I get up every day with one priority in mind – to use the tools of finance to make the world work better for its 7.8 billion inhabitants in ways that complement our environment and build our social fabric – rather than work at their expense. With persistent global threats like climate change, poverty, healthcare, social justice, and education (to name a few!), it’s clear that we need real systems change to drive the capital we need to address these solutions at scale. While we will need to unleash the $186T of assets in the global capital markets to achieve full systems change, philanthropic organizations have an important role to play in addressing these problems, too. Yet less than 1% are actually bringing their full financial resources to bear on these global challenges.
In fact, while total annual, philanthropic, grant capital stands at about $410-$430m (Investment Company Fact Book 2018), private foundations have approximately $1T in their investment endowments that they are not using in ways that advance the missions of their organizations. This can and must change.
I recently had the privilege of speaking on a Barron’s Live podcast with Teresa Younger, CEO of the Ms. Foundation (full disclosure – a client of our firm) on the topic of Investing in Women, Girls and Racial Equity to talk about how philanthropic organizations like Ms. can align their investments to advance their mission. I believe the Ms. Foundation’s work to do this can serve as a blueprint for others. Here are some ways that organizations can optimize their impact:
Starting the Conversation
There’s a lot that goes into a foundation’s decision to become 100% mission-aligned and realign the corpus of its endowment fully with its granting mission. To start, you need a board and leadership team that asks the right questions and is willing to hear the answers. This is critical.
For many organizations, this process often starts with someone asking a simple question: what would it look like if the organization was entirely aligned in its mission? How can you be intentional about everything you do – from your personnel policies to your investments – so that all of your organization’s efforts are focused on optimizing outcomes aligned with your mission and vision?
At this point, we recommend that foundations engage in a three-step process:
- Foundations should work with their financial advisor to educate them on the issues they really care about so the advisor can develop a customized strategy to implement that mission.
- Your advisor should then come back to you with investment options that include ideas, innovations, and strategies that can drive your mission.
- Since success is just as much about delivering investment outcomes that meet your portfolio objectives in addition to your impact outcomes, you need an advisor with strong investment acumen. We always recommend a diverse portfolio that includes a range of asset classes that combine different risk / return assumptions with impact goals.
Asking the hard questions
Getting to 100% alignment means being willing to ask the hard questions. Whether your mission is social justice, climate change, gender equity, affordable housing, and so on, this means looking for fund managers and all investment options through that lens, and investing in businesses of this ilk – so that this focus is built into the investment process every step of the way. What’s more, there are lots of unconscious biases that persist about how these asset classes in mission-aligned investments are somehow riskier or underperform. This is a myth. Look hard at the data so you can give the beneficiaries of your organization’s work a fair shot.
There are also often elements of an organization’s portfolio that are in conflict with its stated mission. For example, we often we find fossil fuel investments in a portfolio that are undercutting an organization’s climate agenda. You need to examine all of the investments in your portfolio to gain a real and honest understanding of where your capital is moving the needle. Once you’ve asked and answered all of these questions, it’s the job of your financial advisor to devise a holistic portfolio strategy that can address the complexity of the issues you are seeking to move the needle on.
Our world faces so many critical issues that need investor capital, whether it’s combatting climate change, advancing social justice or promoting a more gender equal world. Philanthropic grant capital is so important to making these changes but it is not going to get us there alone. I urge all organizations to ask themselves the question that Ms. Foundation asked – what would it look like if they aligned all of their capital with their mission. We have no time to lose.