MCI: fad or serious opportunity?

Sevdalina Rukanova

Sevdalina RukanovaThe debate on mission connected investing (MCI) is gaining momentum in the US, and parts of Europe. At a European level, there is ongoing discussion through the European Foundation Centre’s (EFC) interest group on social investment and recent studies in the UK and the US have contributed to a better understanding of some of the main obstacles, current foundation practice and lessons learned. However, how MCI translates across the rest of Europe is not yet clear.

This article reflects key findings from the research to date and incorporates input from European foundations gathered for this piece.

A recent report by the new economics foundation (nef), a UK think-tank, defines MCI as an investment approach that targets a market rate return and contributes to the foundation’s mission (see Further Reading below). In essence, its aim is to increase a foundation’s impact by aligning its investments with its values and mission. MCI does not replace a foundation’s investment policy and strategy but ‘can be incorporated into investment portfolios in a way that spreads risk and maximizes return’ (nef report).

An Anglo-American coinage

The terms MCI, MRI, etc, were first coined in an Anglo-American context and reflect evolving financing and investment approaches of, typically, endowed foundations that operate in a particular legal and tax regime and pursue their mission primarily, if not exclusively, through making grants.

The picture in Europe is much more complex due to the enormous differences between countries’ legal and tax regimes, which result not only in a great diversity of foundation forms and governance structures, but also in the way they manage their investments. Foundations in France and the Netherlands, for example, cannot implement financing vehicles that generate any kind of return from their grant side. A 2007 survey conducted by EFC on obstacles to MCI among EU Member States suggests that while there appear to be no explicit restrictions, legal experts and foundations in different countries feel that an MCI approach might not be compliant with the legal and tax provisions. This represents an important area for further research and advocacy for clarification by the regulators.

There is also the question of how MCI would translate into practice for a foundation that is a major shareholder in a company, and operates under a complex governance structure taking into account both the interests of the company and the public benefit purpose of the foundation; for endowed operating foundations; or for foundations that have multiple sources of income. Many of Europe’s foundations, including some of the largest, would fall into these categories.

Engaging European foundations: the challenges …

As Rien van Gendt and Doug Stamm pointed out in recent issues of Alliance, foundation boards typically devote most of their time and attention to the spending policy of a foundation, and delegate the management of the investment policy to outsiders.

The key aim in investments in most cases is to provide for the long and short term financial needs of the foundation. The common view among investment managers is that any restriction on investment options can reduce return and put the foundation’s ability to carry out its public benefit purpose at risk. MCI is often seen in this light rather than as an opportunity to widen the investment spectrum. And, as the nef report cited earlier reveals, board members often lack the confidence and expertise to challenge mainstream investment practices and attitudes.

Several foundations acknowledged that the separation between the investment and programme staff is a further and very important barrier – and a missed opportunity for each to inform the other’s policies and decisions, as well as to employ the foundation’s competences to their full potential. As one investment officer put it, ‘selecting an investment which has both return and mission objectives needs simultaneously finance and grants evaluation tools’.

Foundations approached for this article brought up a number of other issues that they felt need to be addressed in a more thorough and sustained manner. On the internal side, these include:

  • How does a foundation get advice on the process and opportunities of MCI?
  • How does one translate often broad values and mission statements into policies and strategic directions for investments?
  • What drives the decision in an MCI approach – the mission consideration or the financial return?
  • How does one assess the risks and returns of an MCI proposition when the investment and mission sides use different tools to measure impact and performance? Where do you sell such an investment and how do you assess the consequences for the mission aspect?

As regards the overall operating environment and the market, many argued that the need for evidence of what works is critical to overcoming scepticism towards MCI within institutions.

They also underlined the importance of clarity in the legal and tax regulations as to whether an MCI approach is compatible with the fiduciary duty and endowment investment rules/restrictions in each European country. The issue is comparable to the clarification that was required in Germany, for example, in order to open up the way for investments in hedge funds; similar discussions are under way in several other European countries.

I would like to mention two other areas that were featured in the recommendations of the nef report as well as in the 2007 study by FSG Social Impact Advisors on Compounding Impact – the need to build a robust infrastructure to support MCI practice; and the opportunity to create new investment opportunities.

In regard to the first, there is the need for a network of independent and experienced advisers to help foundations shape MCI strategies; specialized intermediaries will be needed to assist with the management of such investments as neither mainstream investment managers nor foundations have the expertise to do this. This is not unlike what happened in other investment areas, such as private equity.

As to the second, foundations already have some experience in creating new investment vehicles, or joining attractive investment options launched by their peers. Can this experience, as well as lessons from the microfinance, alternative energy and bio-tech fields, be employed to start addressing the gap in MCI opportunities on the market? The F B Heron Foundation, Novo Nordisk Foundation and Fondazione Cariplo, among others, are already testing this ground.

