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Community Investing Achiever in the Social Investment Forum 1% For Community campaign since 2002. Calvert Foundation Advisor of the Year in 2004. Learn more!
| Family and private foundations with SRI--a natural fit Fiduciary standards support using SRI strategies Myths and misinformation Getting help to make it happen Book reviews Family and private foundations with SRI--a natural fitFamily foundations like yours aim to change the world for the better by focusing philanthropic efforts toward worthy causes. To that end they grant 5% of their assets to nonprofits whose missions align with theirs every year. But what is the remaining 95 percent accomplishing? Unfortunately, the remaining 95 percent of the foundation’s assets are often invested with a narrow focus only on financial criteria without regard for potentially adverse effects on the foundation’s mission. Imagine the positive effect if your foundation's investment account (or even a portion of it) was invested prudently and put to work for your foundation’s mission, or at least not against it. As the fiduciary trustee of your foundation, you can now prudently align your investment strategies with your mission. Do you know if your family foundation’s investment strategies are working for or against your mission? Would you be interested in learning how you can have sustainability and social responsibility criteria applied to your foundation investing? Would you like your foundation or its managers to be involved in shareholder advocacy and engagement with the companies the foundation is invested in so you can make a positive impact there too? Would you like your foundation investment managers to vote shareowner proxies according to good sustainability and responsibility policy? How about if your foundation allocated some of its investment assets into interest bearing community investment notes to help fight poverty? Foundations that have already successfully integrated these SRI strategies with their investment practices include: F.B. Heron Foundation, Rose Foundation, Mott Foundation, Jessie Smith Noyes Foundation, The Needmor Fund, and of course many others. Here's a five minute introductory video, Dialogue for the Discerning Donor from Philanthromedia on the topic of "Mission Investing." In a nutshell, mission investing encourages foundations to look beyond grants, to the power they can gain by investing their financial endowments in ways that align with mission....
Fiduciary standards support using SRI strategiesUS foundations have considerable freedom to make investments that further their missions when making investment decisions. Global law firm Freshfields Bruckhaus Deringer produced important legal framework on the topic for the United Nations Environment Programme Finance Initiative. The findings indicated, to make a very long story very short, that it is prudent for investment managers to consider environmental, social, and governance issues, and it may even be considered a best practice for mission-based organizations to do so. An October 2008 FSG Social Impact Advisors report co-authored by Anne Stetson and Mark Kramer provides a comprehensive guide to the current state of the law of mission investing by U.S. foundations, framed especially for foundation boards and staff. A Brief Guide to the Law of Mission Investing for U.S. Foundations can be obtained from our office or the FSG office. Fiduciary360 is the most highly respected institution in regards to fiduciary education and practices. They provide guidance for investment stewards and other fiduciaries whom are subject to the Uniform Prudent Investor Act (UPIA). The guidance states that when mission driven donors, investors, and foundations wish to use SRI strategies, they may, and perhaps even should do so. American Institute of Certified Public Accountants provided the technical review of Fiduciary360's Prudent Practices guides for investment stewards and investment advisors. Reish Luftman Reicher & Cohen provided legal substantiations for the guides. Myths and misinformationSome uninformed investment consultants, brokers, and trustees may still be under the impression that applying SRI strategies reduces returns or even that it is illegal. The latter claim, it's illegal, is refuted in the material referenced above. The "causing reduced returns" myth has been extensively studied in academia and professionally. A review of this material shows the astute observer that there is no clear consistent evidence of the underperformance claim when the current-day use of the multiple SRI strategies are being utilized. Some brokers claim that the investment universe is being reduced because of negative screening and therefore the good investment opportunities are missed. Of course this may be true if you are misguided and just apply a ridiculous broad level of negative screening. One of the largest SRI investment companies in the US starts with the Russell 3000 Index and the MSCI EAFE Index, then after applying some of the most stringent environmental, social, and governance (ESG) research, still ends up with plenty of investment opportunities--1,200 to 1,400 major companies out of a starting universe of 4,000. So in practice, it turns out that when (ESG) research and screening is integrated with prudent investment management, it can help manage portfolio risk and uncover better investments. And the other key SRI strategies, which most brokers and investment consultants are unschooled in, including shareholder engagement with management and the addition of fixed income community investment pools can also help enhance portfolio quality. Getting help to make it happenYour family or public foundation wants to do the right thing and integrate sustainable and responsible investment strategies. But your staff and trustees don't have the time, expertise, or competencies. For you, we recommend the following process, which would be customized based on your situation. (If any of this sounds daunting, don't worry, help is on the way--Goodfunds Wealth Management can perform and/or coordinate all this for you.)
