Impact Investing: Making the Case to Your Trustees

Several months ago, Exponent Philanthropy and partners Mission Investors Exchange and Arabella Advisors released Essentials of Impact Investing: A Guide for Small-Staffed Foundations. Below is an excerpt from the complimentary and actionable guide, geared to foundations with few or no staff that want to align their investments and missions. 

By David Wood, Initiative for Responsible Investment

The early stages of impact investment adoption for foundations lie at the board level.

The idea to explore impact investment as a philanthropic strategy often comes from a single board member, or from staff or consultants who have seen other foundations adopt impact investing. Board engagement is a critical next step for implementing an impact investing strategy: learning what individual board members think about the possibility, educating the board on the state of the field, and taking a broad survey of potential areas of interest or investment opportunities that engage the board’s imagination.

In most cases, board approval is required for a foundation to engage in impact investing, and that often requires ongoing, high-touch engagement from impact investing champions— whether staff or fellow board members. Early board engagement often involves peer-to-peer presentation from board members who are more familiar with the field—and an allaying of the skepticism of board members who may fear that impact investments may not perform well financially or socially.

At this stage, boards will want to understand their options, by:

• Reviewing the practice of peer institutions to see how impact investing operates
• Understanding the existing literature on impact investing performance
• Identifying examples of impact investment policies, and investment vehicles, that illustrate the strategy’s potential

When reviewing the field, boards are likely to want to know:

• What are the financial implications of different mission investing strategies?
• What are the range of possible investments and strategies that target specific sectors or places?
• How resource-intensive are different impact investing strategies?
• Who can the foundation engage to learn more?

In thinking about how to engage a board on impact investing, these suggestions may help ease the process:

In your introductory conversation, figure out what the board’s top questions are. Some boards or specific board members may question the fiscal responsibility of impact investing, or have narrow understandings of what impact investing could look like. Understanding the range of specific questions that the board is wrestling with up front will help you tailor future conversations to substantive debate and move the process along more efficiently.

Bring in outside experts and provide an opportunity to learn from peers. Hearing the experiences of peers and being able to engage with experts on areas of concern or confusion can help board members feel more comfortable with beginning an impact investing strategy. In particular, information from similar foundations on their process and investment experiences is valuable. If possible, taking field trips to see examples of what impact investing has done in particular communities or on particular issues can often ground a very technical conversation in concrete outcomes.

Use internal board champions where possible. Given the sometimes complex relationships between boards and staff, encouraging a board-level champion to step up and lead internal conversations can allow the conversation to avoid some potential internal strife.

Set reasonable expectations. Impact investing is not a panacea, and it comes in many different shapes and forms. Walking the line between explaining the virtues of impact investing while not overpromising on financial or social returns is crucial to building ongoing board support. Suggesting a small pilot program or iterative process may help assuage some larger concerns about the financial and resource implications of impact investing.

Board engagement and agreement is crucial to the development of an effective impact investing strategy. Without such engagement, impact investments may take place haphazardly, be held to different standards from conventional investment strategies, or create confusion or concern in board-staff or board-consultant relations. Clarity about the goals the board has for impact investing, and its place in the broader range of foundation activities, lays the groundwork for establishing strategy and implementing an impact investing program.