SD Grantmakers In Depth: Grantmaking and Investing
In This Issue
Stories on The Gates Foundation Reignite Investment Controvery
In January, The Los Angeles Times ran a series of articles criticizing the investments of the Gates Foundation as socially irresponsible. This led to more media attention on the topic, and renewed grantmaker debates regarding mission-related investing (MRI), socially-responsible investing (SRI), program-related investments (PRIs), and other related acronyms!
Click here for the Chronicle of Philanthropy's initial report, and here and here for articles describing Gates Foundation plans to review its investments. However, in a subsequent response, the Gates Foundation chief executive then clarified that it would not be changing its policies (click here for Gates CEO Patty Stonesifer's appearance on The Diane Rehm show, discussing this issue). Locally, San Diego Union-Tribune columnist Lynn O'Shaughnessy wrote a column in December about the sometimes-ill-informed investment practices of foundations and nonprofits. The article generated letters to the editor (scroll to the very bottom!) both applauding and objecting to it.
Some have argued that all foundations should take this opportunity to review their own investment practices--click here for a Seattle Times article discussing the issue. As Bill Baue of SocialFunds.com argues, the central question behind the controversy is this: "Should foundations pursue their missions exclusively through their program work and grant-making (typically involving five percent of their assets), or should they also seek to align their investing (typically 95 percent of their assets) with their missions?"
There are several ways in which foundations can align their investing wth their missions, including screening endowment investments to ensure that they are socially-responsible (i.e. that they do not conflict with the grantmaker's mission or ethical beliefs), and making mission- or program-related investments (MRIs or PRIs)--a set of vehicles or strategies, other than standard grants, that foundations use to finance ventures whose goals or mission complement their own.
Heron Foundation Guide to Mission-Related Investing
The F.B. Heron Foundation (a private foundation promoting wealth creation strategies for low-income families) is a leader in the MRI field and has released a guide called "New Frontiers in Mission-Related Investing" (pdf). The guide proposes the question: "Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?” and considers how best to use a foundation’s assets to promote its mission. Questioning the belief in a wall of separation between program and investment management, the Heron Foundation has sought to make investments that support its mission without jeopardizing the value of the endowment. The guide shares the preliminary results of the Heron Foundation's efforts in this area and includes an MRI "Opportunity Continuum" and "Illustrative Deal Profiles."
FSG Social Impact Advisors Studies on Mission Investing
FSG Social Impact Advisors has released a report called "Compounding Impact: Mission Investing by U.S. Foundations" that provides the first comprehensive analysis of mission investing by U.S. foundations. The study, funded by The David and Lucile Packard Foundation, analyzes the mission investment activity of 92 U.S. foundations, which have made a combined total of $2.3 billion of mission investments. Mission investing is a more specific type of social investing, and represents the use of financial investments as tools to achieve a foundation’s mission. The study found that the number of foundations engaged in mission investing has doubled in recent years, and the amount of funds committed annually has tripled. Although most mission investments are still low-interest loans, foundations are increasingly using equity and other investments that generate market-rate returns. Surprisingly, most of the growth has been driven by smaller foundations with assets under $200 million.
In 2006, FSG conducted another study,
"Investing for Impact: Managing and Measuring Proactive Social Investments," commissioned by the (UK) Shell Foundation found that socially responsible investing can deliver both "measurable social benefits" and "attractive rates of return." The study discusses "PSIs" or proactive social investments (these are also often called PRIs or MRIs), where a corporation or charitable foundation uses its capital to invest in new enterprises that can play a critical role in alleviating social problems. The report estimated that PSIs, while still a very small share of grantmaker assets, totaled nearly $15 billion by early 2006. The report also finds that while PSIs can be more complex to manage than traditional grants, most organizations using them find that they surpass expectations.
Hudson Institute Panel Discussion
In February, the Hudson Institute's Bradley Center for Philanthropy and Civic Renewal hosted a panel discussion entitled "Aligning Investments with Grantmaking?" This discussion (click here for a pdf transcript and here for a copy of a Chronicle of Philanthropy report on the debate) featured panelists arguing both for and against socially-responsible investing.
