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Over the past several decades, activists across Harvard’s campus have called on the University to divest its endowment from a wide range of controversial industries.

The calls have intensified in the past two years, particularly with regard to investments in fossil fuel companies and in companies related to the prison industry.

But the latter debate, waged primarily by the Harvard Prison Divestment Campaign, has been dogged by disagreements between the group and the University over whether divestment is a feasible financial strategy — and over which Harvard holdings constitute an investment in prisons in the first place.

Last month, five members of HPDC took their advocacy a step further, and filed suit against Harvard for false advertising and violation of its charter, basing many of their claims on an Oct. 2019 report HPDC produced — which estimates that Harvard holds $3 million in prison industry investments.

In a meeting with representatives from HPDC in April 2019, University President Lawrence S. Bacow estimated that Harvard’s holdings in the prison industry amount to roughly $18,000.

Through an analysis of publicly available endowment information, The Crimson examined Harvard’s and HPDC’s methodologies for calculating University holdings in the prison industry — and consulted experts on the ramifications of both sides’ conception of what it means to invest and divest.

HARVARD’S METHODOLOGY

Information about around 2 percent of Harvard’s $40.9 billion endowment is publicly available. Specifically, that figure represents the funds the University has invested in the stock market, which it is required to disclose quarterly to the Securities and Exchange Commission via a 13F Form.

The Harvard Management Company has public direct investments in only nine companies, all of which are tech or biopharmaceutical firms: Alphabet, Booking Holdings, Facebook, Fulcrum Therapeutics, Magenta Therapeutics, Neon Therapeutics, NuCana Plc, Palo Alto Networks, and Uber Technologies.

Those companies comprise 92 percent of Harvard’s $945 million in securities holdings. Another 1.5 percent of the securities holdings are in gold.

The remaining 6.5 percent is split between seven Exchange Traded Funds, or ETFs — managed funds that offer exposure to multiple sectors of the stock market. All of the investments the Harvard Prison Divestment Campaign has named that Harvard holds in the prison industry come not through direct investments, but through these ETFs.

ETFs are comprised of hundreds or even thousands of companies, depending on the criteria of the specific fund. For example, one of the funds that Harvard invests in — the iShares Core S&P 500 — seeks to mimic the S&P 500 by offering investors access to 500 of the largest cap U.S. stocks.

One of the central points of contention between the University and the Harvard Prison Divestment Campaign is which companies form the “prison-industrial complex” — a term used by HPDC and others to signify the collective organizations which contribute in some way to the operations of the U.S. prison system. Some companies HPDC has cited as part of the prison-industrial complex include banks, food providers, and weapons producers.

Bacow has told prison divestment activists that the University has just $18,000 in investments in private prisons.

In a Monday interview with The Crimson, Bacow reiterated that his $18,000 estimate was based on Harvard’s holdings in index funds, not on direct investments in the prison industry. According to Bacow, that $18,000 comes from Harvard’s holdings in five companies.

“It was indirect ownership. We don't own any of the stocks directly,” Bacow said.

The Crimson identified four companies which are private prison operators contained in two of the seven ETFs Harvard invests in: CoreCivic, GEO Group, G4S, and Serco. The investments come through the iShares Core S&P Mid-Cap ETF and the Vanguard FTSE Developed Markets ETF.

CoreCivic is the largest private prison operator in the United States, and GEO Group is the second largest. Both have faced controversies in recent years over the alleged abuse of prisoners in their facilities as well as major contracts that the companies have opened with Immigration and Customs Enforcement.

CoreCivic spokesperson Amanda Gilchrist dismissed HPDC’s demands related to her company in an emailed statement.

“Unfortunately, much of the information about our company being shared by special interest groups is wrong and politically motivated, resulting in some people reaching misguided conclusions about what we do,” Gilchrist wrote.

GEO Group spokesperson Pablo E. Paez also defended his company’s practices in an emailed statement. Paez wrote that calls for divestment from GEO Group are based on a “false narrative,” adding that GEO Group’s processing centers provide “safe and humane residential care” as well as a number of leisure amenities for prisoners.

“The divestment efforts against our company are based on a false narrative and a deliberate mischaracterization of our role as a long-standing government services provider,” Paez wrote.

Each of these two companies comprises 0.11 percent of the S&P 500 Mid-Cap Fund, which Harvard has $5,434,000 invested in. According to that breakdown, Harvard indirectly invests $5,977 in each company.

G4S and Serco, meanwhile, each make up .02 percent of the Vanguard Developed Markets Fund, which Harvard has $13,763,000 invested in. That equates to roughly $2,752.60 in each company.

G4S is a United Kingdom-based security contractor that operates in more than 90 countries. Its employees have been accused on multiple occasions of abusing and harassing detainees. Likewise, Serco is a U.K.-based company specializing in facilities management, including prisons and border security. Serco has been accused of covering up the sexual abuse of immigrants and of exploiting detainees for inexpensive labor.

G4S and Serco did not respond to requests for comment.

