Introduction to Mission Aligned Investing as presented at the IPASA Symposium – 30th November and 1st December 2015 – By Lindy Rodwell van Hasselt – Relationship Director – The Lewis Foundation
Financial flows play a powerful role in shaping our society and planet. In some cases this has caused significant harm. From an environmental perspective for example the expansion of palm oil industry has done untold environmental damage and can be followed back to the HSBC. On the other hand finance can be a force for good. As of 2012 the International Finance Corporation, the private sector arm of the World Bank, stipulates that all their projects must identify and maintain ecosystem services that the projects are directly dependent on.
How does this apply to us as philanthropists? Historically for most philanthropists, the 5% of our endowments that we grant drives 100% of mission. For many how these endowments are invested are at best neutral with regard to supporting overall goals but often invested in strategies that directly contradict the mission of the donor or drive the problems we ask our grantees to solve.
There are a growing number of philanthropists who have recognised that grant-making alone will be inadequate to address the challenges we are all committed to and as Francoise Bonnicci the CEO of the Bertha Centre for Innovation has said , “Scale and reaching greater impact is not about growing larger. What we need to look at are the different pathways to scale.”
Courtesy of Standard Bank Private Wealth the diagram and explanation below demonstrates the range of investment alternatives available to those wanting to make a contribution to solving social challenges in society.
“At the one end of the spectrum there is charity where donations are focused on relief or social welfare. The donor hands the funds over with minimal monitoring as to how it is spent and no return of capital is expected. Charity will always play an important role in society, but the challenge of achieving sustainability remains.
At the other end of the spectrum are the traditional investment markets where the social intent is low and financial return is high.
Moving away from Charity – Strategic philanthropy implies greater consideration and insight on the part of the donor into the area of impact and social development. No return on capital is expected, but social impact should be measurable. Philanthropists seek to maximise impact through effective use of their limited resources.
Moving along from traditional investing, investors are increasingly demanding investment products that apply an ethical and sustainability screen to the companies being considered for investment. Many managers throughout the world now apply an Environment, Social and Governance (ESG) screen. This growing class of investor is known as a Socially Responsible Investor (SRI).
Venture philanthropists are willing to assume greater risk to explore and develop alternative models to solve social or environmental problem. They seek sustainability and scalability. They accept that they may fail in their endeavours; with no impact achieved and capital is lost but hope that should they get it right they can make significant long-term impact. Venture philanthropy is an essential component in the start-up funding of social enterprises.
Impact Investing is a rapidly growing sector worldwide where investors seek to generate positive social and environmental impact alongside a financial return. There are a growing number of investment options, inclusive of debt, fixed income and equity, with various risk and return profiles. This includes:
- Impact Funds – Collective Investment Schemers where investors invest in social enterprises, started by social innovators and entrepreneurs. The focus is on solving a particular social problem, whilst preserving capital and offering a market related return to investors.
- Social Impact Bonds – Outcomes based funders (governments or large institutional foundations) offer Investors a return of their capital and a return on capital based on the success of a social project eg ECD, Malaria SIBs
- High Impact Bonds – Securitisation of loans to small businesses or social enterprises, available for investment.
This are clearly attractive alternatives to traditional capital market investing that have a positive impact on society and the environment and may well play a significant part in the future of a sustainable planet for all.”
In conclusion the question is not IF to engage in mission aligned investing but HOW TO. We all need a strategy or investment policy to ensure that 100% of our assets are aligned with our missions