Q&A with Jameela Pedicini

Jameela Pedicini is Harvard Management Company’s first vice president for sustainable investing. Working closely with Harvard President Drew Faust and President and CEO of HMC Jane Mendillo, Pedicini was instrumental in the University’s recent decision to sign the United Nations-supported Principles for Responsible Investment (PRI). She spoke with the Gazette about her charge to help the University think in more nuanced ways about environmental, social, and governance (ESG) factors in investing. 

GAZETTE: You joined HMC at the end of August as the subject matter expert in ESG and sustainable investing issues. How have you spent the intervening months?

PEDICINI: My focus in the last eight months has been on getting my head around and learning about the portfolio. I have been working with the team here at HMC as well as with the University, specifically the Corporation Committee on Shareholder Responsibility, and I have also been meeting with students and faculty and staff to understand how the wider Harvard community thinks about sustainable investing.

GAZETTE: What does that mean — getting your head around the portfolio?

PEDICINI: Allow me to take a step back: We define sustainable investing as the integration of material environmental and social and governance factors into investment practices. It’s about doing good business — which is directly aligned with our mission to provide strong long-term investment results to the University. And so over the last eight months, I’ve been looking at the portfolio to understand what ESG risks our investment professionals are already factoring into their investment practices. For example, in our due diligence process, we’re already asking questions around health and safety issues and employment practices. So, it’s about understanding what we’re already doing as it relates to ESG, and then thinking about how we can improve our processes over the coming months and years.

What is really important to understand is that we’re taking a considered approach to integrating ESG factors across asset classes so that we can enhance our ability to evaluate how these issues may impact the valuation of our investments and performance. I’m working to understand how we already assess ESG risks and then helping to identify ways to enhance our approach to evaluating ESG issues. It’s about collaborating with the investment professionals as well as with the University more broadly on these issues.

GAZETTE: You’ve worked in this area for several years, but you have a fairly fresh perspective on Harvard’s approach to these issues. Where does the institution stand relative to its peers when it comes to engaging on ESG and related issues?

PEDICINI: Jane Mendillo and President Faust have taken a leadership role in this area. The endowment space has not been an obvious leader of sustainable investment. But Harvard specifically, with its commitment from the top, I would say, is at the forefront of endowment management when it comes to looking at these issues.

GAZETTE: Jane Mendillo has often said that, as a long-term investor, HMC is always focused on sustainability. What does she mean by that?

PEDICINI: Good question. ESG risks can have a direct and indirect impact on a company’s performance. So, for instance, they can have a direct impact on a company’s profitability through increased regulation that can then lead to increased operating costs. Or ESG risks can indirectly impact a company’s long-term performance, such as its ability to attract talent and retain customer loyalty. For HMC, it’s about both managing the short-term ESG risks as well as having a thorough understanding as to how ESG issues may impact our performance over the medium and long term.

GAZETTE: A lot of the work that you did in recent months resulted in Harvard University becoming a signatory to UN-supported PRI. What’s the significance of that step?

PEDICINI: We’re the first U.S. endowment to become a signatory to Principles for Responsible Investment, so this is a major step within HMC, but this is also a big step within the endowment space more broadly. It entails formalizing our approach to sustainable investment and using the six principles as a guiding framework, which are about integrating ESG factors across each asset class. It entails incorporating ESG factors into our ownership policies and practices, seeking further disclosure from companies, and integrating ESG factors into our investment analysis. And, as a signatory to the PRI, we will be publicly reporting on how we are implementing the six principles in our investment practices.

GAZETTE: Joining the PRI prompted some people to ask whether the University would reconsider its stance on divestment from holdings related to fossil fuels. Are those two things in some way related?

PEDICINI: No, they’re not. I think it’s important in defining sustainable investment to also define what it’s not: We are not signaling in any way, by becoming a signatory to the PRI, that we are inclined to divest from a certain set of companies or a certain sector as a whole. Instead, we’re integrating ESG factors into our investment policies and practices so that we can be more informed investors. We’re looking out over the long term to ensure that we have the right information about these emerging risks, and also opportunities, so that we can make more informed decisions. In short, we’re enhancing our investment decision-making process.

GAZETTE: All right. At the same time HMC joined what used to be known as the Carbon Disclosure Project (CDP). How do those two things work together?

PEDICINI: The Principles for Responsible Investment pertain to our investment process and practices internally; the CDP pertains to what information portfolio companies publicly disclose regarding climate change risks and opportunities. As an investor, we need reliable information about how companies are managing ESG issues. And the CDP works with investors — institutional investors, primarily — to request from public companies how they account for, and disclose information regarding, greenhouse gas emissions, as well as energy use and carbon risks associated with their business activities.

GAZETTE: In recent months, there have been questions about a few properties owned or operated by HMC. I’m thinking particularly about timber operations in Argentina. Have you looked into some of those questions?

PEDICINI: I was actually just in Argentina at the end of March, and I did an extensive due diligence trip with our natural resources team. I viewed all of our properties firsthand and had the opportunity to work with our team down there. Within the forestry industry in Argentina, they’re definitely leading the way by adhering to international standards on labor standards, health, and safety, as well as engaging with the local community. They’re doing a terrific job.

Our natural resources portfolio has been a real value-add to the endowment, and HMC takes the proper stewardship of its properties very seriously. In natural resources, our approach focuses on ensuring that our properties are managed in such a way that they meet the standards necessary to achieve certification by an independent third-party organization. We do this through the Forest Stewardship Council (FSC), which is an organization that oversees an extremely rigorous certification process. It includes an annual third-party audit evaluation to ensure that we are actually adhering to the FSC principles, and it promotes a process of continuous improvement by identifying risks and recommending changes.

GAZETTE: With PRI, CDP, and reviewing individual properties abroad, it seems like there’s been quite a bit of activity in a relatively few months. Generally speaking, how would you characterize HMC’s approach to sustainable investing?

PEDICINI: It’s about ESG integration. So, going back to my earlier point, we’re not limiting our investment opportunity. We’re actually enhancing our ability to make good investment decisions — now and in the future.