Traditionally, foundations have separated grant income and goals from endowments. Barely half of UK charities apply any ethical considerations to their endowment investments. While some alternative investment approaches are being pioneered by foundations in the UK and overseas, these find little support. A new report from NEF (New Economics Foundation), Mission Possible: Emerging opportunities for mission-connected investment, suggests that mission-connected investment (MCI) is an investment approach that will allow foundations to achieve a market-level return while realizing social, ethical or environmental goals.
NEF’s report outlines the untapped potential of MCI for foundation investors and includes an inventory of MCI-compatible investments. Innovative new products now provide many more opportunities for investment serving ethical, social or environmental goals, but nef found that these opportunities are not being exploited by foundations or their investment managers.
The report also suggests that although barriers in the marketplace exist, foundations should be willing to dedicate at least a small proportion of their portfolios to an MCI approach. To do this, they need to combine the expertise of their grantmakers with that of their investment committees.
Concerns over the implications of MCI for fiduciary responsibilities, not least among trustees, need to be more explicitly addressed by advisers and regulators. MCI as defined in nef’s report is entirely compatible with fiduciary responsibility as it does not involve making a sacrifice on returns. Above all, a new alliance of foundations should be formed to encourage support for the development of MCI among the growing ethical investment sector.
Microfinance now attracts large-scale investors and offers a clear MCI investment opportunity. If taken up more broadly, MCI could channel additional investment to ethical enterprises and give foundations a new way to leverage their existing grant and investment resources. The result can only be greater impact.
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To download the full report