This is a guest post by Sonja Swift, the Family Philanthropy organizer for Resource Generation and a NextGen Fellow in Mission Related Investment.
Traditional philanthropy is based on a very simple notion: make as much money as possible with the foundation’s endowment and give away grants to address social problems. Meaning that 95% of the endowment is invested in whatever will bring in the highest return, while the other 5% is donated annually. For the entire 100+ years of philanthropy’s existence this has been the accepted model; premising the field of philanthropy entirely upon the mere 5%.
I’ll be the first to admit this never made much sense to me.
Turns out that this premise is now being challenged even from within the original philanthropic institutions. “This works in a world where two assumptions hold true,” explained Antony Bugg-Levine, Managing Director at the Rockefeller Foundation during the first MRI Fellowship learning call, a year long learning series on mission investing organized in partnership by Resource Generation and Confluence Philanthropy. “And these assumptions have been taken for granted to the point no one articulates them. They are that 1): the only way to address social issues is through charity. And 2): the only reason to invest is to make money.”
Impact or Mission-Related Investing (same idea, different lingo: investing with values intact or more specifically, in alignment with the philanthropic mission) fundamentally rejects those assumptions. The assumption is instead that for-profit can be economically sound while also addressing social issues. For traditional philanthropy this is a paradigm shift. “This has profound implications for philanthropy. Do not underestimate how disruptive this new truth is to existing systems of philanthropy,” furthered Bugg-Levine. Foundations have a fiduciary duty to use their assets mindfully and in line with their mission. When the notion that this mandate only applies to the grant dollars looses ground a lot of money comes into question.
The total amount of grant dollars flowing through the Environmental Grantmakers Association in 2008 amounted to approximately 600 million dollars. Seems like a lot, no? But British Petroleum spent the same amount that same year on biofuels research alone. This is what philanthropy as purely grantmaking amounts to: not enough. On average foundations lost 40% of their endowments by spring of 2008, yet tales tell that foundations employing an MRI strategy lost more in the range of 10-20%. The 2010 report Socially Responsible Investing Trends in the US report findings convey a similar scenario, making a solid case for how prudent this kind of investing is especially amidst tumult. Read the rest of this entry »