FOR MISSION How leading European foundations use their investments to support their mission and the greater good.
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360-DEGREES FOR MISSION How leading European foundations use their investments to support their mission and the greater good. David Imbert and Ivo Knoepfel, May 2011
ABOUT MISTRA
Mistra, the Swedish Foundation for Strategic Environmental Research, funds and
organises research aimed at solving strategic environmental problems. It distrib-
utes over €22 million annually to research groups that work in collaboration with
the world of real action and practical application. Part of the Mistra grant pro-
gramme goes to research in the field of sustainable investment, and the foundation
itself has followed a sustainable investment policy for its own endowment since
the year 2000.
www.mistra.org
ABOUT THE AUTHORS
onValues is an independent investment consultancy located in Zürich, Switzerland. The
firm advises foundations and other asset owners on integrating environmental, social
and governance strategies into their investment management. It also provides advice in
the emerging field of impact investment. onValues actively participates in shaping the
further development of the sustainable, responsible and social investment markets by
contributing original research and facilitating investor networks.
David Imbert and Ivo Knoepfel co-authored 360-degrees for Mission. They would
welcome comments or feedback at info@onvalues.ch.
www.onvalues.ch
This report can be cited as:
Imbert, D. and Knoepfel, I., “360-degrees for Mission”. Stockholm: Mistra, 2011
Foreword
by Lars-Erik Liljelund
dear reader , as a foundation that supports academic research in
the field of sustainable development, Mistra has been in a privileged
position to see the challenges that will confront our societies in the
coming decades in areas such as demographics, social disparities,
climate change, water, and energy. This will inevitably affect the risk
and return characteristics of our investments and this is why Mistra
believes that it makes financial sense to include these factors in the
management of our endowment.
In addition, a whole new range of social investment and active
ownership approaches allow foundations to manage investments
that potentially harm reputation and mission, and actively contribute
to the greater good and to the mission without hurting financial
returns.
This is a world of new opportunities and innovation, allowing
foundations to combine grantmaking and investment approaches
for the sake of maximising the “mission return”. The eight European
foundations surveyed in this report show how it works and how in-
vestment approaches can be tailored to the individual needs of each
foundation.
This has been a rewarding journey for Mistra and we therefore en-
courage other foundations to “test the water” by considering a few
simple initial implementation steps. Both at the national and at the
European level you will find other foundations and platforms willing
to share their experiences and support you.
Yours sincerely,
SIGNATURE
Lars-Erik Liljelund
Executive Director of Mistra
MISTRA FOUNDATION | 3
Acknowledgements
The authors would like to acknowledge the foundations
that contributed to the report. Their perspectives filled this
report with life and real world experience. The condensed
wisdom presented through their case studies is this report’s
most-valuable asset, and we are grateful for their time and
interest in this project. By name, they are: The Church of
Sweden (Svenska kyrkan), Deutsche Bundesstiftung Umwelt
DBU, Dreilinden gGmbH, Fondation du Luxembourg, Fon-
dazione Cariplo, Fonds 1818, Friends Provident Foundation,
and Mistra.
The authors would also like to thank the individuals who
provided valuable expertise at different stages of the pro-
ject. In particular we would like to thank David Carrington
Felicitas von Peter and David Wood.
Additional funding for this report was provided by
Generation Investment Management.
4 | MISTRA FOUNDATION
Table of Contents
Executive Summary............................................................................................................ 6
I. Introduction................................................................................................................... 10
II. Overcoming Obstacles to Implementing SRI and Impact Investment............................... 11
Addressing Financial Concerns........................................................................................... 11
Accessing Information and Support to Strengthen Institutional Capacity............................ 13
III. Implementing SRI and Impact Investing......................................................................... 14
IV. Designing an Implementation Process........................................................................... 16
V. Case Studies of European Foundations........................................................................... 18
Dreilinden.......................................................................................................................... 20
Fondazione Cariplo............................................................................................................ 22
Fondation de Luxembourg................................................................................................. 24
Church of Sweden............................................................................................................. 26
Fonds 1818....................................................................................................................... 28
Deutsche Bundesstiftung Umwelt (DBU)............................................................................ 30
Friends Provident Foundation............................................................................................. 32
Mistra................................................................................................................................ 34
VI. Key Messages from the Study........................................................................................ 36
VII. Next Steps................................................................................................................... 38
MISTRA FOUNDATION | 5
“For every foundation there is a way to
make investments socially responsible.