Alyssa Thornton, a spokesperson for Vanguard, wrote in an emailed statement that private prisons “make up a very modest portion of Vanguard funds’ portfolios and are largely held in index funds” like the Developed Markets Fund.

Thornton wrote that she “recognizes the concerns” of prison divestment activists.

“I recognize the concerns Harvard Prison Divestment has made regarding the immigration crisis at the border. We believe this crisis is deeply saddening, and one that needs to be solved by our elected officials. We hope that policymakers come to a swift resolution to ensure the safety and security of these children and individuals,” she said.

Between these four companies — and subscribing to the narrowest possible definition of prison investment — Harvard has $17,459 invested in private prisons as of the University’s latest filings.

Several experts said that if one were to adopt the narrow definition of prison-related companies that the University subscribes to, the financial toll divestment would take would be relatively small.

“These are very, very small percentages in terms of how much of the market these companies account for,” said John Streur, the CEO of Calvert Research and Management, an investment management firm that specializes in responsible investing. “So one would have to make an enormous bet on one of these companies for it to have a real financial impact. Eliminating the companies would not be noticeable from a return perspective.”

Julie N.W. Goodridge — the CEO of NorthStar Asset Management, a progressive wealth management firm — said that Harvard was unlikely to experience a substantial loss of revenue if they removed the companies from their investment portfolio.

“Would there be any loss of revenue as a result of getting those companies out of a portfolio? My guess is that there wouldn’t be any loss of revenue that would be even remotely substantial, and that the hassle that they’re getting from the student body and the greater community would be alleviated,” Goodridge said.

HPDC’S METHODOLOGY

The Harvard Prison Divestment Campaign, however, employs a much more expansive definition of the prison industry.

In its report, which is based on May 2019 filings, HPDC listed nearly 50 companies that they say are tied to the prison industry. They amassed the list from a number of advocacy organizations, including the American Friends Service Committee, Worth Rises, Prison Legal News, the Action Center on Race & the Economy, In The Public Interest, and the Justice Policy Institute.

“Despite the popular misunderstanding, the prison-industrial complex does not only include private prison operators like CoreCivic, GEO Group, and G4S,” their report reads. “Rather, it encompasses a slew of state and non-state entities including federal, state, and local governments; weapons manufacturers; bail bondsmen; analytics and surveillance technology manufacturers; financiers; pharmaceutical corporations; telecommunications companies; and police and guard unions.”

Companies on their list range from Amazon — which they say provides facial recognition and other information technology to Immigrations and Customs Enforcement to track immigrants — to a number of banks, including Bank of America and Wells Fargo, which they say finance the debts of CoreCivic and GEO Group. They also list Bank of America and Goldman Sachs for their role in financing Police Brutality Bonds.

A Bank of America spokesperson referred The Crimson to a June 2019 announcement that the bank would cut ties with “companies providing prisoner and immigrant detention services, as expeditiously as possible,” and confirmed that the process of exiting these relationships is underway.

HPDC also includes companies involved in providing telecommunications and money transfer services to prisons, in addition to companies who sponsor bail bonds, manufacture weapons, and monitor people on probation.

In total, 43 of the companies HPDC identified are represented in five of the ETFs Harvard is invested in. Two of the analytics and surveillance companies — Harris Corporation and L3 Technologies — merged into one company since HPDC’s analysis, and Harvard invests in the new company.

In total, The Crimson calculated that Harvard has $2,925,648.74 in investments in the 44 companies that HPDC lists as related to the prison industry — around $1,750,240 of which is from Amazon alone, which is represented in iShare Core S&P 500 and Investico QQQ.

That figure amounts to slightly less than the $3 million that HPDC wrote about in their report.

Christia Mercer, a Columbia University philosophy professor who advocated for Columbia to divest from the prison-industrial complex, said in an interview that including a large number of companies could spark conversations on campus about the far-reaching nature of the prison industry.

“Even if you just have a conversation at Harvard or major universities about the ways in which Amazon and Goldman Sachs and so on are involved, then suddenly you put pressure on those major corporations to reconsider how they’re thinking about taking advantage of people caught up in the prison-industrial complex,” Mercer said. “So are the students right to bring this up? Absolutely.”

Other experts, meanwhile, debated the reasonableness of requesting that Harvard divest from a more expansive list of companies.

“If you were only trying to take out the private prison companies — the publicly traded private prison companies — there is a mechanism for doing that that is not terribly complicated, so that is a reasonable request,” Goodridge said. “If you are trying to get any company out of the portfolio that interacts with prisons through its supply chain, that is a massive undertaking and would be extremely daunting for Harvard Management. It’s daunting for me, and we do it for a living.”

Mercer said that regardless of how difficult divestment from multiple ETFs might be, Harvard should do withdraw its investments.

“This is really complicated, and given how complicated it is, and given that Harvard has been loath to sort out the complications of these kinds of things in the past, why should we expect Harvard to sort out the complications of this now?” Mercer said. “The answer to that is because they are making money — even though they are making money from a lot of other sources, they’re making money on the backs of children who are being put into cages. And sorting that out, going to the trouble to sort that out, would be a clarion call to people.”

