwoording: Uw organisatie vormt een belangrijk onderdeel van het maatschappelijk middenveld, en heeft als zodanig verantwoordelijkheid om transparant te zijn tegenover uw leden en de maatschappij in het algemeen. Dit kan ook worden toegepast op de beleggingen.

Op welke manier legt uw bank/vermogensbeheerder verantwoording af over de manier waarop zij zich houdt aan uw duurzaam beleggingsbeleid?

Op welke manier legt u verantwoording af over uw duurzaam beleggingsbeleid en de uitvoering daarvan tegenover de maatschappij?

Hartelijk dank voor uw medewerking.

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