Is it Time for Foundations to Do More Mission Investing? Most Program Staff Think So
Originally appeared at Inside Philanthropy on September 16, 2020
Philanthropy is under a lot of pressure to increase the amount of funding it dedicates to meeting the tremendous short- and long-term challenges society is up against. A number of foundations, large and small, have made pledges to increase grant funding significantly due to the COVID-19 pandemic. Beyond these voluntary efforts, advocates are calling for higher payout requirements for foundations and donor-advised funds.
While some foundation leaders call on their peers to “distribute all their philanthropic assets within the next few years” to meet this historic moment of need, the majority of foundations are designed to exist “in perpetuity,” balancing their response to immediate needs with their ability to provide funding over the long term through investment returns.
One potential way to use the vast assets under a foundation’s control to meet more immediate needs is through mission-related investing, which yields both financial and social return. MRI has grown in popularity over the years, but it’s still a topic many funders shy away from. Curious to know what people working in the sector had to say about this oft-debated topic, Inside Philanthropy asked about MRI practices in our recent survey of foundation program staff. While a little over half of respondents say their foundations are engaged in MRI on some level, program staff clearly want to see their institutions do more.
Only about one in five of survey respondents say that their foundations are “highly engaged” in MRI and another 34% are “somewhat engaged.” Nearly 30% are “not engaged” and 20% respond “don’t know or not applicable.” Even among those who are not currently involved in MRI, many say they are exploring doing so. According to the VP of program at a small foundation, they are “not engaged at present, but we are looking into ways to participate.”
Program leadership and staff are often the ones pushing for an MRI approach within foundations, because it can complement grantmaking. A program officer at a mid-sized funder shares that “we are experimenting with mission-related investment out of our program budget,” and another says that they were able to get a mission investment toward affordable housing.
Foundation investment staff or consultants tend to be responsible for developing MRI programs, and the involvement of program staff varies. Of survey respondents who are at foundations engaged in MRI, just 38% indicate that they or fellow program staff are consulted on these investments.
Survey respondents describe their role as “fairly passive” and reactive with regard to MRI. A program director at a large foundation working on higher education says, “We have brought MRI investments to the investment team, but the vast majority of investing is done without our input.”
Program staff clearly think that their foundations should be more involved in mission-related investing: overall, 60% say they should be more engaged in MRI. Even among those already “highly engaged,” 67% say they should be more engaged, and 78% of staff at foundations that are “somewhat engaged” believe they should be more engaged in MRI. Among those at foundations not doing any mission-related investing, 60% think they should be.
If there is so much support from program staff, why are foundations reluctant to use their financial assets to advance their missions? Following a recurring theme in our survey results, the issue seems to be a disconnect between program staff and the rest of their institutions. In this case, for many foundations, there has been concern that these investments will not produce sufficient returns in line with the board of directors’ fiduciary responsibilities.
As one survey respondent says bluntly, our “board is dead set against the idea.” Another says that “our founder generated his wealth via investing, and is uninterested in mission-related investing.” Many foundation board members and leadership have expertise in finance and bring an orientation toward maximizing returns as their sole objective.
Even when there is advocacy for MRI within a foundation, it can fall on deaf ears. A program director at a mid-sized foundation says, “Our former CEO tried making headway and got so much pushback from our conservative board that it was dropped as soon as she moved on.”
Given the vast fiscal resources held by endowed foundations (U.S. foundations have nearly $1 trillion in assets, while providing about $80 billion in grant funding a year) and the relative stability of financial markets in the face of a massive economic recession, now seems like a perfect time for foundations to expand mission-related investing. In response to the surging movement for racial justice, corporations such as Netflix have allocated holdings to Black-owned financial institutions, and there’s no reason foundations couldn’t do the same.
Beyond banking relationships, foundations could look for direct investments to advance progress in areas related to their missions and priorities, whether in the arts, education, health, housing or a host of other issues.
At a time when millions of businesses and organizations are fragile and people are out of work, an infusion of hundreds of billions of dollars from philanthropy for both short-term needs and long-term policy and structural change could help communities recover. Program staff are well positioned to collaborate with foundations’ investment experts to develop these programs to expand and collaborate on foundation grantmaking. And according to our survey data, most are more than willing to do so.