HOW FOUNDATIONS CAN LEVERAGE
INVESTMENT PORTFOLIOS TO
FURTHER THEIR CAUSE
by Neil Davidge, Consultant
Foundations are increasingly searching to leverage their investment portfolios to support their respective missions.
Traditionally, a foundation’s mission has been solely supported by its grant-making activities, which at a minimum are
only required by the Canada Revenue Agency to amount to 3.5 per cent of the investment portfolio annually.
Often the easiest, most common means of increasing the impact of a foundation’s investment portfolio is to transition
some, or all, of the traditional investments to socially responsible investing strategies (see Figure I below). It takes up
less of internal staff’s time and requires less in-house expertise as denoted by the low relative foundation resources
ranking in Figure 1.
Responsibility for socially responsible investing mandates can be outsourced to third-party managers, similar to
traditional investment mandates. Implementation can take the form of negative or positive screening of publicly
traded securities based on environmental, social and governance factors, as well as shareholder activism. However,
the direct impact on a foundation’s specific mission is much weaker.
Mission-related investments and program-related investments tend to have a more direct impact on the
environmental or social causes supported by a foundation. Both of these investment strategies usually take the form
of private debt or equity investments in a for-profit social purpose business, not-for-profit organization or an
investment in a third-party fund that makes private debt or equity investments on behalf of investors.
The difference between mission-related and program-related investments is in the expectation of financial return.
Financial return should be a byproduct of a program-related investment with expected below-market returns or
losses. Because of this, opportunity costs associated with these investments can count towards a foundation’s CRAmandated minimum spending requirement, according to the agency’s Community Economic Development Activities
and Charitable Registration site.
3
|
PROTEUS