Richard Graves

New paradigms: How mission investing is transforming traditional philanthropy

In Innovation, Philanthropy on August 31, 2011 at 9:02 pm

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.[1] 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.

“If you know anything about climate change you can imagine how it will hit your portfolio. Mission-related investing is risk management for the world we want to live in.”, stated Dana Lanza, CEO of Confluence Philanthropy at the recent Creating Change Through Family Philanthropy Retreat.

She noted how there are over 60 affinity groups recognized by the Council on Foundations for the 5% of grant dollars given annually; whereas there are only 2 purely philanthropic affinity groups working to offer resources and support in managing the other 95% of foundation endowments (her organization included).

Ownership is a responsibility. Like Kristin Hull, trustee of the Hull Family Foundation said during Resource Generation’s last retreat, “Owning what you own is liberating. It takes time but it is an exciting process.” She first got introduced to MRI at the Global Philanthropy Forum when she went to a session about the “2%”. Turned out that the 2% being referred to was a goal for foundations to reach for to invest in conscious, mission-aligned ways. Kristin wasn’t satisfied, she left the room determined to move 100% of her foundation’s endowment into mission-related investments. She has since accomplished this goal.

If you are willing to take on the project of aligning assets with values Bugg-Levine’s advice was three fold:

1: Be creative.

2: You won’t win the argument based on financial return alone (this already fundamentally gives up the power of the idea—contribution to social mission).

3: Help create and build the infrastructure that will make this easier. “Your moves don’t only impact your foundation but the entire system. Whether you want to or not you are leaders. If you give up and run your foundation like it’s always been run you are perpetuating an old system.”

It is a profound generational/worldview shift that is taking place. The systems in place now are contradictory. They do take into account future generations. Traditional philanthropy and traditional investing are examples of this old fashioned worldview. To create whole systems that do not exclude values means creating the chance for a decent future.

As Bugg-Levine said, “What might seem like a crazy now will become established in the future. Our descendants will be appalled that we used to put foundations assets into places contrary to their social purpose.” This crazy wisdom will become the norm in good time.

[1] Tracking the Field Report, EGA, 2008


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