Tuesday, December 30, 2008

What if Investments Were Guided by Morals?

What if every dollar we spent directly reflected of our beliefs and values?
What if budgets truly reflected internal beliefs?
What if we took the actions recommended by our words?

They are and we do.

These thoughts were prompted by a friend's message including the article Aligning Foundation Investing and Mission from CSRWire posted below. It seems that Foundations, with all their millions and billions have the opportunity to make a much bigger impact than they already are. Here's what I wrote (NOT fact checked) back to my friend, with the CSRWire news item posted below (image from responsible-investor.com).

My wife and I were just talking about this a few days ago. Seems that if I put my cynical hat on, one could argue that foundations are elaborate schemes to create cushy jobs for friends & family (think Blagojevich in IL [am I assuming he's guilty?]). They give out a small percentage of their assets and keep growing their capital. If we're intellectually honest (IMHO) foundations' missions should predict their demise...either they solve the problem (or make some predefined metrics of success) by investing massively, or they move on. Of course, this is heresy in the non-profit world. Dan Pallotta just released a book that pillories the charitable fundraising world for hamstringing themselves with outdated morals around how one can raise money. Isn't the desired result to solve a problem? If it is, then let's use the best available tools to do it.

If we take a step back and think about where these foundations invest, it is completely possible that they are underwriting the problems they are "trying" to solve. I wonder how many foundations are members of CERES? One large group of institutional investors influencing corporate behavior are state pension funds...I believe CalPers and CalTrans are the big players. Could foundations join the chorus en masse as well (if they already have not)?
Here's the CSRWire article:
What's the most ironic aspect of the Bernie Madoff Ponzi scheme fraud? The fact that fellow fraudster Henry Blodget (busted for pumping tech stocks and mocking his clients’ gullibility) maintains the most accurate list of its victims? That billionaire celebrities such as Stephen Spielberg lost millions? No, it's the fact that foundations, such as Spielberg’s Wunderkinder Foundation as well as the Elie Wiesel Foundation for Humanity, invested with Madoff and thus compromised their mission work. The silver lining may be that it shines the spotlight on foundation investing, which typically accounts for 95 percent of endowment assets but receives scant attention compared to foundation grant-making, which typically accounts for a mere 5 percent of assets.

Steve Viederman has been highlighting the need for foundations to align their investments with their missions for years. As early as 1995, when he was President of the Jessie Smith Noyes Foundation, he advocated for reducing (and eliminating) the dissonance between foundations’ grant work and their investment portfolios. Now, more than a dozen years later, he continues to crusade, characterizing foundations as "old-fashioned slot machines: They have one arm and are known for their occasional payout."

"Think of how much more bang for the buck foundations would achieve if they used both of their arms - the 5 percent making up the grants, and the investable capital that makes possible the grants - the 'other' 95 percent," Viederman writes. "By not using both arms, by failing to use all of their resources in support of their missions, foundations are failing to meet their fiduciary duty."

The More for Mission Campaign, launched at the April 2007 Council of Foundations Annual Conference, challenges foundations to get both their arms working in concert. The Campaign encourages foundations to increase their mission investments by at least 2 percent of total foundation assets over the next 5 years – a potential shift of $12 billion. The Campaign (formerly known as the "2% Campaign" for obvious reasons) has enlisted the Boston College Institute for Responsible Investment to house a Resource Center to help foundations make the alignment. And the Campaign's Leadership Committee of 24 foundation CEOs representing almost $19 billion in assets is actively urging fellow foundations to jump on the wagon.

Perhaps the greatest irony of all is that, after a half-decade of ambitious work, the participating foundations will only have 7 percent of their assets (5 percent grant-making and 2 percent mission investing) assuredly working toward their missions, leaving the remaining 93 percent potentially undermining their missions. At this rate, it would take participating foundations a loooooong time to fully align their money with their missions.

This article was written by CSRwire contributor Bill Baue

And I go back to what I posted at the top, "what if...?"

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