Investing with Purpose
Socially responsible investing (SRI) is one of the fastest-growing practices in finance and development, and it has further permeated the philanthropic sector within recent years.
Amidst a growing recognition in the philanthropic sector that a foundation or individual donor’s investments could actually be undermining their own giving, investments have become more aware and attuned to meet the interests of the investor. For example, many of today’s donors do not want to donate $50,000 to support prison reform while their investments could be contributing to a company that uses prison labor.
Socially responsible investing has a long and storied history, with some pointing to Biblical times as its first appearance. Throughout history, SRI has largely focused on the common phrase, “do no harm”, a familiar principle to everyone from journalists, physicians, and development professionals. In other words, socially responsible investments focused on avoiding investing in causes that the investor held as antithetical to their beliefs. In the United States, the Methodists of the 18th century are largely credited with making SRI popular as they refused to invest in companies which produced liquor or manufactured tobacco. It would not be until the 1960s and 70s that SRI really took its shape and became more widespread.
The field has grown to encompass a broad range of activities defined by the pursuit of non-financial benefits as return on investment. Today, some of America’s most well-known foundations such as the MacArthur Foundation and Ford Foundation are champions of using their substantial portfolios for good. Moreover, “impact investing”, often considered a subset of SRI, has garnered significant traction with “newer” wealth in Silicon Valley, as Zuckerberg, Gates, and Omidyar charge forward with their own investments for social impact.
There has historically been a misconception that investing for impact is either substituting impact for profits or simply less profitable than traditional practices. This is simply not the case: in fact, many studies, notably this report from TIAA, have found no noticeable difference and no additional risk (based on an analysis of Portfolio Risk Profiles) as compared to traditional investment vehicles. Moreover, according to a study from U.S. Forum for Sustainable and Responsible Investment, nearly $8 trillion assets, or $1 in every $5 under professional management are deemed socially responsible.
Common typologies of responsible investments define three broad categories of intent and management, according to Michelle Zhou of Investopedia:
- The aversion to investment in certain equities (often known as using an environmental, social, and/or governance, ESG filter),
- The active screening for companies that meet predefined requirements (often referred to as socially responsible investing), and
- The active investment in social enterprises or other impact-oriented businesses or projects (typically referring to what is known as impact investing).
Most socially aware investment vehicles fall into the first category. Many investment firms offer a wide array of socially responsible exchange-traded funds (ETFs) and mutual funds that allow investors to effectively divest from companies that are harming the environment or actively contributing to social harms.
Donor advised funds, which are increasingly popular among today’s donors, are offering their donors a range of investment portfolios that address the donors SRI concerns. At CAF America, we are committed to providing our donors with a full range of investment options for their donor advised funds. Contact us to learn more about our approach to investing for impact, and how you can contribute to a more sustainable charitable giving strategy.