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A growing number of foundations are offering low-interest loans, buying into green business ventures, and investing in other asset classes to advance their missions. Yet most mission investing remains haphazard and inconsequential. To bring about real change, foundations need to take a fundamentally different approach, using their endowments to make strategic mission [impact] investments that complement their grantmaking and leverage market forces.
Top Takeaways
- Foundations can invest their endowments in a variety of ways, including socially responsible investments in selected companies screened for their social impacts; program-related investments that further the foundation’s charitable objectives but do not seek significant financial returns; and proactive, leveraged investments in enterprises that directly further the foundation’s values or mission and yield near-market returns, now known as impact investments.
- A growing number of examples from the field illustrate how foundations can creatively leverage their investments to achieve desired social benefits, such as stimulating the formation of a new market, experimenting with new financial instruments, and creating new companies that have both strong social goals and reasonable financial prospects.
- A mature market for mission investing will require both internal changes (including realignment of foundation organizational structures to bring program expertise to the investment side and investment expertise to the program side) and external changes (including the creation of investment intermediaries and the development of better ways to measure social performance and financial returns).
One of the most effective ways to alleviate, and sometimes even to eliminate, social suffering is to supplement, leverage, or alter the incentives of conventional capital markets. Foundations can achieve this not only by making grants, but also by using their endowments to craft market-based solutions to social problems.
