I want to start by stating I wish Kenyon could invest in a socially conscious manner. I agreed strongly enough with DivestKenyon’s beliefs to sign their petition, but when the Board of Trustees decided not to divest, I did some research. I assumed the trustees know a lot more about investment than I do and that they are likely not an evil group hell-bent on financing the oppressive private prison system and destructive fossil fuel industry.
I looked into the profitability of socially conscious investing. After all, the only logical reason not to divest would be concerns over shrinking Kenyon’s already small endowment and raising tuition further. My research started with a quick search of the most profitable socially conscious Exchange Traded Funds (ETF). The school invests in ETFs because they are collections of stocks chosen by analysts for maximum profitability. One common argument against divestment is that most of the investments DivestKenyon wants to the trustees to change are individual stocks contained in sustainably profitable ETFs.
When searching for socially conscious ETFs I found only 33 on a database containing over 2,000 ETFs. This means Kenyon’s possible ETF investments would be reduced by approximately 98.4 percent if it were to invest exclusively in socially conscious ETFs. Not all of the socially conscious ETFs are even viable investments. Some of them are internationally based and 22 of them have below a $30 million assets under management (AUM), meaning that they are not registered with the Securities and Exchange Commission (SEC). This makes them inviable investments for Kenyon. If Kenyon were to only invest in ETFs fitting these criteria they would be limited to 11 choices. This would severely limit Kenyon’s portfolio diversity and increase the likelihood of losing money.
Socially conscious ETFs aren’t just limiting; they’re also less profitable than their more immoral counterparts. Of the 11 possible investments, seven fall into either the SPDR or Ishares. These are both ETFs based off the S&P 500 — a group of 500 stocks chosen by analysts based on their market size and profitability. Both of the socially conscious ETFs exclude stocks from the S&P 500 based on their respective companies’ use of fossil fuels and or human rights policies. These ETFs have alternatives that are not socially conscious but significantly more profitable, especially when looking at long-term returns. The regular Ishares fund has been 0.4 percent more profitable over the past year to date (YTD) than the most successful socially conscious Ishares ETFs. This may seem close, but the socially conscious stock has a massive .50 percent management fee, which is approximately 16.6 times larger than the .03 percent management fee for regular Ishares stock. This means that Kenyon would be making less on its investment and paying approximately 16.6 times more of its already lessened profit to its fund management. SPDR’s most successful socially conscious ETF is even less profitable. The regular SPDR S&P 500 ETF has been 8.04 percent more profitable over the past YTD than its socially conscious alternative. Here, the socially conscious alternative also has significantly higher management fees, with the regular SPDR ETF requiring 0.0945 percent and the socially conscious SPDR ETF requiring over three times more in fees at .30 percent. The SPDR and Ishares socially conscious ETFs are the two most viable for Kenyon due to their AUM and performance, but they are still horrible options financially when compared to their socially irresponsible counterparts. Kenyon’s endowment is approximately $210 million. If we conservatively estimate a one percent decrease in investment performance from sustainable investing, then the endowment will give up approximately $60 million in assets over a 25 year period.
This likely underestimated loss of $60 million would raise tuition and lower the financial aid and scholarships given to future Kenyon students. In the New York Times article “Economic Diversity and Student Outcomes at Kenyon College,” we were called out as a school because, “The median family income of a student from Kenyon is $213,500, and 75% come from the top 20 percent. Less than 1% of students at Kenyon came from a poor family but became a rich adult.” Decreasing our already relatively small endowment (approximately 27.78 percent of Oberlin’s) will only further decrease economic diversity.
Chris Pelletier ’20 is undeclared from Stowe, Vt. Contact him at email@example.com.
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