Historically, private foundations have focused on principal capital preservation while distributing their 5% payout for social good. Today, the world of impact investing has more and more philanthropists asking how their foundation’s corpus can be invested for social good as well.
According to a recent study of 32 ultra high-net-worth families, Impact Investing: Mapping Families’ Interests and Activities, more than half plan to move 90% or more of their assets into socially-responsible, values-driven investments in the next 10 years. Currently, however, they are doing so with less than 20% of their assets. This discrepancy is largely due to the gap between intention and knowledge about what steps to take to move down the road to impact investing.
Here are five tips to get started:
1) Know what you own.
While you are hard at work ensuring that your grants are making a positive difference in the world, are you unwittingly invested in companies that manufacture guns, run private prisons, profit from oil and gas extraction, promote harmful factory farms, or use exploitative labor practices? The answer for most of us, unfortunately, is yes—but knowledge is power, and the first step towards change.
2) Consider your values.
Spend some time with your board identifying the values you want your investments to reflect. For some, divestment is the central tenet: “I will not invest in X, Y, Z.” This is called negative screening. For others, they use positive screening by selecting only public market managers who build portfolios of companies that consider environmental, social and governance (ESG) factors—trusting that these best practices lead to better long-term returns. Still others take a look at their foundation’s grantmaking and consider parallels in their investments.
3) Establish a point of view about ROI.
Although the relatively new impact investment market is still seeking the best measurement tools to demonstrate social and financial returns, there is now ample evidence that socially-responsible impact investing produces comparable or better financial returns than traditional portfolios. Setting expectations about returns will help to narrow the field of investment opportunities and avoid disappointment down the road.
4) Talk to experts.
Learning from others’ successes and challenges should be part of your due diligence process.
5) Make a blueprint for action.
Knowing what you now know, draft a short statement of purpose and a plan to codify the decisions you’ve made. Document the values you want to uphold and the investment goals you’ve identified. Establish a prudent and phased approach to roll out over several years.
Read the full article about impact investing by Ash McNeely at Pacific Foundation Services.
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