The European landscape of mission investing

David Imbert and Ivo Knoepfel

The 2nd European Foundations Meeting on Mission Investing (held 7 November in Zurich, hosted by the EFC, Mistra, SwissFoundations and onValues) is indicative of a growing trend among European foundations to take mission investing seriously – or, as one participant put it, ‘to move from the talking stage to the thinking stage’. As an input to this meeting, which brought together 30 European foundations and foundation associations, we researched the landscape of mission investing activity around Europe and wish to share our findings in this article.

Ivo Knoepfel‘Mission investing’ is an umbrella term that refers to the conscious consideration of mission in investment decisions. It can refer to practices ranging from a broad avoidance of investments that undermine a foundation’s goals to the use of investment tools to support specific projects directly linked to a foundation’s purpose, and everything in between. Put another way, mission investing expresses the conviction that a foundation should be more than just an investment company that donates some of its profits to charity and that a foundation should use all its resources, including endowment capital, to advance its mission.

From our research, we identified the following developments in European mission investing:

  • National-level working groups
  • Academic-national association collaborations
  • Increasing number of events and reports
  • Minimal activity by mainstream consultants and banks; innovation by specialized intermediaries

In the following paragraphs we briefly describe these developments. Overall we observe that the ongoing financial crisis has if anything increased European foundations’ interest in mission investing. Indeed, foundations appear to take a more critical view of traditional capital management and show interest in new investment approaches.

National working groups
National working groups provide a simple yet critical support system for foundations to understand and implement mission investing. In October 2010, foundations in the UK informally began exchanging information on social impact investments. This began as an email list between a core group of active foundations and evolved by January 2011 into regular in-person meetings. Today, the Social Impact Investors Group comprises 20 organizations with secretarial support provided by the UK national association, the Association of Charitable Foundations. Meetings cover specific topics proposed by members, for example impact measurement, an introduction to institutions such as Big Society Capital or the Global Impact Investing Network, or organized ‘pitch days’ where impact investment managers explain their offer and receive feedback from the foundations.

In March 2012, the national association of Switzerland, SwissFoundations launched the Sustainable and Impact Investor Group. The group focuses on developing resources for stimulating and supporting trustee discussion of mission investing and has recently issued a SwissFoundations position paper on the topic. The Swiss working group has also begun exploring options for foundations to pool resources for common use of services such as proxy voting.

We expect that other European national associations will organize working groups on mission investing in the coming years.

Academic-national association collaborations
The past year has also seen several productive collaborations between universities and national associations. In October 2012, the German national association, Bundesverband Deutscher Stiftungen, and the Centre for Social Investment at the University of Heidelberg produced a major report on the post-crisis investment behaviour of German foundations[1] which included a chapter on mission investing. In February 2012, SwissFoundations and the Center for Philanthropy Studies at the University of Basel worked together to produce a study on mission investing in the Swiss foundation sector[2].  This autumn, the Council of Finnish Foundations will begin a study in cooperation with the Handelshögskolan Helsinki on the role of foundation investors in the Finnish national economy.

Academic-national association collaborations are a win-win for all parties. For foundations, they bring resources and analysis to an under-examined topic of critical importance. For universities, collaborations provide survey contacts and data in a field that has been under-researched by academia, and which has growing practical relevance to society.

Events and reports
Across Europe, mission investing events and reports have popped up in the past two years. The 1st and 2nd European meetings on mission investing that we organized in 2011 and 2012 and the 360-degrees for Mission report[3] we authored in May 2012 on behalf of Mistra have been key pan-European developments, but there have also been a number of national developments of equal importance. In April 2012 in the UK – perhaps the most advanced European country in terms of foundation investment generally and mission investment specifically – the Association of Charitable Foundations issued a major report on the investment governance of foundations with a dedicated section on connecting mission and investments[4].  The author, Richard Jenkins, will continue in the same vein with a follow-on report in early 2013. In the Netherlands, another of the most advanced countries, the national sustainable investment forum, VBDO, has published a benchmark study of responsible investment by foundations every year since 2010[5][6],  and will complement this work in 2012 with a new report on asset manager attention to mission investing. In Germany, the national association published a significant report on mission investing activity in July 2012, launching this topic formally and seriously on the German foundation sector agenda[7].  2012 events in France, Liechtenstein, Germany, the UK and Netherlands specifically focused on mission investing have provided a clear demonstration of the increasing interest in this topic.

