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5 Steps to Integrate Impact into Your Investment Portfolio
5 / 2 / 2019
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Perhaps you’ve read about the Heron, Ford and Nathan Cummings Foundations’ progress towards 100% impact, and you’re inspired. If you want to help transition your organization’s endowment to impact investing, but you’re not sure how, read on.

Make sure your investment committee and consultants are on board
While you may be ready to go all-in on mission-aligned investments, other stakeholders may need help moving past the myth of underperformance. Does your foundation have an investment committee, and/or investment consultants? Whether they’re board members, donors, staff members, or a mix—your investment advisors can agree on one thing: preserving the bottom line. When you’re ready to make the case for mission-aligned investing, economic researchers at Harvard Business School and Urban Institute have published numerous articles, case studies, and reports regarding financial returns and impact investment strategies. In short:

Review your portfolio to make sure your investments aren’t working against you
Foundations’ investment committees keep tabs on investment performance, but few stop to ask: ‘What impact are our dollars actually having on our mission?’ And yet some institutions have found their endowment owns stock in firms whose businesses run directly counter to their missions. Make sure your investments aren’t undoing your programmatic work.

A case study describing how OpenInvest worked with a foundation to align its investments with its advocacy against immigration centers and privately-operated prisons.

Craft a policy to guide you on the journey
Work with your investment advisor to craft an investment policy statement (IPS) that establishes your investment goals. This IPS should serve as a both a goal line and map, detailing the strategies needed to arrive at an aligned portfolio. Take the time to see how your portfolio aligns to your foundation’s mission, and make sure to detail your impact goals, such as exposure to a specific region or cause, as well as desired asset allocation, risk tolerance, and liquidity.  For example, a foundation promoting community development might want to look at place-based investments. If you aren’t familiar with certain investments and their impact, the nonprofit Forum for Sustainable and Responsible Investment offers a free guide to help investors begin this process.

Start with low-hanging fruit: public equities and fixed income
As sound building blocks for an investment portfolio, public equities and fixed income vehicles offer several ways to get started. Impact investing offers an opportunity to support, rather than contradict, your organization’s theory of change.

Here’s what you can do in public equities: if your organization’s mission is to promote sports and exercise, you may want to rethink any ownership stake it has in companies contributing to the heart disease epidemic in the US. Your investment advisor or asset manager should be able to provide a list of the companies in which you own shares, and walk you through which might detract from your mission of healthy living. Then, you can choose to divest those shares, or even engage the company and its strategies directly through shareholder advocacy and proxy voting. You have rights as an investor, and you can demand better from the companies you own.

A case study showing OpenInvest's suggestion for how a community foundation focused on supporting Atlanta might align its investments with its regional priority.

With bonds and fixed income instruments, investors can’t take advantage of established channels (like proxy voting) to communicate with companies about their preferences. However, you can still choose to invest more in companies whose businesses and behavior are in line with your organizational mission, and to avoid companies contributing to the problems you fight to remedy every day. If your foundation is focused on environmental conservation, preferentially owning green bonds makes sense.

Keep at it
Foundations who make the switch to mission-aligned investing don’t need to transfer 100% of their funds overnight. Instead, try committing a percentage of assets and evaluate those experiments over time. If you are satisfied with the changes, you can gradually align additional funds to your mission. Once you’ve shifted your assets in public equities and in fixed income, take a look at your allocations to cash, private equity, and real assets: there are options to align with your values there, too. As your foundation’s comfort level grows, continue to convert funds until you have reached your organization’s limit or are 100% mission-aligned.

Investment in securities involves the risk of loss. Past performance is no guarantee of future returns.  Case Studies are for illustrative purposes only.  One cannot invest directly in an Index. Any opinions, estimates and forecasts offered in this document constitute judgment as of the date of the materials and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information contained in this document to be reliable but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only and it is not intended to provide and should not be relied on for investment, accounting, legal or tax advice.

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