Foundations Have Stepped Up Efforts to Tie Investments to Their Missions, Report Says

By Ian Wilhelm

A growing number of foundations are making loans or investments to achieve their charitable goals, says a new report.

The report, which examined 92 philanthropies, says the number of funds involved in so-called mission-related investing doubled in the last 10 years, with 42 active in such investments in 1995 and 90 in 2005. The amount of assets designated for these efforts equaled $130-million two years ago, compared with $49-million a decade ago.

In 2005 dollars, the respondents have made $2.3-billion in mission investments since 1968.

"More foundations are becoming aware of the opportunities to use mission investments as tools," said Sarah Cooch, co-author of the report. "It's still early, but an increasing number of foundations are looking to them as a potential way to achieve their goals."

Better Understanding Needed

The report was produced by the FSG Social Impact Advisors, a nonprofit research and consulting group, in Boston, formerly known as the Foundation Strategy Group. It was paid for by the David and Lucile Packard Foundation, in Los Altos, Calif.

The publication recommends that for mission investing to grow, boards and staff members need a better understanding of it, improved ways to analyze its success or failure, and more types of investment vehicles.

The research group defined mission investing as making loans to nonprofit groups and investing in companies that seek to make money while solving a social or environmental problem. The group had other criteria for mission investing, but found few examples of them. For instance, FSG asked charitable funds if they buy stock expressly for the purpose of engaging in shareholder activism. While several foundations vote proxies to influence corporations' policies, FSG said that such a small number do so as part of their mission that it did not examine them.

The report says that making loans to charities, often referred to as program-related investments, is the most popular investing strategy. From 2001 to 2005, 63 percent of dollars made in mission investing were in loans.

While FSG said it did not have sufficient data to analyze the performance of all mission investments, for loans, it said that foundations are often paid back. Of the 653 loans that foundations in the surveys had completed by 2005, 85 percent of them were repaid.

The report also shows that more types of foundations are involved in mission-investing activities. While the perception is that only wealthy grant makers use such financial tools, the study says that 30 percent of all private foundations making mission investments had less than $50-million in assets.

What's more, Ms. Cooch said more community foundations are using mission-related investing. Unlike some other philanthropies, "a community foundation is very locally centered, and they're doing some very interesting things to encourage economic development, housing, etc."

For example, the report cites the Vermont Community Foundation, in Middlebury, which sets aside 5 percent of its investment assets to support companies or charities involved in development and financial services to the poor. At the end of this year, those investment are expected to equal $6.6-million.

The 54-page report, "Compounding Impact: Mission Investing by U.S. Foundations," is available free on the FSG Web site.