It is easier than you think and it is the
right thing to do for foundations.”
– BOUDEWIJN DE BLIJ, FONDS 1818
Executive Summary
over the past decade , a diverse range of European foundations ing and points foundations to high-quality resources for further
have successfully adopted sustainable and responsible investment investigation. It makes a candid assessment of the obstacles that
(SRI) approaches in managing their capital endowments. Recent- currently hinder the adoption of SRI and impact investing at
ly, foundations have also expanded their philanthropic toolset by foundations and offers information for foundations to gain confi-
devoting a portion of their assets to impact investments, which dence that a well-designed investment policy incorporating these
prioritize social returns above financial returns. While their ap- elements is a realistic, financially-sound option. The report also
proaches differ, these foundations all believe that their investments describes how foundations might practically implement the deci-
can enhance the pursuit of their mission. The experiences of these sion to invest their capital endowments under SRI and impact
leading foundations can offer valuable guidance to those consider- investing principles.
ing SRI or impact investments of their own. The core of the report, however, consists of eight individual
360-degrees for Mission aims to spark the interest of Europe- case studies of innovative European foundations in the field.
an foundations in the opportunities offered by SRI and impact These foundations represent a wide range of sizes, institutional
investments to advance their mission using the full spectrum of heritages and geographic locations, and therefore show diverse ex-
foundation resources. Ultimately, the report should support the amples of sustainable investment. Combining personal reflections
work of existing platforms, such as the EFC Social Investment with detailed information on the development of their investment
Group, and the creation of new initiatives aimed at connecting strategies, the case studies provide a window into some of the most
foundations that currently make SRI and impact investments with successful European foundations in the area of SRI and impact
foundations that are interested in developing that capacity. investment. While each of these foundations emphasizes different
The report clarifies the concepts of SRI and impact invest- aspects of their stories, some common themes were apparent:
6 | MISTRA FOUNDATION
KEY MESSAGES FROM THE STUDY
1. There are a diversity of SRI approaches that can fit 9. Most foundations approach environmental, social,
any foundation’s requirements and governance (ESG) issues from an investment
management point of view and are not aware of
2. SRI is financially viable. If carefully implemented it the possibility to vote their shares or engage with
does not lead to lower returns or higher risk, as companies (active ownership). If they are aware
shown by academic research and foundations that of this approach, they often believe they are too
have invested successfully this way for several years. small to make a difference. Here, a way to pool
foundations’ ownership activities and lower trans-
3. The argument that SRI destroys returns is losing action costs would be helpful.
ground. The main barriers are the lack of internal
know-how/resources and the perceived low efficien- 10. Foundations currently have a window of oppor-
cy (small contribution to mission compared to the tunity to deploy their program-related expertise
time/cost invested relative to the grant-side). Here, in the formative stages of the impact investing
collaborations between foundations, the use of um- industry and forge investment products suited
brella foundations and joint fiduciary management to their needs. Linking grant making expertise to
platforms can play an important role in lowering impact or SRI investing taps a foundation’s most
costs and resource needs. valuable resource.
4. There is a new, younger generation of foundation 11. While it is relatively easy to implement SRI, im-
staff that is more in-tune with SRI and is more willing pact investing is much more challenging. New
to experiment new approaches. It is often the staff products need to be developed and seeded, and
that takes the lead in proposing an SRI approach. investments require private-equity type due-
diligence work. Here it is crucial that foundations
5. Perceived reputation risks are an important trigger collaborate and share resources to lower transac-
for introducing SRI. An active media and/or legal tion costs. A European platform for this would be
reporting requirements increase the likelihood that helpful.
foundations will adopt SRI.
