Harvard University has created a new position, a vice president for “sustainable investing,” to make sure that the school’s $30.7 billion endowment is invested in politically correct fashion. This ups the ante in the growing trend of putting pressure on organizations, particularly universities, to invest only in companies with the liberal seal of approval. The divestment movement that tries to punish companies for doing business in Israel is perhaps the best-known part of this strategy, but environmentalists and others are catching up.
There’s some good and some bad in this movement. The good is that do-gooder investing will result in liberal institutions like Harvard placing their money in weaker investments. The thing that sustainable investors miss is that stock valuations reflect the real value of the company’s capitalization and profitability. If sustainable investors sell off a particular stock, they might drive the stock price down temporarily. However, nonpolitical investors will quickly realize it is a bargain and drive the price back up.
The opposite will happen with companies the sustainable investors approve of. The price may be driven up temporarily, but then smart investors will sell off and the price will drop to its real value. Or sustainable shareholders will force the company to make important decisions based on non-economic reasons — usually a bad move for profits.
The net result is that sustainable investors will buy high and sell low, while the rest of us get to do the opposite.
The bad news is that this gives the forces of liberalism one more tool to pressure companies into wasting money and effort to stay in the good graces of sustainable fund managers. Some VP for Do-Goodery will be able to say to the CEO of the XYZ Company, “if you continue to sell your product to that evil mining company, we will divest.” Sadly, some cowardly CEOs will cave. Another potentially adverse result of this trend will be the mutual interests sustainable investors share with liberal crony capitalists and corrupt politicians.
Anyway, you can throw the VP for Do-Goodery onto the growing list of soft, cushy, counter-productive jobs that the liberal economy seems to produce, rather than productive jobs that require real skills that free markets create.