Aligning Investment and Mission

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Foundations, educational institutions, pension funds, NGOs, and faith-based institutions are among those adopting policies to better align their investments and mission. The five most common strategies for leveraging assets to help align investment and mission are 1) proxy voting; 2) shareholder advocacy; 3) screened investments 4) impact investing, mission related investing and program related investing; and 5) ESG integration.

Expert Insight: Foundations’ Votes Matter: Leveraging Ownership Rights to Further Your Mission

Proxy Voting

Voting on shareholder proposals to help influence companies to be more fiscally, socially and/or environmentally responsible is one fundamental way investors can both exercise fiduciary responsibility and weigh in on social and environmental issues. Consequently, it is a logical entry point for aligning investment and mission. Most institutions, however, delegate voting to their financial managers or custodians, who generally vote with management against social and environmental issues. Proxy votes can encourage many corporate reforms, such as non-discrimination in employment, diversified boards, reformulation of toxic products, reduction of greenhouse gas emissions and public disclosure of corporate political spending.

Shareholder Advocacy

Shareholder advocacy uses the power of stock ownership to promote change in corporate practices through filing shareholder proposals and/or conducting shareholder dialogues with senior company officials. To file a proposal, a shareholder must hold at least $2,000 worth of shares at a company, prove those shares have been continuously held for at least one year prior to the proposal filing date and agree to hold them through the annual general meeting date. For over four decades, active investors have effectively used proposals and dialogues with corporate management to influence corporate practices. Well-established shareholder networks exist that coordinate shareholder advocacy efforts and introduce new advocates to the process.

Expert Insight: Stock Exchanges and Shareholder Engagement

Screened Investments

Investors can take environmental, social, and governance (ESG) issues into account by applying screens to their investment portfolio. For example, positive screens may include companies that have strong environmental practices or explicitly protect human rights. Negative screens aim to avoid investing in companies whose products and practices the investors find harmful to individuals, communities or the environment.

Mission and Program-Related Investments

Mission-related investing (MRI) directs a portion of a foundation’s assets into projects or companies that reflect the mission of the investing institution. Funds come from the endowment’s assets and often strive for market returns. The term MRI can be confusing as it is often used as an umbrella term for any environmental or social investment. It is also often used interchangeably with Program-Related Investments (PRI). PRIs are typically low-interest loans for housing, education and business and they are usually disbursed from a foundation’s granting funds; in these cases, financial gain may not be their primary goal.

Impact Investments and Green Bonds

Impact investments aim to generate positive environmental and social impact with a financial return. These investments encompass both private and public equity and investments are made across all asset classes and often focus on private companies. Impact investments can range from microfinance to women-owned manufacturing. A rapidly growing sector is tax-exempt green bonds which aim to reclaim neglected, abandoned or polluted ‘brownfield’ sites and provide capital for scalable renewable infrastructure. They include repowering facilities with solar energy, improving irrigation systems to save water, relamping streetlights with low energy LEDs and providing loans for hybrid and electric plug-in vehicles.

ESG Integration

Many investment firms also have begun to incorporate some ESG considerations into their risk and opportunity analyses. Studies show that most ESG-managed funds have performed the same or better to date than others not managed this way. ESG integration can now be found in investment vehicles, reporting requirements, legislation and stock markets, as discussed throughout Proxy Preview.