Thinking Critically While Investing Responsibly - Exponent Philanthropy %
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Thinking Critically While Investing Responsibly

Image by mohamed Hassan from Pixabay

Responsible investing is at the heart of how philanthropy can further systemic changes needed in our economy, society and environment.

Forward-thinking foundations and families have invested this way for years, but it’s becoming more mainstream.  A growing number of philanthropic organizations and individuals see investments as a way to expand impact beyond grantmaking.

Mirror the aims of donations in investment activities

Traditionally, financial management was split from grants. A more recent view finds this separation unwise. It makes much more sense for a foundation to use its total assets to pursue its mission. In other words, don’t pursue investment activities that don’t support (or may threaten) the success of grants supported by such investments.

Fiduciary responsibility has also evolved to integrate prudent investment practices with concerns about environmental stewardship, healthy and safe communities, and corporate accountability. Fiduciaries have a duty of obedience to the endowed institution’s mission. This requires using investment practices that serve its charitable purposes, which applies to both program and investment activities.

In terms of enhancing returns, the careful consideration of environmental, social and governance factors can unearth information that the market is not yet considering. Over the years, the old thinking—that by investing in a responsible way, returns are limited—has been put to bed by many academic studies.

Using investments for change

As board and investment committee members turn over, bring younger, more diverse voices to the table. The usual navel-gazing and promises to “look into it” still abound. But these days, action tends to follow.

This may include rewriting investment policy statements to better describe expectations to investment managers (and hold them accountable), or engaging new advisors and managers who take impact seriously, especially focusing on diverse managers. One of the most important ways to drive impact on inclusion at the manager level is for clients to ask for and reward that change.

In the last six months, the RFPs we received from foundations:

  • Have a significant, new focus on diversity at the manager level
  • Asked how we use a gender and racial lens in the actual investment process
  • Wanted to understand the impact their dollars will have

The next step is to hire managers who are bringing the change you want to see. Also, track the gender and racial diversity of your managers over time, according to the criteria outlined in your investment policy statement.

To further amplify your impact, discuss this work with your peers. There is no need for most foundations to reinvent the wheel. Deep thinking along these lines has already been done. Now find it, emulate it, and speak publicly about the experience.

Sonia Kowal, President of Zevin Asset Management, brings over two decades of investment experience to managing corporate matters, business practices, and strategic planning. She also over­sees mar­ket­ing, advi­sor, and client rela­tion­ships. She is a member of the firm’s Board of Managers and the Investment Committee. She is passionate about the value of integrating environmental, social, and governance (ESG) issues into investments. She feels particularly strongly about racial equity, wealth inequality, and our disastrous criminal justice system.

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