Minimal activity at traditional advisers while specialists innovate

The academic studies and independent reports mentioned above are in part a reaction to the withdrawal of mainstream investment advisers from providing research on foundation investment practices. For institutional asset owners like pension funds, regular market surveys provide important data for benchmarking performance and comparing outlooks with peers. Unfortunately for foundations in Europe, the leading mainstream providers of foundation investment research, Towers Watson and JPMorgan Asset Management (in the UK), discontinued their foundation market surveys after the financial crisis. The absence of good data currently inhibits the assessment and development of mission investing by the foundation sector.

With less focus on foundations in general, mainstream investment consultants have been unable to develop expertise on the emerging topic of mission investing. This, of course, is a two-sided coin. Our research shows that only a quarter of European foundations use external investment consultants, compared to 80 per cent in the US.

European foundations tend to rely on their banks for investment advice. While we have not yet seen banks systematically engaging their foundation clients on mission investing, we do observe that banks can offer solutions if prompted. Banks have the ability in-house to provide or advise on ethical exclusions, SRI products and (sometimes) proxy voting services. When it comes to impact investments, however, banks often lack the expertise to provide such investments or help their clients to navigate the increasingly vast range of impact investment opportunities on the market.

Our research indicates that the number of intermediaries and investment funds has grown by almost 50 per cent in the past year. Roughly 350 funds now offer investment strategies in fields ranging from health to education, rural development and the environment. As innovative boutiques develop more impact investing options, the need for better support from traditional investment advisers will increase.

We hope that foundations will increasingly start the conversation on mission investing with their advisers and banks. Simply asking, ‘what do you suggest?’ will prompt a deeper consideration of the issue.

From thought to action
Our impression is that the increasing interest in mission investing has not yet translated into increased investment activity. Evidence collected from a variety of sources shows that the percentage of European foundations that take additional action related to their mission involving any part of their endowment capital has remained stable at around 30 per cent for the past ten years. In some countries, such as the UK or the Netherlands, the absolute level may be higher but the growth trend is still flat. Furthermore, research shows that those foundations that do practise mission investing overwhelmingly do so through negative screening. The more modern techniques of integrating ESG (environmental, social, governance) considerations across asset classes or pursuing targeted impact investments are rare. The poor quality of data on European foundation investment practices, however, hinders a definitive current assessment of mission investing uptake.

The coming years and better monitoring will reveal whether mission investing enters the mainstream among European foundations or remains a niche topic for a handful of leading actors. We are convinced that embracing and developing the concept of mission investing will strategically position the foundation sector to extract maximum value from its philanthropic resources and maintain its licence to operate in the post-crisis world.

David Imbert
is a senior consultant and Ivo Knoepfel is managing director at onValues Ltd. http://www.onvalues.ch

 

 

[1] Then et al, Anlageverhalten der kapitalstärksten deutschen Stiftungen’, Centre for Social Investment, Universität Heidelberg, 2012.

[2] Tizian Fritz, Mission Related Investing bei Schweizer Förderstiftungen, Center for Philanthropy Studies, Universität Basel, 2012.

[3] Knoepfel and Imbert, onValues Ltd, 360-degrees for Mission: How leading European foundations use their investments to support their mission and the greater good, Mistra, 2011.

[4] Richard Jenkins, The Governance and Financial Management of Endowed Charitable Foundations, ACF, 2012.

[5] Gootjes, Hummels and Wiley, VBDO Benchmark Responsible Investment: Fundraising charities and foundations in the Netherlands 2010, VBDO, 2010.

[6] Gootjes, Verstappen and Hummels, VBDO Benchmark Responsible Investment: Fundraising charities and foundations in the Netherlands 2011, VBDO, 2011.

[7] Schneeweiss and Weber, Mission Investing im deutschen Stiftungssektor, Bundesverband Deutscher Stiftungen, 2012.


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