A growing number of foundations are deploying a portion of their capital to mission aligned investment strategies. This is an important trend. Still, only a relatively small number of foundations seek positive environmental and social impact with their investments and often with only a small share of their corpus. A recent US study found that only 7.5 per cent of the total $908 billion of foundation assets under management apply one or more environmental or social criteria to their investments. It also identified only 59 foundations that applied criteria across more than 50 per cent of their endowments. Most opted instead for a small carve-out for mission alignment or they failed to apply any criteria at all.
Why are more foundations not joining the mission investing trend or deploying a greater share of their assets? In today’s complex global economic system, financial institutions and corporate actors directly shape environmental and social conditions. As investors, we seek to benefit from those systems and we literally own a share of the companies that we invest in. We therefore have some degree of accountability for their impact.
Advocates for mission investing have typically framed their arguments for applying social and sustainability criteria as an opportunity. We can use our investments to seed innovation, scale solutions, or build economic opportunity for communities, where finance is another tool in our toolbox. Yet very few foundations today have a theory of change about their investments and how they might contribute to their objectives. Why?