Three easy steps to impact investing for a foundation or not-for-profit organisation

Finance and investment are full of jargon, but you don’t have to be an expert to play a role. Daniel Madhavan, the CEO of Impact Investment Group, gives his advice on how purpose-driven organisations can make sure their money is working for their mission.

If you work for a philanthropic foundation, or a not for profit, there is a good chance it has an investment portfolio. It’s often called an endowment or a corpus. It might be there to generate income that helps fund your organisation’s work, or it might be there in case of a rainy day. But in any case, how it’s invested is interesting.

If the question ever comes up, most people working in a purpose-driven organisation would prefer that the money isn’t working against the organisation’s fundamental mission.

Would you care if your endowment was providing financial support to companies selling tobacco products, building new coal mines, employing child labour or manufacturing weapons? It happens, for sure. You might be surprised to learn what your organisation’s money is invested in. Would you prefer your organisation was using all of its resources to support outcomes that are good for people and the planet? Let’s talk about three steps you could take to make it happen.

Step 1 – Make sure you’re not investing in bad s*@t

The easiest first step is to stop doing bad and dumb things. Bad and dumb are subjective, but if you work in humanitarian aid, then having investments in weapons is probably both bad and dumb. If you work for an organisation with an environmental mission, but it owns shares in a coal miner you probably have cause to be a little ticked off about this.

Don’t think your organisation would dare do this? It’s often not deliberate, and it can be quite indirect. Just ask Dr Bronwyn King who, as a doctor at Peter MacCallum Cancer Centre, was shocked to learn her money was flowing to tobacco companies through the default option of her superannuation fund. She is now campaigning brilliantly and globally for responsible investment through her Tobacco Free Portfolios movement.

What can you do in this realm for your organisation? To stop your organisation’s money being invested in things that harm people or the planet, there are several things you can do:

1. Discover the current situation. Check your organisation’s investment policy. Does it have restrictions based on ethical, responsible or mission related considerations? If it doesn’t, then maybe you can raise the idea. The Responsible Investing Association of Australasia has many resources available to help.
2. Engage with your investment committee. Find out if they already support a mission-aligned portfolio. Maybe they’re already working on it. Have they made provision for ethical considerations in the actual process they use to make investment decisions? Is it part of their agenda papers? Is it minuted in their decision making?
3. Your company’s investment advisor can be your first line of defense. They should be considering your portfolio in the context of your mission. They should be clear on what you do not want in your portfolio. They should not be showing you things or recommending products that breach your policy.

Step 2 – Go from eliminating the bad to finding the good

So, in step one we have done our best to remove any negative impacts from the portfolio. Next, find investment options that can support positive social or environmental outcomes, on top of what your organisation does in-house. That’s impact investing.

So how do you activate your organisation?

1. Firstly you need to get it on the agenda. The board needs to want to do it. The CEO and the executive need to want to do it. The investment committee needs to want to do it. Start with the one you think will give it the biggest push, but remember you will ultimately need them all.
2. Your company will need to pick an approach. Some decide they are going to do impact investing on a case by case basis. They will keep a lookout for opportunities and decide at the time. Others set a quota. The most ambitious aim to apply a positive impact lens to all investments. There is no right or wrong approach. Choose one.
3. Now you need to find things to invest in. This has been tricky, but the options are growing, and the field is changing fast. To help your investment advisors stay current, you may need to push them towards RIAA’s impact investment forum, or the impact investment summit. The impact investment community is pretty open and welcoming, so find some people and have coffee.

Step 3 – Go all the way to mission alignment

For the most advanced, there remains one last step which is to find investments that are not just generally positive but contribute specifically towards your organisation’s mission.

If you work for an organisation that’s focused on environmental outcomes, maybe you can find investment opportunities in renewable energy, water, regenerative agriculture. Working with underprivileged youth? Maybe you can find investment opportunities in training and education, or in a social enterprise providing employment opportunities. Whatever your mission, as impact investing continues to grow there is also likely to be a growing number of options available to your organisation to align all of your resources towards your mission.

I am making an educated guess that most people reading this article will have joined a mission-driven organisation not for your finance or investment skills but because you have other talents and experience that support your organisation’s mission. 

Finance and investment are full of jargon, but you don’t have to be an expert to play a role. All you have to do is be prepared to ask the right questions. Are we supporting our mission in everything we do? Does this include how we invest our organisation’s money? How are we doing that? These are not difficult questions to ask, but if you ask them of your executive, your investment committee and your board they are questions that will be noticed and should be answered. That makes them worth asking.