Why Families Should Start Thinking About Mission-Related Investing

Mission Investing has gained momentum, and has many families and foundations wondering if their assets are in support of the causes and issues that are the most meaningful to them. Stephanie Cohn-Rupp, Managing Director of Impact Investing at Threshold Group, shares her insights with the National Center for Family Philanthropy (NCFP) in this Question and Answer session designed to introduce the concept, dispel a few myths and give you some ideas on how to get started.

Mission-related investing is a way for an organization to assemble an ecosystem of assets that are intrinsically connected to their mission.

What is mission-related investing?

Mission-related investing (MRI), sometimes referred to as “impact investing for foundation endowments,” can help foundations invest their for-profit financial assets in a manner that aligns with their charitable mission. Like other investment strategies, it leverages the market for revenue generation, but mission-related investing is a way for an organization to assemble an ecosystem of assets that are intrinsically connected to their mission. This can potentially enhance the efforts of their foundation’s purpose and create deeper impact. Hence the reason that mission-related investing is also referred to as impact investing.

However, not all foundations have an “investable” mission. Philanthropic themes chosen for grantmaking do not always line up with investments in revenue-generating or for-profit models. In this case, mission-related investing may simply mean screening out investments that are blatant contradictions to the mission. An easy example of this would be a foundation with a focus on health might choose to screen tobacco from their investments. Likewise, a foundation with a focus on grantmaking for Indigenous Peoples may choose to screen oil and fossil fuels from their investments as we have seen in the divest initiatives at Standing Rock.

This values-based approach can also be applied to individuals and families. One certainly does not need to have a foundation to apply the aspects of values and mission to their investment portfolio. 

What is the best way for families to begin discussing mission-related investing?

We recommend that families interested in MRI begin by investing their time in learning more about what is feasible and what help is needed to assist them in this journey. Today, through NCFP, Mission Investors Exchange, the ImPact, Toniic and Confluence, families have access to a very rich network of support. Those who have been exploring MRI for decades have been diligent about sharing research and lessons learned along the way. There are many published white papers, webinars and robust research on the subject. And, there are new success stories every day.

We also recommend engaging practitioners. We have done a fair number of presentations at family foundation board meetings and events and it helps to have many stakeholders in one room. Families have a variety of interests and passions – aligning those interests and passions with a mission and mantra for investing can be valuable but challenging. Engaging an outside facilitator can help ensure each individual and generation is not only heard, but considered and valued when determining the path for making an impact through philanthropy and investing. The art of the conversation is often more rewarding and relationship building than the end result.

A facilitator can also help dispel common myths. One question that often comes up for us is in regards to concessionary returns. Despite what some may think, today it is possible for endowments to be fully mission-related without giving up market-rate, risk-adjusted returns.

What is the best way to begin investing?

Mission-related investing is a journey that takes time and exploration. It should be enjoyable and fulfilling – but to do it well, you should plan and take steps to make sure you are headed in the right direction.

We recommend the following steps to get started:

1. Hire an investment advisor or consultant who can help you develop a mission-related strategy. This work requires intentionality and a deep understanding of risk in order to plot out how your charitable mission may translate into investable opportunities for an endowment.
2. Know what you own. It is important to consider what assets you hold and why. What are the social and environmental impacts of these holdings? Once you know where you are and how close or far you are from your mission, it’s easier to strategize.
3. Create a plan, both short term (for the year) and long term (5 years out). When we work with new foundation clients, we sometimes recommend starting with a very small carve-out of their endowment to test the waters. Foundations can carve-out as little as 5%, as long as the endowment is able to meet minimum investments. This carve-out can empower the portfolio without creating too much concentration in any given asset class; choosing both liquid and illiquid strategies for a diversified approach. This also allows for passion and interests to develop and evolve over time.

Alternatively, we recommend starting slowly, without a carve-out, but by assessing whether marginal changes could help by simply screening out sectors or industries deemed counter to the mission of the foundation.

What are lessons learned that you could share?

Although MRI has existed for decades, many foundations have continued to invest traditionally, believing that their endowments are meant to be profit-maximizing to allow for perpetuity of the foundation and its good work. However, the cognitive dissonance between doing good with 5% while doing “potential harm” with the other 95% of your financial assets is counterproductive. The world’s most pressing problems require foundations to leverage all assets at their disposal to ensure their positive impact is maximized. Today, we know that mission-related investing doesn’t have to equate to below-market returns if the foundation’s finance committee and/or investment policy statement requires market rate returns.

We have also learned that this is a multi-year journey and patience is key. Foundations will undergo a paradigm shift, which may require putting new processes in place or hiring a new advisor. It could also mean changing the involvement of your programmatic staff and tapping into their knowledge in collaboration with your head of finance. Mission investing is a chance for teams to get creative and think outside the box; to explore beyond the traditional portfolio and seek greater alignment that supports a purpose. Over time, silos within grantmaking and investing should start to dissolve as you embark on a search for greater cohesion towards your mission. 

Mission investing can be an impactful way to align your investments with the issues and causes that matter most to your family or the mission of a foundation. It can meaningfully influence social and environmental causes and can catalyze innovation across the globe. To learn more about the pathway to mission-related investing and impact investing, watch the replay of NCFP’s July 13, 2017 webinar, “Mission Investing: Resources and Advice for Family Philanthropy” with Ariella Rotenberg, Jake Sargent and Lenora Suki.