This post spawns from a question raised during a media session with Stephen Heintz, President of the Rockefeller Brothers Fund (and member of the Global Philanthropy Forum Steering Committee). The question: is the Rockefeller Brother’s Fund (RBF) is investing its $950 million endowment in a way that mirrors the foundation’s philanthropic values and enhances its programmatic work? Heintz’ response, “we are working on it.”
In the U.S., non-profit foundations are required by law to spend out at least 5% of their assets each year. At a $950 million foundation like the Rockefeller Brother’s Fund, that means it needs to pay out approximately $42.5 million in grants annually. For the Bill and Melinda Gates Foundation, which held over $37 billion in April 2008,* that would require granting more than $1.5 billion a year. Some argue that this is not possible to do effectively (see Laurie Garrett, “The Challenge of Global Health” about philanthropic efficiency) But more importantly for the purposes of our question about investment, it is important to note that at RBF, 95%, or $907.5 million is being invested each year. At the Gates Foundation, that number jumps to almost $2 billion a year.

What we need to know is how are the hundreds of billions of dollars in endowments in the United States being invested? And if social responsibility is not part of their investment strategy, could they be doing as much damage as they are doing good

Heintz said that no major foundation is actively investing their assets as a means to buttress their programmatic work but that RBF has begun to work with a portfolio management company called Investure that specializes in managing endowments of non-profit organizations. The Investure website, it may be no surprise, does not include social responsibility or mission driven investment in their so-called “credo”. They do, however, provide non-profit endowment management services at an affordable cost to non-profit organizations that enable these organizations to have a more sophisticated investment strategy. According to Heintz’ commentary (and my own exploration of RBF’s website) the fund in fact does demonstrate socially responsible investment practices such as proxy voting** and Heintz is “open to exploring” the possibility of mission-driven investment, in particular with respect to energy, which is now a cross-programmatic initiative at RBF.

Heintz said that he is also interested in the possibility of working with the other clients at Investure to research and potentially promote the investment of large endowments to produce social gains. Investure manages ten clients, the other nine of which are U.S. based universities and their endowments. (Maybe they should incorporate this research into the university’s academic programs and see professors and students lead the way to a revolution in social investment.)

Still, Heitz remained somewhat conservative about any moves to change RBF’s investment strategy in the short term. He says he is open to the idea that mission related investment can also yield high returns, but that this is “still experimental” and he would need “more evidence to change [their] investment priorities at RBF.”

The investment goals at the fund are to “maintain their purchasing power each year.” In other words, their financial return on RBF’s $950 million endowment should pay back the approximately $43 million in grants the fund awards each year (5 – 6% of their endowment). But who’s to say that funding ventures that are geared toward having a positive social impact can’t result in profits for investors? And do foundations have a responsibility to invest responsibly? Or to invest FOR social gains?

If you invest your own or other people’s money, do you know whether the companies you are investing in are socially responsible? Is social impact part of your investment plan? Do you participate in proxy voting? If it is proven to be equally financially sustainable or even beneficial for your investments to be promoting social good, would you change your investment strategy to promote values and work that you support? Some food for thought…

The next post will look at mission-related investment. (i.e. Can investment be used as a means to actually do social good?)
*link to Times Topics: Bill and Melinda Gates Foundation (April 14, 2008)

** Shareholder voting is the primary means by which shareholders can influence a company’s or a mutual fund’s operations, its corporate governance, and even activities of social responsibility that may fall outside of financial considerations. It is therefore very important for shareholders to participate in the voting and make their decisions based on a full understanding of the information and legal documentation presented to them. (From “Proxy Voting Gives Shareholders a Say”. To view the Rockefeller Brother Fund’s Proxy Voting Guidelines, see: http://www.rbf.org/about/about_show.htm?doc_id=472488)