Harvard Management Company

Sustainable Investments

Investing for the Long-Term

Integrating ESG factors

Investing for the Long-Term - Integrating ESG factors

As a long-term investor, HMC is focused on material environmental, social, and governance (ESG) factors that may impact the performance of our investments, now and in the future. ESG factors are conditions, circumstances, or issues that can be found in areas such as energy consumption, greenhouse gas emissions, climate change, resource scarcity, water use, waste management, health and safety, employee productivity, diversity and inclusion, supply chain risk management, human rights (including workers’ rights), and effective board oversight.

We believe that considering ESG risk factors in our investment analysis and decision-making processes is aligned with our mission to help ensure that Harvard University has the financial resources to confidently maintain and expand its preeminence in teaching, learning, and research for future generations.

Approach to Sustainable Investment

A three-pronged approach guides HMC’s sustainable investment work and priorities:

1. ESG Integration — incorporate material ESG factors into due diligence, investment analysis, monitoring, and asset management
2. Active Ownership — exercise our client’s shareholder voting rights and engage in private dialogue with select portfolio companies on ESG risks
3. Collaboration — work with global investors and endowments to develop and define sustainable investment   best practices

This approach is reflected in our engagement with the Principles for Responsible Investment (PRI), an initiative supported by the United Nations that works with an international network of investors who are committed to integrating ESG issues into their investment practices and ownership policies.

HMC, with the support of Harvard University, is the first university endowment in the United States to become a signatory to the PRI. As a signatory, HMC is committed to implementing the PRI's six Principles in our management of the University's endowment and related financial assets. HMC reports to the PRI on an annual basis about our implementation of the six Principles across asset classes, and the resulting Transparency Report is published by the PRI.

ESG Integration

At HMC, we tailor the integration of ESG factors by asset class. For example, our pre-investment operational due diligence program provides a framework to assess ESG risks of prospective funds and direct investments. When we identify material ESG issues, we investigate and consider them alongside other business-related risk factors. Throughout the life of an investment, we monitor identified ESG risks and work with managers to ensure effective oversight.

HMC applies its operational due diligence framework to its commingled funds in absolute return, private equity, and public markets. The due diligence process includes reviewing the ESG policies and governance of potential fund investments, identifying how the fund integrates ESG factors into its investment decisions, and determining how the fund communicates ESG information to its limited partners. Depending upon the nature of ESG issues identified, we may also seek to include ESG terms in the investment fund term sheet.

Active Ownership

As an investment manager, HMC is committed to active ownership on behalf of the University. We believe in supporting good corporate governance in the companies and other assets in which we are invested and, where appropriate, we seek to work with other to influence change.

ESG integration also plays a significant role in our natural resources investments and real estate investments.

Company Engagement

As an investor, we recognize that a company’s ability to identify and effectively manage ESG risks may affect a company’s valuation. Therefore, engagement with companies held in our investment portfolio plays an important role in our approach to sustainable investment. We have an expanding focus on in-depth analysis and communication with select companies to bring about change on material ESG issues. We select companies for engagement based on ESG risks identified as having a direct impact on business operations and shareholder value, risk management oversight and disclosure practices, and the value of our holdings.

For example, we write letters to publicly listed non-renewable energy companies held in our portfolio, encouraging them to take action and make disclosure on climate change. The letters identify Harvard University’s concerns regarding climate change and encourage better management and disclosure of climate risks. We believe that companies in the energy sector should report material ESG risks, including climate risk, in their existing public filings so that investors can make more informed long-term investment decisions. In this effort, we support the work of the Sustainability Accounting Standards Board (SASB) in developing industry-specific sustainability accounting standards, and are encouraging companies in our engagement efforts to incorporate SASB standards into their public filings.

Proxy Voting

As an institutional investor in publicly traded companies, the University regularly exercises its right to vote on shareholder resolutions, many of which present issues related to environmental, social, and governance matters. In considering proxies on environmental and social matters, we work closely with the University’s Corporation Committee on Shareholder Responsibility and Advisory Committee on Shareholder Responsibility. Through the work of those committees, the University provides instructions on voting proxies related to environmental and social issues. Shareholder resolutions related to corporate governance matters are typically addressed by HMC. The University issues a publicly available annual report on the work of shareholder responsibility committees in regard to the voting of proxies.


Collaborating with like-minded investors is important to our work. We have joined initiatives that are aligned with—and help guide—our approach to sustainable investment, and we actively work with peers and investors to advance shared goals. For example, HMC is an active member of the PRI Investor Working Group on Corporate Climate Change Lobbying. This initiative urges businesses to take action on climate change, including through lobbying actions that are consistent with the goal of preventing climate change. As an initial step, HMC worked with more than 60 investors, representing $3.8 trillion in assets under management, to outline an evaluative framework that we will use to assess companies on an ongoing basis. HMC has also joined more than 100 global investors in signing a public letter to the G7 Finance Ministers, signaling to governments and the market that investors support a global agreement on climate change, and calling for a long-term global emissions reduction goal.

We are also a signatory to the CDP's climate change program. The CDP, formerly known as the Carbon Disclosure Project, is an international non-profit organization that works with governments, public companies, and over 800 institutional investors to drive environmental disclosure and performance of publicly listed companies.

Ethical Considerations and Investment Exclusions

As an academic institution, Harvard holds its endowment funds in trust to advance its programs of education and research, which constitute the University’s distinctive way of serving society. These funds have been given to Harvard by generous benefactors over many years to advance academic aims, not to serve other purposes, however worthy. As such, the University maintains a strong presumption against divesting investment assets for reasons unrelated to the endowment’s financial strength and its capacity to further Harvard’s academic goals. Harvard conceives of the endowment fundamentally as an economic resource, not as a lever to advance political positions or to exert economic pressure for social purposes, which could entail serious risks to the independence of the academic enterprise and the ideal of free inquiry.

At the same time, the University recognizes that very rare occasions may arise when companies’ activities are so deeply repugnant and ethically unjustifiable as to warrant the University’s institutional dissociation from those activities. In recent decades, such ethical considerations have led the Harvard Corporation to instruct HMC not to own shares in certain companies involved in the perpetuation of apartheid in South Africa, in the manufacture of tobacco products, and in enabling genocide in Darfur.

When, on rare occasions, the University issues investment restrictions, limitations, and instructions to HMC, we extend these restrictions to direct holdings by our internal portfolio managers, as well as to direct holdings by investment advisers trading in the name of President and Fellows of Harvard College through separately-managed accounts. We do not extend these restrictions to investment advisers of commingled funds where Harvard is not the sole investor.

Sustainable Investment Policy

HMC’s sustainable investment policy provides an overview of how we seek to integrate environmental, social, and corporate governance factors into investments. View the policy here.

Elise McDonald
"HMC maintains a tailored asset-class approach to ensure material environmental, social, and governance factors are considered and integrated into the investment decision-making process. This is aligned with our mission to provide strong long-term investment results to Harvard University." Elise McDonald
Managing Director of Portfolio Strategy