You’ve seen the research: financial returns need not be sacrificed for environmental or social objectives. You recognize the possible benefit of using your foundation’s investment capital to ameliorate the same pressing social and environmental issues currently targeted by your grant strategy. You hear people in the mainstream financial services industry throwing around the term “impact investing,” but wonder how it might apply to your own foundation’s investment portfolio.
We know you are asking these questions because we hear them every day from our members, philanthropists interested in mission-related investing. As a non-profit membership organization with the sole purpose of helping asset owners align their investment strategy with their environmental or social mission, we know that it can be a huge and often daunting decision to apply social and environmental criteria to an investment portfolio.
As you begin to read about mission-related investing (also known as impact investing; I use the terms interchangeably), you may be confronted with unfamiliar terms: ESG, shareholder resolutions, shareholder engagement, socially responsible investing (SRI), as well as questions such as:
- How would we apply an impact investment strategy to the public equity holdings in our portfolio?
- Are there other foundations our size that have also embraced an impact strategy?
- The older family members on our family’s foundation board are skeptical of tying investment decisions to anything other than financial return and are very risk adverse. How can we embrace a gradual impact investment strategy so we can convince them over time that there is no additional risk?
In an effort to help our asset owner members better understand the field of impact investing, embrace a mission-aligned investment strategy, and find an investment advisor to help them answer these questions, we recently published: Finding Your Way to the Right Impact Investment Advisor: a Resource Guide.
The guide has two primary goals:
- To provide definitions of many commonly used terms in the impact investment field as well as a robust list of resources for asset owners to learn more.
- To share a list of financial advisors who have direct experience working with the philanthropic community in designing and implementing an impact investment strategy across all asset classes.
Impact Investment Terminology
The purpose of this section of the guide is to empower the philanthropist with the knowledge of terms and strategies to ask informed questions and have substantive conversations about the impact investment field. Within it, we include a detailed discussion of commonly used terms and impact strategies. For example, here are three common approaches to integrating mission into the stock allocation of your portfolio:
- Screening: avoiding or intentionally including investments in a particular stock or group of stocks. This is one of the strategies used by the successful “divest/invest” movement.
- ESG Integration: incorporating Environmental, Social, and Governance criteria into the traditional research process when determining whether to invest in a stock.
- Shareholder Resolutions and/or Engagement: voting for mission-aligned shareholder resolutions, which can be found within the proxy statement of stocks in your portfolio, or engaging directly with company management on issues related to your environmental or social mission.
The guide includes resources to learn more about these approaches and more. The following graph, excerpted from the guide, shows the range of investment choices with varying levels of impact across asset classes.
Impact Investment Options
Finding the Right Financial Advisor
Even if you know all the right terms, our research indicates that the key to implementing a successful mission-aligned investment approach is finding and working the right financial advisor. To help asset owners with this process, we include a list of 14 advisors who are all experienced at helping philanthropic clients answer the questions:
- What are your mission and values? (One firm included on our list has a 22 page questionnaire focused exclusively on helping clients identify their mission!)
- How can your mission be best integrated with financial goals into an active investment strategy?
We also include a list of questions to discuss with your existing advisor to determine if they have the tools and resources to help you implement a mission-aligned investment strategy. Some of these questions include:
- Does your firm offer the ability to screen public equities based on a client’s environmental, social, or governance (ESG) criteria? Do you have the capacity to work with asset managers who offer this service?
- What percentage of your clients’ public equities are currently screened using ESG criteria? If you advise both conventional and impact clients, please provide percentages for both your entire firm and your impact clients.
- Do you provide a mechanism to track, report and measure the environmental and social returns of a client’s impact investments? How specifically do you communicate with your clients about the impact performance of their investments/funds? What is the reporting process?
- Do clients have the capacity to vote proxies in favor of shareholder resolutions that align with their mission? Can your firm do this on our behalf? If not, do the asset managers you work with have the capacity to allow clients to vote their proxies?
We know that embracing an impact investment strategy can be challenging! From convincing reticent family members, to determining your mission, to choosing a new investment advisor or working with your existing one… we know it can feel overwhelming. But rest assured: there are many resources out there to help you take that first step!
Confluence Philanthropy emerged out of the 2008 financial crisis with a mission to educate, organize and support philanthropists and their investment advisors to better align their investments with their social and environmental goals.
Representing $3 trillion in philanthropic assets under management and managed capital, the Confluence membership is an international network comprised of private, public, and community foundations, individual donors and the top investment firms in impact investing.