POTENTIAL PATHS FORWARD

Experts named a number of ways that Harvard could invest its money in ETFs or other index funds that seek to avoid the prison industry.

Thornton said that Vanguard offers a number of funds without investments in private prisons.

“Vanguard does offer a screening tool on our website for investors seeking to avoid such companies from their investment portfolios,” she wrote in an email.

However, Goodridge said that some socially conscious funds are not as reliable as traditional ETFs and have a higher cost to enroll.

“Their performance does vary from time to time,” she said. “I don’t know if Harvard would be satisfied with that, that would involve them taking a look at the performance of those funds, comparing them.”

“They would be at a higher cost, and then the question, is that higher cost worth it based on whatever the performance is?” Goodridge added. “Compared to the size of the Harvard endowment, it’s kind of like a drop in the bucket.”

Matthew W. Patsky, the CEO of Trillium Asset Management, suggested that the social benefit of divesting from the prison industry may outweigh any such financial consequences.

“An endowment that serves a social purpose — and certainly I would argue the endowments of universities serve a social purpose — it could be argued that it’s okay to make decisions that are more designed to have more impact on society in general,” he said.

However, Harvard Management Company spokesperson Patrick S. McKiernan wrote in an emailed statement that HMC’s objective is to financially support Harvard through strong endowment returns.

“HMC strives to generate strong, long-term returns to support the educational and research goals of Harvard University. Our investment decisions are based on achieving that goal through a risk-adjusted portfolio,” McKiernan said.

“As a long-term investor, HMC focuses on material environmental, social, and governance (ESG) factors that may impact the performance of our investments. HMC strongly believes that considering all data is not only in line with our fiduciary duty, but simply something that thoughtful investors do,” he added.

Some experts also debated the social effectiveness of divesting from an ETF, even if it were a fiscally sound move.

“Just divesting from the ETF isn’t going to get you any further in the world. It’s not going to take away the problem with the prison-industrial complex. It’s one teeny tiny piece of the prison-industrial complex,” Goodridge said.

Streur disagreed, and said Harvard could persuade companies who provide ETFs to themselves divest. In the past, such companies — including BlackRock, which manages the iShares ETFs — have created new funds that exclude other controversial industries, including weapons manufacturers.

“You’ve probably seen that some index providers or some ETF providers who replicate indexes are beginning to think about and offer indexes that exclude private prison companies,” Streur said. “I think the concept of Harvard using its power, if you will, to engage with either the index manufacturers, the product providers, or the private prison companies directly and try to solve the problems is pretty attractive.”

Hillary Marshall, a research analyst at Domini Impact Investments LLC, also said she thinks that Harvard has leverage — if it wants to use it.

“The endowment is huge. It’s like $40 billion,” she said. “That’s a momentous amount of money and Harvard itself as an institution can have significant leverage within the financial industry, too, to say, ‘These are businesses that we don’t want to support, that we don’t think is a good investment for our portfolios, because of the material risks that they present.’”

Goodridge said she suspects another reason Harvard does not entertain divestment is that investors may view the move as a “slippery slope.”

“Once you started really looking at the companies that are sitting in that portfolio — fossil fuel companies, cigarette companies, companies that make tobacco, gambling companies — there’s just all sorts of stuff that is going to be in that portfolio that you’re going to take issue with, or that various people could,” she said. “If you’re simply focused on the publicly traded prisons, it should be a fairly easy thing.”

Harvard has divested three times in recent history — partially from South African apartheid in 1986, fully from tobacco in 1990, and from one company tied to the genocide in the Darfur region of Sudan in 2005.

Patsky also noted that, for all the debate about whether or not Harvard has $18,000 or $2 million in prison industry investments, the investments represent just a fraction of the overall endowment. In fact, nearly 98 percent of it remains unknown.

“Transparency is really difficult to get of what the true holdings are,” Patsky said.

He added that he believes the onus is on Bacow to inform students of the endowment’s contents.

“In the case of the University President making a statement that they have just $18,000 invested in private prisons, when he has access to all of the investments and can look through and see what all of the investments are of the entire endowment, is disingenuous,” Patsky said.

University spokesperson Jonathan L. Swain declined to comment for this article, referring to Bacow’s comments on divestment in his Monday interview with The Crimson.

Patsky suggested that, because public investment information is only available for around $1 billion of the $40.9 billion endowment, the total number of prison-related investments in the entire endowment could be as much as 40 times the amount of either side’s estimates — 40 times 3 million, amounting to $120 million, or 40 times $18,000, amounting to $800,000.

“If they're starting out attempting to mislead you, you've got to make some assumptions about it,” Patsky said. “You could very well go back to him and say, given that you’ve given me an answer for the 1 billion for which you have transparency, could one presume that the real number is 40 times that?”

—Staff writer Ellen M. Burstein can be reached at ellen.burstein@thecrimson.com. Follow her on Twitter @ellenburstein.

—Staff writer Camille G. Caldera can be reached at camille.caldera@thecrimson.com. Follow her on Twitter @camille_caldera.