The case for mission investing

David Wood
David Wood

David Wood

Mission investing, which is the discipline of investing both for financial return and social or environmental benefit, has received increased attention in recent years.

The More for Mission Campaign, a research and advocacy platform for mission investing whose resource center is housed at the Initiative for Responsible Investment at Harvard University, has grown from a loose coalition of 16 foundations in 2007 to over 96 foundations of different types, regions and sizes, representing over $38 billion dollars in assets under management.

Our colleagues at the PRI Makers Network, an organization that provides capacity building for foundations engaging in program-related investment, have seen similar growth in interest and engagement.

The interest from foundations has taken place within the context of growth in interest from the broader investment community in both responsible investment – the integration of environmental, social and governance information into investment decision making – and the recently coined “impact investment,” which is the intentional use of investment capital to create positive social and environmental outcomes.

What explains this growth in interest from foundations?

Mission investing has an obvious appeal: It offers foundations the chance to use more of their resources to achieve their mission by leveraging their financial capital to create impact.

This is similar to the way foundations might draw on other forms of cultural, intellectual, and political capital, like networks or data sets, to achieve their goals.

In times of constrained resources and a fuller understanding of foundation potential, it makes sense that foundations would view their financial capital as another tool in the toolbox.

And for many foundations, aligning investment strategy with organizational values is a natural outcome of designing those values in the first place.

Recent interest also is a response to growth in the field of investable products.

Investors can now choose among a wider variety of investment vehicles that endeavor to link financial and social return across asset classes and issue areas.

Many of these vehicles have begun to develop track records that can be scrutinized for financial and social performance.

For market-rate investments with a social-impact angle, there are several options: cash deposits that back lending in low-income areas; venture-capital funds that support economic development and clean energy; real-estate funds that invest in underserved areas, promote green and smart-growth development, or conserve land; fixed-income investments that target lending to underserved communities or sustainable infrastructure; and public-equity funds shaped by analysis of corporate performance across a range of social and environmental issues.

Mission investors apply the same standards for risk and return to these products as they do to any other part of the portfolio, but they actively seek products that create definable social benefits.

There are also below-market mission investments in affordable housing, small-business development, community-services lending, transit-oriented development, healthy food systems, or green-jobs creation through which foundations can leverage capital from public and private investors to create social good.

For many foundations, these investments are seen as the “but-for” money that creates things the market will otherwise not create, or that attract new sources of capital that their investees could otherwise not attract.

What tie this burgeoning world of mission investments into a foundation-specific enterprise are two key assumptions.

First, that as investors, foundations have the capacity to evaluate the social impacts of their investments within a rigorous investment discipline.

And second, that foundations can play a special role in shaping markets, because their institutional mission is to create explicitly-defined social benefit, and because in the course of achieving their goals they can develop tools and relationships that help them understand and support efforts that other investors may not immediately appreciate.

Building better capital markets is not easy. The good news is that it doesn’t have to happen all at once.

Foundations, and their investment-service providers, often have divorced organizational mission from the design of investment strategies and portfolios, and mission investing does require resources and skills necessary to find and evaluate investments for their impact beyond financial return.

But mission investing doesn’t have to be hard, and there are relatively easy steps for approaching the practice.

For instance, opening accounts in community banks or credit unions can open a path towards more effective use of foundation assets.

Experienced mission investors often advocate for incremental steps that build capacity and board support internally, and can open dialogue with investment advisors on the potential for mission investing at a particular institution.

Support organizations like More for Mission offer peer networks, examples of investment policy statements, research in the field, and case studies of mission investment in practice, which can facilitate that work.

David Wood is director of the Initiative for Responsible Investment at Harvard University’s Hauser Center for Nonprofit Organizations.

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