… and the opportunities

Whether a foundation formally adopts an MCI strategy or not, MCI provides an interesting opportunity for boards to engage more systematically and thoroughly in an enquiry on the interface between the organization’s values, mission and investments – which can contribute not only to increasing impact, but also to strengthening a foundation’s governance and accountability. The statement of the F B Heron Foundation on Mission Stewardship is a compelling example of a foundation that has undertaken this process.

A growing number of European foundations are already testing this area as well: Baring Foundation, Fondazione Cariplo, Freedom of Expression Foundation, MISTRA, Noaber Foundation, the Sainsbury Family Charitable Trusts, and the Van Leer Group Foundation, among others. Some acknowledge that it has been accidental but that the outcome has stimulated the board to give MCI more serious consideration; others are moving to make it an integral part of their foundation’s policy and practice.

As interest in MCI grows, means of learning and exchange for the creation of a comprehensive agenda are needed, defined by foundations and geared to help them ‘unpack’ this complex agenda and build their knowledge and expertise. Considering the centrality of foundation boards, creating opportunities for peer-to-peer exchange and study visits could be particularly relevant. Rockefeller Philanthropy Advisors’ Mission-Related Investing: A policy and implementation guide for foundation trustees is the first practical guide to providing a framework and methodology for foundation boards in particular to start addressing some of these concerns and move forward the agenda within their institutions.

MCI is still a very recent development and we still need to find the best ways to go beyond the rhetoric towards serious dialogue within and among foundations. At its core, MCI touches the key issues on European foundations’ agenda – effectiveness and impact; governance, good stewardship and accountability. The will continue to encourage and facilitate research and learning in this area; and cooperation with other organizations as MCI requires different kinds of expertise.

MCI has huge potential – the nef report suggests that if the 50 European foundations with the largest assets dedicated just 5 per cent of their endowment to investments that both target a market return and advance the foundation’s mission, an additional €3.6 billion would become available for public-benefit purposes. But will we succeed in turning this potential into a sector-wide practice, or will it stay just another fashion? There is a big challenge ahead.

Sevdalina Rukanova is senior officer at the EFC responsible for developing interest groups, including the one on social investment. Email

For further reading

Compounding Impact: Mission investing by US foundations, Sarah Cooch and Mark Kramer, FSG Social Impact Advisors, March 2007,

Mission Possible: Emerging opportunities for mission connected investment, Sargon Nissan and Margaret Bolton, new economics foundation, spring 2008,

Philanthropy’s New Passing Gear: Mission-related investing: a policy and implementation guide for foundation trustees, Steven Godeke with Doug Bauer, Rockefeller Philanthropy Advisors,2008,

Blended Value, Jed Emerson and Sheila Bonini, 2003,


Comment Jed Emerson

Sevdalina Rukanova’s article is a solid overview of current discussions on mission related investing. However, we should note one very important point: in the US at least the question is no longer whether foundations should engage in mission investing but how they might best do it.

The questions she poses need answering, but they don’t all need to be answered before individual foundations take their own steps.

There are two points in particular we should keep in mind. First, the right mix of investments will depend on each foundation’s mission, vision and strategic focus. Our intent is not to get all foundations to do the same thing, but to support each foundation in expanding the tool kit from which it draws in support of its overall aim.

Second, in both investment markets and social change efforts, our view of what is appropriate and acceptable evolves. There was a time when trustees overseeing the assets of organizations incorporated in the state of New York were forbidden from investing in anything other than – wait for it! – bonds issued by the state of New York! Needless to say, this has changed. And it changed not because a regulator in state government decided to change the rules but because trustees filed a lawsuit claiming it was their responsibility to diversify holdings in order to decrease risk and increase the overall potential performance of their portfolios. Today, we too must take the initiative, not wait for others.

Then there is the question of supply and demand. Trustees should expect those who manage their financial assets to propose investment opportunities that promise to maximize the organization’s social and environmental returns as well as its financial returns. Until and unless fiduciaries insist that their wealth advisers and fund managers construct investment portfolios that are aligned with the overall mission of the institution, the market for those investment products will not be able to fully evolve or function effectively.

Finally, the now widely embraced notion that philanthropy should be more than simply an act of wealth transfer and may actually create value and leveraged impact is to be celebrated. Let us acknowledge that we all (trustee, grantee and stakeholder) stand one step closer to more effectively addressing the challenges of our world by moving from grants and aid to grants, aid and structured investments as required tools for change.

Jed Emerson is Managing Director for Integrated Performance at Uhuru Capital. Email

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