Impact Investment Guide for Trusts & Foundations

With the declining ability of governments to deal with social issues, charitable trusts and foundations are being encouraged to expand their reach through impact investing with a new how-to guide.

The “Field Guide to Impact Investing for Australian Trusts and Charitable and Foundations”, launched by the Social Impact Hub to coincide with the inaugural Impact Investment Summit, is designed to remove the barriers holding trusts and foundations back.

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“The Field Guide is intended to help foundations move from cautious enthusiasm to active participation in the impact investing market,” Social Impact Hub Founder, Jessica Roth, told Pro Bono Australia News.

“There has not been a lot of help for people who want to begin their impact investing journey and there are a number of perceived barriers.

“It is important to distinguish between the real barriers and the perceived barriers. This Guide is intended to help foundations do that, and to help people actually begin their impact investing journey.”

The Guide covers making the case for impact investing, getting consensus to get started, designing and implementing an impact investment strategy, including sourcing and assessing investment opportunities, and monitoring performance and measuring impact.

“Some of the perceived barriers to impact investing that the Guide addresses include that investment duties on trustees make impact investing difficult, the challenge of accessing appropriate expertise, how to actually source deals, getting consensus amongst trustees, and another is the fact that many impact investments have limited liquidity,” Roth said.

She said impact investing is not a replacement for philanthropy, but should be used in conjunction with philanthropy to increase impact.

“Charitable trusts and foundations are set up for the purpose of doing good in the world, and it makes sense for all the assets of the foundation to be used for good,” she said.

“It makes intuitive sense for foundations to actually try to create a positive social and environmental impact with their corpus in addition to their grants.”  

Roth said that in the current political climate “sometimes investment is a more appropriate and sustainable tool”.

“The need for charitable trust and foundations to step up and begin impact investing is taking place against the backdrop of macro trends, including the declining ability of governments to deal with all the social and environmental problems of our times, as well as the increasing concern of millennials in using all the tools at our disposal for positive impact,” she said.

“Charitable trusts and foundations have a special role to play in growing the impact investing sector. We hope that the involvement of more charitable trusts and foundations will help the sector grow and also help increase the impact of foundations themselves.”

Philanthropist and sector expert, David Gonski wrote the foreword for the Guide and said trusts and foundations have a “special role” to play in the impact investing sector.

“Foundations are set up for the purpose of doing good in the world, so arguably all of the assets of the foundation should be used to do so, not just those used for grants,” Gonski said.

“Through deploying part of all of the corpus into impact investments, trusts and foundations can amplify the positive impact they have on society and engage with a broader set of solutions to social and environmental challenges, in addition to generating financial return.

“My family’s charitable foundation recently made its first impact investment. It is early days but so far it’s delivering a commercial financial return, as well as a positive environmental and social impact.”

Koda Capital is one of the Guide’s distribution partners, and Head of Philanthropy and Social Capital, David Knowles, said that some foundations aren’t involved in impact investments because they don’t know about it.

“Some just aren’t aware of it, of if they’ve heard of it they don’t know what it is, or worst, they think they know what it is and they don’t,” Knowles said.

“There’s lots and lots of foundations, for every private ancillary fund there’s probably another two or three foundations out there that were set up by people who’ve passed away and let their former solicitor to look after it or it’s in the hands of a trustee company and it’s quite conservatively managed.

“I think there are an awful lot of people out there who aren’t tapped into these networks and aren’t aware of it.”

He also said that a lack of clear guidelines explaining “it’s ok to invest and how to do it” holds foundations and trusts back.

“People have a fear as a trustee, they have a fiduciary obligation to do the right thing by their beneficiaries,” he said.

“That doesn’t mean you can’t make impact investments. In actual fact it probably means you should look at trying to do impact investments because… you’re at least trying to direct that to things that will help your beneficiaries. So I think a bit of confidence and a bit of assistance will help.”  

Australian Philanthropic Services, JBWere, Myer Family Company, Australian Impact Investments, Koda Capital and Philanthropy Australia have all agreed to distribute the Field Guide to their clients or members.

An electronic PDF is available for download on the Social Impact Hub website.