It was encouraging to read Andrew Milner’s article ‘What happens to the rest of it? How foundations make investments’. Whether it be through applying negative screens to listed equity portfolios or by making allocations to social, impact or mission-related investment, it is clear that charitable foundations are increasingly interested in aligning their investments with their charitable mission.
However, while very supportive, our experience suggests that this remains a difficult and contested area for many trustees. As the article states, there remains a mindset that including values or non-financial factors will reduce investment performance and, even after a policy has been created, can often be very time consuming to implement. To help overcome these issues we encourage foundations to consider three steps when creating a new investment policy.
First, ‘Embrace the overlap’. It is increasingly clear that positive activities such as the integration of environmental, social or governance (ESG) factors into listed equity portfolios, or making allocations to industries of the future such as renewable energy, can also contribute to good investment performance. As such, these techniques should just be a key component of good investment practice. For many charitable foundations, this type of responsible investing may be enough.
Second, appoint an ‘Investment manager you can trust’. Implementing an investment policy can be complicated and ensuring compliance can easily become over-burdensome for your trustees and staff. For this reason it is important to appoint an investment manager who shares your values, understands what it is that you are trying to achieve, and has the capacity to ‘make this easy’. In most cases they will be responsible for managing your portfolio and, therefore, will be the best placed to align your investments with your mission.
Finally, ‘Don’t accept compromise’. The majority of foundations still invest to fund their grant giving programmes and as a consequence, no matter how positive, every asset in your portfolio needs to work in order to fund your activities. Good investment managers should be able to deliver alignment with your mission and good financial performance. Foundations should not accept compromise.
Head of ethical and responsible investment, CCLA Investment Management and secretary to the Church Investors Group
For other views on this issue see ‘Investing for positive change’ by Casey Verbeck and ‘Investment managers focus on asset gathering above missions’ by Sunny Mann.