Grant Makers Are Uncertain About Socially Responsible Investing, Study Finds

Title: 2016 Council on Foundations-Commonfund Study of Responsible Investing

Organizations: Council on Foundations and the Commonfund Institute

Summary: Nearly three-quarters of U.S. grant makers do not mention socially responsible investing in their policies on investing their endowments, according to a survey of 186 private and community foundations.

Responsible investing, for the purposes of the survey, included the use of a screening process to avoid investments in certain stocks or industries; taking environmental, social, or governance factors into account in making investment decisions; impact investments in projects, companies, or organizations with the express goal of generating social as well as financial return; and divestment from fossil-fuel industries.

Survey respondents expressed a high level of uncertainty about responsible investing. That many said they did not know the answers to survey questions or “neither agree or disagree” with the questions’ premises reflects the “extreme fluidity of the current dialogue about responsible investing,” the report states.

For example, 48 percent of respondents were not able to say whether their foundations considered responsible investing practices consistent with their fiduciary duty, and 11 percent did not answer the question. The issue is still being debated at 17 percent of the grant makers represented in the survey, 19 percent said responsible investing was not a breach of fiduciary responsibility, and 5 percent said it runs afoul of a foundation’s obligation to protect its assets.

That uncertainty was on display at a mission investors conference in May. There, foundation leaders said they were bullish on impact investing’s future but acknowledged there is disagreement over the extent to which foundations should put endowment money into mission-related investments.

Among the study’s other findings:

• More than a quarter of respondents agreed that environmental, social, and governance factors can add financial value to the investment process. Nearly 10 percent disagreed; the remainder neither disagreed nor agreed or said they were uncertain.
• Nearly half of foundations that already engage in responsible investing said they would further the practice; 14 percent of those who don’t yet do so said they were considering it.
• Among foundations that practice socially responsible investing, 65 percent said their investment policy refers to or explicitly permits mission-related investments. More than three-quarters of this group said they were “very likely” or “likely” to make mission-related investments.
• Among foundations that make such investments, 69 percent had put money into community-based economic-development ventures. Green bonds, green revolving funds, and pay-for-success bonds were each cited by 8 percent of respondents.