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The Ģ����Ƶ Board of Trustees met on campus for its fall meeting November 20-21. Committee meetings were held on Thursday and the full board met on Friday.

Among the issues the full board discussed was that of socially responsible investment and in particular, "fossil free" divestment, based on the report from the Finance and Investment Committee.

I commend everyone-students, faculty, staff, alumni and trustees-who has been part of the important discussion we have had for more than a year. From the creation of the Advisory Committee on Socially Responsible Investing (ACSRI) and the fine work that group did; the guidance by the Office of General Counsel on fiduciary obligations that govern endowment investing; the research by our Cambridge Associates investment advisors; the considered deliberations of trustees; and the passionate dialogue, petitions, and letters from our dedicated students-all perspectives were important parts of this campus review.

Let me strongly affirm that we all agree on the same goal-that Ģ����Ƶ must deal effectively, prudently, and promptly to address the serious issue of climate change. There is no greater challenge facing our current and future generations, and the creative ideas from our Ģ����Ƶ community have provided pro-active suggestions for moving forward.

Our strategic plan, Ģ����Ƶ and the Next Decade: Leadership for a Changing World, has been an important guidepost in the board's deliberations and conclusions. The plan identified as a transformational goal-to "act on our values through social responsibility and service" by strengthening Ģ����Ƶ's culture of service and social responsibility- including "an active pursuit of sustainability."

As the board considered new areas for additional action related to climate change, the university's mission, values, and strategic plan were paramount to our final disposition and conclusions.

Progress Toward Carbon Neutrality and Elimination of Greenhouse Emissions

The board supports all that Ģ����Ƶ is doing to reduce its carbon footprint, curtail emissions of greenhouse gases, and encourage the development of alternative energy sources. Addressing climate change has been a strategic priority since President Kerwin signed the American College and University Presidents' Climate Commitment in 2008, which set an ambitious goal to achieve carbon neutrality by 2020 and eliminate campus greenhouse gas emissions.

The university has developed several distinctive academic degree programs focused on sustainability, environment, and social enterprise that are producing graduates prepared to address this global challenge far beyond the campus boundaries.

Ģ����Ƶ achieved a major milestone in its business practices this summer, by entering into a long-term agreement to source half of Ģ����Ƶ's electricity from renewable power, working in a partnership with George Washington University and its hospital. This is the largest non-utility solar photovoltaic (PV) power purchase agreement in the United States and the largest PV project east of the Mississippi River. Ģ����Ƶ will receive direct, grid-delivered solar power for half of its electricity, and by directly sourcing solar power for half of the campus electricity needs, will eliminate 15,000 metric tons of carbon dioxide from the atmosphere each year (equal to taking 3,000 cars off the road).

Ģ����Ƶ has become a leader in creating a campus culture of sustainability, as indicated by a variety of external assessments:

• Princeton Review's "Green Honor Roll" recognized Ģ����Ƶ for four consecutive years and bestowed the highest possible score of 99.
  
• Ģ����Ƶ has the highest Sustainability Tracking, Assessment and Rating System (STAR) score of any school ever to report to The Association for the Advancement of Sustainability in Higher Education.
• Ģ����Ƶ ranked #2 in the nation for its work on climate change, according to the Sierra Club's Top Ten Cool Schools.

Going forward, we will consider additional actions that complement and enhance the substantial progress Ģ����Ƶ has already made.

ACSRI and the Finance and Investment Committee

In May 2013, the board established the Advisory Committee on Socially Responsible Investing (ACSRI) to provide guidance and input by Ģ����Ƶ community members to the board's Finance and Investment Committee on the climate change issue. ACSRI's charge was to explore options the board might consider through the management of its endowment and to address a series of critical questions the board identified (see american.edu/trustees/upload/051713.pdf.)

For the May 2014 board meeting, ACSRI presented an interim report and recommended that the board consider three options for new, meaningful actions, including:

• Partial Divestment -from Ģ����Ƶ's endowment (focused on the Carbon 200 fossil fuel companies).
• Investment -in alternative energy funds.
• Engagement -with energy companies through shareholder actions.

