In the United States, nearly $1 trillion is committed to philanthropy — sitting in foundations, donor-advised funds and elsewhere. Donors, in most cases, have transferred ownership of these funds to separate entities and received their tax deductions.
Only a small percentage of those funds is expended on charitable donations for the general public good. Rather, the great majority of those resources are invested for a financial return without regard to their impact on society in general and women and minorities, in particular.
This is so even though many of those foundations and donor-advised funds were created with the expressed mission of advancing equality and opportunity for girls, women and others who struggle against discrimination. Many of the women who created and support those funds would be aghast to learn that their philanthropically committed investments are actually working against the very people they intended to help.
For example, are their funds invested in companies that practice gender pay inequity, have glass ceilings for women professionals, or refuse to offer comparable benefits to same-sex partnerships? Are the companies in which they invest sourcing materials or products from countries that employ child labor, refuse to educate girls, enforce genital mutilation, engage in human trafficking, utilize child labor, or hire women at below subsistence-level wages and require them to work in unsafe, inhumane sweatshops?
Philanthropically committed funds are traditionally divided into two silos: grants for social impact and investments for financial growth.
Grants to nonprofits are designed to maximize social impact by providing critical support to worthy causes. They can be viewed as a “social investment” with a 100% negative financial return for the donor. Once given, the funds never come back.
Innovative approaches to grant-making such as program-related investments can result in great benefit to nonprofits and a recycling of grant money to enable foundations or donor-advised funds to have even greater impact. Invested funds are another story. The bulk of philanthropically committed capital is invested in publicly traded securities or private markets for maximum returns.
However, like grants, those investments may affect a wide variety of social issues, such as the environment, immigration, labor practices, food, education, resource consumption, health care, or discrimination. Sometimes, foundation or donor-advised fund investments actually counteract the very mission for which the funds were donated.
Recently, philanthropic and investment leaders have come to recognize that grants and investments can have both financial returns and social impact — and that strategic alignment and integration with mission is important to maximize change.
“There is a shift from fearing a financial compromise by incorporating social factors such as climate change into investments, to recognizing the financial advantage of investing in companies that are addressing or solving those issues,” said Stephanie Gripne, Ph.D., founder of the University of Denver Daniels College of Business Impact Finance Center. She is also a researcher, adviser and impact investor. “Philanthropists who holistically manage all of their resources for both financial returns and social impact can achieve greater results in both categories,” said Gripne.
Examples include the divestment of the $860 million Rockefeller Brothers Fund, built on oil wealth, from all of its fossil fuel investments; the $24 billion Yale University Endowment directing its money managers to examine how investments affect climate change and avoid investing in companies not taking steps to reduce greenhouse gas emissions; and the $260 million F.B. Heron Foundation, focused on helping disadvantaged communities, aligning 100% of its capital with its mission.Rockefeller Brothers Fund, built on oil wealth, from all of its fossil fuel investments; the $24 billion Yale University Endowment directing its money managers to examine how investments affect climate change and avoid investing in companies not taking steps to reduce greenhouse gas emissions; and the $260 million F.B. Heron Foundation, focused on helping disadvantaged communities, aligning 100% of its capital with its mission.
The $170 million Wallace Global Fund is one of 17 foundations (with assets totaling $2 billion) divesting fossil-fuel stocks from their portfolios and investing instead in clean energy. “It is not enough to award grants to good causes,” the fund states. “To have real impact, we must put our money where our mission is.” With more than $6.5 trillion of philanthropic and other capital now invested using various impact criteria, “impact investing is a mainstream trend with sustainability factors serving as risk mitigation in the management of traditional portfolios,” said investment advisor Jed Emerson.
Emerson is a pioneer in the field of impact investing and originator of the Blended Value concept. He also is co-author of the book The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism. Emerson believes ,“more asset owners will be looking at how social and environmental factors will affect performance, and how such financial performance can be used to drive social impact.”
Philanthropic capital, already committed to making a difference in the world, should be holistically examined to make sure that it is not defeating the donor’s mission and is actually advancing the causes that inspired the donor to give in the first place.
Ask the manager of your philanthropic capital, “Where is my money spending the night?” Ask yourself deeper questions about the social impact of those investments. You may be surprised at the answers.
Bruce DeBoskey, J.D., is a Colorado-based philanthropic strategist working with The DeBoskey Group to help businesses, foundations and families design and implement thoughtful philanthropic strategies and actionable plans. He is a Teaching Fellow with Boston College’s Center for Corporate Citizenship and a frequent speaker at conferences and workshops on family and business philanthropy.