The competent, experienced, and credentialed Goodfunds Wealth Management team is ready to help your foundation move through these steps. Contact us today to get started. Book reviews
Solution for Impact Investors: From Strategy to
Implementation Overview Godeke and Pomares have put together here a concise resource specifically for high net-worth families, foundations, pension fund managers, and the staff or advisors of these investors. In addition to providing readers with a step by step framework (The Impact Investing Cycle) for implementing results oriented investing within their portfolios, they profile three organizations (Calvert Foundation, RSF Social Finance, and KL Felicitas Foundation) whom have been applying these kinds of strategies for some time. Summary
Once an individual or organization has established their mission and values, the next step is to translate those values into impact investing themes. Themes might include community development, human rights, health and wellness, clean energy, water, climate change, education etc. The selected themes will usually affect the type of impact investment vehicle that is chosen. For example, one of RSF Social Finance’s impact themes is Food and Agriculture, which has led the organization towards investments that support diversification, region-first approaches and sustainable practices. The next step in the cycle is to define impact. The authors review five tools and tactics available to investors, the use of which will be determined in part by the investor’s desired impact. These tools include:
After defining impact and determining which tools and tactics will be utilized, the next step is to develop an impact investing policy. Similar to an investment policy statement that defines the parameters of an investor’s asset allocation strategy, an impact investing policy provides guidance for how impact investments will be made (i.e. what percentage of the portfolio will be in program-related investments, screened stocks, etc; what the expected returns should be, etc). Here at Goodfunds Wealth Management, what the authors are referring to as a separate “impact investing policy” is integrated with the development and maintenance of our client investment policy statements. If an impact policy statement calls for “impact first investments”, it is time to begin generating deal flow. Finding suitable impact investments can be a time consuming activity, particularly when viewed in light of an organization’s impact themes. The authors provide a useful template for gathering information that might help an investor determine if an investment is appropriate for their impact investing strategy. They also provide a link to their website that contains more than 100 impact investment profiles, demonstrating the growth that is occurring in this arena. After generating a pipeline of potential impact first investments, the hard work of analyzing investments through a rigorous due diligence process begins. Some of the questions that might be used while performing due diligence include:
An in-depth analysis of financial statements, management teams, and other offering materials should be performed, considering both financial and impact risks. This is one area where an independent financial advisor, or at least those that are qualified to review these kinds of investments, can be particularly helpful. Many advisors and investors choose to invest through aggregated offerings such as the Calvert Community Investment Notes in order to minimize the overhead costs associated with performing due diligence on any number of different investments and instead relying on the expertise of Calvert Foundation or similar pools to perform the due diligence on their behalf. The final step in the impact investing cycle is evaluating the impact of the investments. Developing metrics that will be used to determine the relative success of the investments either from a financial first, impact first, or blended perspective is essential. Calvert Foundation for example, makes available a Social Return on Investment (SROI) calculator on their website, which allows investors to see the results of their investments in terms of tangible impacts. It reports on number of affordable houses built, number of jobs created, microloans to small businesses, etc. While the field of impact evaluation is in its infancy, many organizations continue to develop innovate ways to measure the impact of investments. Goodfunds Wealth Management’s Perspective While many of the private placement or illiquid investments illustrated in the book may be suitable for larger foundations and accredited investors, smaller foundations (i.e. $1-5 million in assets) should proceed cautiously, taking deliberate steps to ensure that they are achieving adequate diversification, liquidity, and balance of their assets. While the potential social and environmental impacts of direct investments in social ventures are exciting, those investments can also be accompanied by elevated risk levels that may be inappropriate for many investors and foundations. That said, most any investor or foundation that wants to, no matter the size, can implement the foundational strategies of sustainable and responsible investing—simply by using managers that apply screening criteria, engage in shareholder advocacy and proxy voting activities, and utilize managed community investing pools. Our book reviews should not be considered recommendations to follow any specific investment advice, strategy, or suggestions found in the book. Each investor’s situation is unique and therefore they should consider their own circumstances in conjunction with the advice of qualified investment, legal, and tax professionals. Please contact us today to request your free copy of the book Solution for Impact Investors: From Strategy to Implementation.
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