Mission Compatible Investing

An increasing number of public foundations, family foundations, educational endowments, and trusts are interested in identifying new investment alternatives that are compatible with their programmatic focus. These organizations now recognize the crucial role that financial markets can play in reinforcing both private and public efforts to drive corporate sustainability. Historically, foundations have called this type of investing program-related investment (PRI) or mission-compatible investment (MCI). Program related investments (PRI) often involve loans to small nonprofit organizations to augment grants that foundations or trusts disperse. Mission-compatible investment (MCI) most frequently involves use of environmentally sustainable or socially responsible investment managers to manage stocks and bonds in a way that is consistent with the organization’s goals.

In the United Kingdom, pension fund trustees are now required to develop processes for managing, or having their money managers address, social, environmental and ethical issues relevant to their portfolio holdings.  Just Pensions, a project of the United Kingdom’s Social Investment Forum, has produced a short self assessment tool to help organizations such as pension funds or endowments assess their capacity to address this set of social, environmental, and ethical issues. The survey includes by reference the activities of pension fund asset mangers, financial consultants, and proxy voting agencies. 

A copy of the self assessment tool can be accessed by clicking the link below to provide US-based organizations with a reference for assessing their requirements, http://www.uksif.org/Z/Z/Z/lib/2002/files/07/jp-ukpf-do/ukpf2002-justpens-appxb.pdf.

Many trustees have concluded it is part of their fiduciary duty to the organization to assure that its funds are not invested in a manner that is incompatible with the organizations missions. For example, many hospitals do not invest in tobacco stocks due to the health impacts of tobacco smoking. Notwithstanding the reduction of cognitive dissonance for organizations and the positive impacts from sustainable or socially responsible investing, many organizations have found it is as difficult for them to transition to more sustainable investments as it is for a country like the US to transform itself into a more sustainable society. The perceived barriers to mission-compatible investing include:

• the perception that responsible investing will lower returns

• the perception that any reduction of investment possibilities (e.g., removing worst companies) will increase risk

• the perception that there is increased fiduciary liability for trustees who select responsible money managers with new investment processes

• the belief that it is not worth doing anything if perfection cannot be found among the companies and governments issuing securities

• the belief that small organizations should just wait until large organizations figure it out

Several studies summarized in the Profitable Correlation show that the financial risk perceptions do not apply to best-of-class investing as practiced by Light Green Advisors.

For a case study on the process by which one fund (the MTA Fund) reconciled its programmatic environmental mission with its financial and fiduciary requirements, click here.