As You Sow: Corporate Social Responsibility -Aligning Mission and Investment

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Recent news articles on the Gates Foundation have drawn significant attention to the role of foundations' endowments in relation to their missions. The January 2007 L.A. Times articles strongly suggest that philanthropic initiatives by the Gates Foundation and others are being severely compromised as foundations are in effect supporting both sides of the issues they seek to address. This is in part due to the perception that financial policies should be focused strictly on financial return irrespective of the missions of the organization. However, investment policy can be a significant tool for achieving goals that foundations are established to pursue. Conversely, neglecting investment policy can result in supporting impacts opposed to the desired ends and calls into question whether fiduciary responsibility is being fully exercised.

Momentum has been building for foundations taking more responsibility with front page articles in the Chronicle of Philanthropy and increasing discussion in philanthropic forums. Fully exercising fiduciary responsibility and maximize the mission of foundations is relevant to many foundations and these policies can have considerable impact. American foundations have endowments of more than $600 billion, much of it invested in the equities of U.S. companies, putting them on par with other large institutional investors. Yet foundations are only exercising a small portion of their assets towards their mission - typically 5% - through granting, whereas the other 95% underutilized in terms of furthering their missions.

There is no such thing to my mind . . . as an innocent stockholder. He may be innocent in fact, but socially he cannot be held innocent. He accepts the benefits of the system. It is his business and his obligation to see that those who represent him carry out a policy which is consistent with the public welfare.

-- Louis Brandeis

Approaches to Aligning Investment & Mission

Foundations which have instituted an alignment use several strategies including socially responsible investing (SRI), mission-related investment, shareholder advocacy and proxy voting. Socially responsible investing takes an approach of screening portfolios to remove undesirable investments, mission-related investment directs a portion of investments into projects that directly reflect the mission of the foundation and also generate financial returns and proxy voting entails voting on shareholder resolutions to influence companies to be more socially responsible. A number of foundations, large and small, such as Educational Foundation of America, Rockefeller Brothers Fund, and Jessie Smith Noyes use a mix of these approaches as part of their alignment strategy.

Mission-aligned investment policies are also part of a broader movement to make the financial markets more responsive to social and environmental concerns. Goldman Sach's commitment to the Equator Principles, Sarbanes-Oxley rules requiring reporting on proxy votes by mutual funds, insurance companies factoring in climate change into their actuarial calculations, and the Global Reporting Initiative are examples of this movement. Aligned policies in the foundation community helps move this progress more broadly into the market and ultimately should be seen as an expected element of fiduciary responsibility as well as a means of adding value to a foundation's grant making and mission.