I presume that the shift to pass/fail grades in the first year is motivated in part by this concern to fit with mission; counteracting the tendency of students in the first year to develop competitive habits which leave some people who would otherwise develop further and faster behind, and diminishing the effectiveness of early high achievers. It is not just legitimate, but required, to modify your grading system better to pursue the mission of the institution. Now, as far as I can tell, it is just a conjecture that it will have the desired effects; the school is working on a hunch. Its also worth mentioning, and worth remembering when people obsess about grades and grade inflation, that the ethos of a school has more influence over the kinds of choices students make and dispositions they develop than any small change in something as concrete as the grading system. Anyway, I hope that there are systems in place to study and monitor the effects of the change in policy, and I hope that it works.
Take a look!