The Council on Foundations-Commonfund Study of Responsible Investing, believed to be the largest of its kind, provides foundations with invaluable insights into how the sector and individual portfolios are being shaped by responsible investing practices, potential hurdles to their adoption, and what the entry points are for those interested in fully engaging these practices in their endowment strategies.
Data analyzed from 186 U.S. private and public/community foundations representing a total of $39.7 billion in endowment assets revealed that a third of respondents have implemented or are actively considering mission-related investing practices in managing their endowed assets.
This survey asked responding private and public foundations about the responsible investing policies and practices that they apply to their endowed assets. Many foundations also conduct mission-related investment activity out of their programmatic budgets, but that topic was not addressed here. In addition, public foundations typically hold various component funds that may be invested and operated apart from their core endowed assets. All the information contained in this survey refers to the endowment funds of responding foundations and the means by which they are invested to sustain and support future charitable activities.
Responsible investing practices definitions used in this survey:
Socially responsible investing (SRI): A portfolio construction process that attempts to avoid investment in certain stocks or industries through negative screening according to defined ethical guidelines.
Environmental, social and governance (ESG): An investment practice that involves integrating the three ESG factors into fundamental investment analysis to the extent that they are material to investment performance.
Impact investing: Investment in projects, companies, funds or organizations with the express goal of generating and measuring mission-related economic, social or environmental change alongside financial return. Also commonly referred to as Mission-Related Investing (MRI).
Divestment of fossil fuel: A type of exclusionary screening strategy through which investors actively exclude companies involved with fossil fuels from their investment portfolio.
Which investing practices are being used?
An institution’s investment policy statement (IPS) is perhaps the main foundational document for endowment management. Accordingly, the Study questionnaire first inquired about the existence of a written IPS among participating institutions. Eighty-six percent of all participants – including 91 percent of adopters and 84 percent of non-adopters – confirmed that they had such a written statement. We note that this is a somewhat lower rate than the 96 percent of all participants in the Study of Responsible Investing among educational endowments that reported having a written IPS, including 98 percent of adopters and 95 percent of non-adopters.
Sharpening the focus of the inquiry, the Study then asked whether the IPS permits or refers to specific types of responsible investing practices.
Of the four approaches to responsible investing covered by the Study, impact investing/mission-related investing (MRI) was the most widely practiced, followed by socially responsible investing (SRI), environmental, social and governance (ESG) investing and divestment from fossil fuels. Among all responding institutions, 16 percent said their IPS permits or refers to MRI; 12 percent said it permits or refers to SRI; 9 percent specifically cited ESG investing; and 3 percent said the IPS addresses divestment of fossil fuels. By far the largest proportion, 71 percent, said that their IPS neither permits nor refers to any of the four. In the Study of Responsible Investing among educational endowments, the most commonly used practice was SRI, at 21 percent of all respondents, while MRI was third, at just 3 percent. MRI’s greater frequency of use among foundations confirms anecdotal and other evidence that sees this practice as being aligned with the missions of many foundations.
Among the adopters group, 65 percent reported that their IPS permits or refers to MRI, including 83 percent of private foundations and 41 percent of public foundations. Forty-eight percent said their IPS permits or refers to SRI, including 59 percent of public foundations and 39 percent of private foundations. Thirty-five percent cited ESG in their investment policy statements, comprising 43 percent of private foundations and 24 percent of public foundations, while 10 percent said their IPS permits or refers to fossil fuel divestment, including 13 percent of private foundations and 6 percent of their public counterparts.
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