Do legal constructs based on the prudent caution of an ordinary person in a similar position imply that mission- related investing must become mainstream before becoming acceptable, a chicken-and-egg, Catch- 22?
[Author: Tomer Inbar and John Hawkins]
You should think about your portfolio as a whole, how this class of assets fits in, and make sure that, overall, your portfolio is prudent and balanced and would satisfy fiduciary concerns.
If, on the other hand, a specific investment does become heavily charitable, then we would argue you could carve that out of your prudent investor analysis. This is because it’s just like giving the money away, except you’re doing it through an investment form, even if there might be a return.
Rather than thinking about the fiduciary requirements as a rigid “either/or,” you have to think about it and ask, “If I’m giving up a little on the return side, how much am I getting back on the charitable/mission side?” You want to keep the right balance. The more mission you get, the more you can give up on the return, until the point where if it’s entirely mission, then return becomes an afterthought.
Flipping that around, if you’re just putting a screen in place, and you’re saying, “We’re not going to invest in tobacco companies, carbon, or companies that are not carbon-neutral,” that might not be enough for you to forego the return of a prudent investor.
I think you just have to be rigorous about what are you trading off when you give up return, and what are you getting — how much charity or social impact are you buying in the investment?
Adding on to that, if you are only dealing with 1-2% of your endowment, which is a fairly typical allocation, it’s hard to argue that you’re not being prudent if you’re only trying this with 2%. But it is also very easy to look at these as grants that you may get your money back on, as long as they’re really advancing your strategies and using these tools like debt and equity assessments.
It really does extend the impact of your grant making, and so far nobody on our board has argued with that.