Foundations’ Impact Investing Largely Talk, Study Finds

Foundation leaders see their main fiduciary responsibility as maximizing financial returns

Foundations that engaged in impact investing spent a median 2% of their endowments on it, the study found. Foundations that engaged in impact investing spent a median 2% of their endowments on it, the study found.

Many private U.S. foundations that purport to engage in impact investing don’t put much of their money where their mouth is, according to a new report from the Center for Effective Philanthropy.

The study found that these foundations tend to commit very small percentages of their endowment and/or program/grant budget to impact investing.

The CEP collected data in late 2014 and early 2015 on the prevalence of impact investing and negative screening as part of a larger operational benchmarking study with large private foundations that donate $10 million or more a year.

Forty-one percent of respondents said their foundation engaged in impact investing. Of these, 46% focused on community development, 42% on employment/economic development and 38% on education.

A median 2% of these foundations’ endowments went toward impact investing, and just 0.5% of program/grant budgets were allocated to the activity.

The CEP distinguished between impact investing — investing in companies, organizations and funds in order to generate both social and environmental impact and a financial return — and negative screen, which excludes certain companies or organizations from the investment portfolio.

The data showed that 83% of foundation respondents did not exclude particular companies from their investment portfolios by using negative screening.

Priorities

The survey found that 86% of foundation leaders said achieving a financial return was a “very important” factor in their organizations’ decision-making about impact investing and negative screening.

Thirty-six percent said achieving the foundation’s philanthropic goals was very important, and only 8% said that investing in companies that aligned with their foundation’s values or mission was very important.

Moreover, 82% said their board interpreted its fiduciary responsibility as focusing on the financial return on the foundation’s investments.

Responding foundations that did not engage in impact investing cited three main reasons:

  • The foundation did not believe impact investing would help it achieve its goals
  • The foundation did not have the right expertise, skills or staff to engage in impact investing
  • The foundation prioritized or focused exclusively on achieving a financial return in its investing practices

The CEP said it was uncertain how hardened these views were, or to what extent they were a source of active debate and discussion in boardrooms.

“For now, the story appears to be one of few investment dollars allocated with considerations other than financial returns in mind. With many foundations unsure of their future plans, however, the story is likely still being written.”

--- Check out Colleges Face Roadblocks to Socially Responsible Investing on ThinkAdvisor.

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