Jon Entine of the American Enterprise Institute claims in a Wall Street Journal editorial that "The dark secret of 'social investing' is that it is neither art nor science: It's image and impulse. It reflects perceptions, not performance." However, blogger Lucy Bernholz of Philanthropy 2173 insists that "What Entine calls image, impulse and perceptions, I call values. If you are going to invest in public companies - which it's safe to say Foundations are going to do - thinking through how they align with your values, where they compromise, where you compromise for portfolio balance, etc. - is appropriate." Allison Fine, Demos Senior Fellow and author of Momentum: Igniting Social Change in the Connected Age, agrees with Bernholz.
National Center for Family Philanthropy
In this newsletter, the National Center for Family Philanthropy examines how program or mission-related investing can increase the impact of family foundation giving. The newsletter reports that "Although it may seem risky for smaller foundations and philanthropies with less available capital to invest in mission-related ventures," small and mid-size foundations are actually well-posititoned for these options because they can be more flexible than larger grantmakers. Additionally, the fiscal stewards and grantmakers are often the same people and therefore small foundations may not have to reconcile different ideological backgrounds in adopting mission-related investments. The President of the F.B. Heron Foundation offers four pieces of advice for those considering MRIs: to be very clear about your mission, seek out expert advice, exercise discipline and due diligence in investing, and start small! The newsletter also links to Jed Emerson's SSIR article (pdf), "Where Money Meets Mission: Breaking Down the Firewall Between Foundation Investments and Programming."
Shareholder Activism as Socially Responsible Investing
The Wall Street Journal reported earlier this year that some foundations are moving to a new level of socially responsible investing: rather than pulling investments from companies not in line with their missions or values, some foundations are pressing for change through shareholder activism. For example, foundations have announced that they "will make sure that their votes on shareholder resolutions are in synchronism with the foundation’s mission." The Nathan Cummings Foundation is "using its stock portfolio to urge public companies to change practices that go against the foundation's mission." The article notes, however, that most foundations are reluctant to engage in this type of activism.
Organizations like "As You Sow" encourage foundations to use shareholder advocacy to catalyze change within publicly held companies. Click here for their page on aligning mission and investment, and here for their page on proxy voting. Each year, the organization publishes a preview (pdf) to help foundations learn about important upcoming proxy votes on social and environmental issues that are relevant to their missions.
More Resources
Upcoming
SDG Programs
Reception for Diana Aviv, President and CEO of Independent Sector
June 19, 2007
5:00-7:00pm
Location: Home of Deborah Szekely
Third Thursdays Breakfast Series (Nosh, Network, Knowledge)
June 21, Jul 19, Aug 16, Sept 20, Oct 18, Nov 15
8:30-10:30am
Locations:
United Way of San Diego County (June, July)
4699 Murphy Canyon Rd
The San Diego Foundation (August-November)
June 21 topic: Turning Silver into Gold in San Diego: The Impact of Aging
Click here for more information about the breakfast series.
Redefining Public Safety: Learning and Sharing- Perspectives from Local Providers and Ex-Offenders
June 28, 2007
9:00-11:00am
Location: The California Endowment, 600 W. Broadway, Ste 1250, San Diego, CA 92101
Homelessness Working Group: Preventing Family Homelessness
July 9, 2007
10:00am-12:00pm
Location: Alliance Healthcare Foundation
Guest Speaker: Deborah Szekely
Child Welfare Funders-Listening to Foster Youth
July 18, 2007
12:00-2:00pm
Location: Casey Family Programs, 3878 Old Town Avenue, San Diego, CA 92110
SDG 2007 Annual Conference
November 8, 2007
Save the date!
Click here for more information about all of these SDG programs. All programs are free for SDG members except where indicated.
To RSVP, please call (619) 744-2180 or email programs@sdgrantmakers.org.
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