Loyola University Chicago

March 30, 2005
Agenda

• Introduction
• Presentation by Student Group
  • Position statement
  • Institutional enforcement
  • Proxy voting
  • Other actions
  • Education
  • Suggested industry restriction policy
  • Proxy voting focus areas
• Discussion

Staff resources:
William Laird, Vice President of Finance, CFO and Treasurer Eric Jones, Assistant Treasurer

Student representatives:
Tess Kleinhaus Charity Ryerson Joe Hoover Mary Rosenberg

SOCIALLY RESPONSIBLE INVESTING

Objective:
Consider proposal to invest University assets in a socially active manner.

Background:
The University invests approximately $400 million of assets with return objectives that vary depending on the purpose for holding the assets. The University invests an additional $250 million on behalf of pension plan beneficiaries of the University, LUHS, and other smaller affiliated institutions. The University's balance sheet investments can be generally grouped as follows.

In order to impose specific constraints or guidelines on the management of Loyola's investments, it is necessary to hold direct investments in securities. Usually, stock ownership is the best means because shareholders are entitled to voting rights. An ownership position exceeding a certain minimum requirement (usually diminimus) entitles the investor to submit shareholder resolutions.

The University is a direct investor in publicly traded company stocks primarily through the investment of its endowment. At present, the University is not an active shareholder nor does it impose constraints on the purchase of stocks of specific companies. In 1979, the Board of Trustees passed a policy statement on ethical, social and moral decision-making pertaining to investments with some guidance as to how to approach advocacy. The policy is fairly vague and the University does not have a mechanism in place to take an active role in shareholder advocacy.

The endowment is invested in a diversified manner employing various types of investment strategies designed to generate the highest rate of return of any Loyola investment pool. Due to size and cost constraints, the University invests the majority of its assets in pooled fund vehicles and cannot control the securities purchased or how proxies are voted. At present, approximately 30% or $75 million of the $250 million endowment is invested directly in equity securities of publicly-traded companies. The remaining 70% of the portfolio is in pooled fund vehicles. These percentages may change from time to time providing more or less flexibility.

Life income assets are invested entirely in commingled funds because these are individual, and significantly smaller, pools of assets. The risk retention pool is primarily invested in commingled fixed income funds because of the shorter-term nature of the payouts. Operating assets are invested exclusively in short-term, conservatively managed commingled funds. The Loyola University Employees' Retirement Plan Trust (pension) is similar to the endowment in that the majority of assets are invested in commingled funds (85%). Pension fiduciaries are required by federal law to act solely in the interests of plan participants and beneficiaries.

Issues for consideration

• University's investment objectives
• Legal standard for investing University assets
  • Endowment - Illinois Trusts and Fiduciaries Section - Uniform Management of Institutional Funds Act
  • Charitable Trusts - Illinois Trust and Trustees Act and Principal and Income Act
  • Pension - Federal Employee Retirement Income and Security Act
• What is the University's responsibility as it relates to the investment of its assets?
• To whom or what interests is the University responsible?
• Who should determine whether the University is a socially responsible investor?
• Is socially active ownership and socially responsible investing consistent with the University's mission?
• Is socially active ownership an effective tool?
• What are other relevant groups doing?
  • Jesuit peers, AJCU, Provinces
  • United States Conference of Catholic Bishops
  • Interfaith Center on Corporate Responsibility (ICCR)
• What are strategies for socially responsible investing?
  • Active ownership
    • Correspondence and dialogue
    • Shareholder resolutions
    • Proxy voting
  • Purchase constraints
    • Screens
    • Restricted list
• Socially responsible interests can be generally grouped in the following manger.
  • Environment (e.g. Greenhouse gas reporting/climate change, Sustainability/GRI reporting, Recycling)
  • International Operations and Workplace Codes of Conduct (e.g. Codes of conduct and independent monitoring, Vendor standards, China principles, Global AIDS crisis)
  • Consumer Health and Safety (e.g. Pharmaceutical affordability, Genetically-engineered foods, Animal welfare, Tobacco)
  • Diversity and Equality (e.g. EEOC and glass ceiling reporting, Board diversity Sexual orientation non-discrimination policies)
  • Weapons and Military (e.g. Space-based weapons, Foreign military sales Ethical Criteria for Contracts)
  • Compensation and Corporate Governance (e.g. Pay disparity reporting, Stock option distribution by gender and race, Executive compensation relative to social issues)
  • Miscellaneous Corporate Responsibility (e.g. Political and charitable contribution reporting)
  • Global Social and Environmental
• Are there specific social interests that the University should be sensitive to when investing?
• Are there other University policies that should be a guide to policies governing the investment of University assets?