The Finance and Investment Committee met several times to review the report and these recommendations. It received guidance from Ģ����Ƶ's General Counsel and from our Cambridge investment advisors, and it made a recommendation to the full board.

Evaluating Options for Divestment, Investment and Engagement

The issue of social responsibility in our investments introduced a new dimension to the discussion of meaningful actions on climate change beyond the university's substantial efforts to reduce its carbon footprint. It required the board to consider the impact in relation to its fiduciary responsibilities for endowment management.

Ģ����Ƶ's endowment includes funds from a number of sources and from thousands of donors over a period of more than 100 years. These donors have relied on the board's fiduciary stewardship to generate the maximum, risk adjusted return to support the scholarships, fellowships, professorships, construction, and other purposes for which the funds were given, regardless of the personal views of board members on climate change or other issues. The board's primary responsibility is to fulfill its fiduciary duty to the university.

The Finance and Investment Committee sought clarification from Ģ����Ƶ's General Counsel regarding its fiduciary duties and responsibilities in overseeing, managing, and investing university endowment funds. General Counsel cited the District of Columbia's Uniform Prudent Management of Institutional Assets (UPMIFA) Act, and its proscriptive requirements for due care in managing endowment assets. General Counsel's opinion stated that a board decision to divest would be consistent with its fiduciary duty-if the university's investment advisors could validate the premise that divestment would have an insignificant effect on investment returns.

The committee asked the university's investment advisors, Cambridge Associates, to review how divestment from the Carbon 200 would impact risk adjusted investment returns. The Cambridge advisors could not provide assurance that divestment was unlikely to have an adverse effect.

Moreover, divesting from these companies would require that Ģ����Ƶ investments be withdrawn from index funds and commingled funds in favor of more actively managed funds. Cambridge has estimated this withdrawal would cause manager fees to double, increasing from $1.1 million to $2.2 million per year.

In weighing the critical elements to partially divest, it was clear that the DC law surpassed the relevance of other considerations, including compelling arguments both for and against divestment. Since the conditions for board's primary fiduciary responsibilities cannot be satisfied, the Finance and Investment Committee concluded that divestment is not an option the board can take to express a position on climate change.

The board then considered other meaningful investment action (including affirmative investment and engagement), to support Ģ����Ƶ's broad commitment to sustainability, provided these actions are consistent with the board's primary duty.

Moving Forward: Additional Investment and Engagement Strategies

The committee recommends that efforts continue to seek positive investments in sustainable initiatives.

• Green Investment Fund -The committee recommended and the board approved creating a green investment fund, which is consistent with another of ACSRI's recommendations. Ģ����Ƶ's investment advisors will help review and evaluate managers with input from ACSRI, an appropriate fund will be chosen, and the University will make it available for donors who specifically choose a green fund.
• Active Management and Ongoing Review -The Committee directed Cambridge Associates to add a new criterion in its evaluation of new active managers and ongoing review of existing managers. This will require Cambridge to consider whether the managers evaluate the environmental practices and policies of a prospective investment and whether they evaluate the impact of environmental compliance, remediation, and actual or contingent environmental liabilities in determining the investment merits of a security.
• Shareholder Engagement and Proxy Votes -The ACSRI charter includes duties of shareholder engagement, such as recommending proxy votes on shareholder resolutions and engaging in other forms of shareholder advocacy, including corporate letter writing and filing shareholder resolutions. The Finance and Investment Committee encourages this input from the ACSRI.

We know that some Ģ����Ƶ community members are disappointed that the board has chosen not to divest.

However, ACSRI's work and recommendations from the campus community have inspired vigorous discussions and prompted the board to look at meaningful ways to remain true to Ģ����Ƶ's values and support of green initiatives without jeopardizing the board's fiduciary responsibilities.

The divestment movement has highlighted the challenges of global warming as an issue requiring serious thought and ongoing action at Ģ����Ƶ. The board expects continued constructive dialogue about ways the university can pursue investment and engagement to address global warming.

Memo modified for clarity on November 24.