12. National sustainable investment forums (SIFs) and
6. Take a step-by-step approach to introducing SRI. the Principles for Responsible Investment initiative
Foundations can start with a modest approach, provide services and resources to foundations,
which considerably lowers initial barriers. Learn by often for free. At the same time, national founda-
doing, but also be patient. tion associations should play a more active role
in disseminating know-how about the use of SRI
7. In private foundations, a new, younger generation and impact investing at foundations.
of endowers is very open to considering SRI if it is
available as a standard, easy-to-implement op- 13. Communicating about its SRI and impact invest-
tion. This is an opportunity for banks, advisers, and ment approach multiplies a foundation’s impact.
umbrella foundations to offer such solutions and
thereby differentiate themselves. 14. Leading foundations support research and
awareness-building initiatives aimed at improving
8. There is a new awareness that negative screening the understanding and quality of ESG integra-
alone will not change the world. For foundations it tion in the financial sector. The last financial crisis
is important to contribute to positive change in line showed that helping the financial sector become
with their mission (e.g. through best-in-class, the- more sustainable is an imperative for our socie-
matic, integrated or impact investment approaches) ties. Foundations should contribute to this goal.
MISTRA FOUNDATION | 7
CHURCH OF SWEDEN
MISTRA
DREILINDEN
FONDS 1818 DBU
FRIENDS PROVIDENT
FONDATION DE LUXEMBOURG
FONDAZIONE CARIPLO
8 | MISTRA FOUNDATION
“Impact investing opened up the foundation. Now we
are engaged in the market in new ways and talking to
people we would never have met otherwise.”
DANIELLE WALKER PALMOUR, FRIENDS PROVIDENT FOUNDATION
The report concludes by proposing practical next steps for readers
interested in pursuing SRI and impact investing at their foundation.
Most significantly, foundations are invited to participate in initiatives
at the national and European level aimed at sharing the know-how
and resources as a basis for implementing SRI and impact investing at
their institution.
The time is right for foundations to seize the opportunity provided
by SRI and impact investing to advance their overall mission. The les-
sons contained in this report show how this can be done in a way that
is tailored to the goals of any foundation.
MISTRA FOUNDATION | 9
“Should a private foundation be more than a private
investment company that uses some of its excess cash
flow for charitable purposes?”
– THE F.B. HERON FOUNDATION3
I.
Introduction
europe ’ s tradition of institutional phi- financial returns and their grant making
TWO KEY TERMS: lanthropy dates back to the Middle Ages, generates social impact. In this classical
• Sustainable and responsible investment and today foundations occupy an impor- formulation, only programmatic grant-
(SRI) – an approach to investing that takes tant place in civil society. There are over making contributes directly to the founda-
into account the long-term economic, envi- 100,000 public-benefit foundations in tion’s mission. Investment teams serve the
ronmental and social risks and opportunities Europe, which distribute roughly €100 mission by securing and maximizing the
facing the global economy and the ethical billion per year to charitable causes.1 Capi- funds available for grantmaking.
priorities of an investor. This can take a variety tal endowments, entrusted to foundations The traditional division between in-
of forms, from excluding investments in com- by individuals, families, companies or vestment and impact, however, neglects
panies that violate basic international norms
public entities, generate much of the in- the opportunity to use synergies between
to integration of environmental, social and
governance (ESG) factors in investment analy-
come that supports this giving. European the finance and grantmaking sides. In any
sis and company engagement. Sustainable foundation endowments collectively rep- year, a foundation will spend about 5%
and responsible investing seeks competitive resent an estimated €1 trillion in capital, of its available capital on program grants
financial returns. Though constantly evolving, invested across all asset classes.2 and operations, while 95% will be rein-
SRI is a well-established discipline with a The stability and continuity of a foun- vested for the future. That 95% in the
track record of implementation at major dation’s philanthropic activities depends capital endowment represents a signifi-
financial institutions around the world.4 on the successful management of these in- cant untapped resource for a foundation
• Impact investment5 – actively provid-
vestments. Foundations have historically to extend its mission and program. While
ing capital to enterprises and funds that viewed their own operations in two dis- investments can never replace the role of
contribute to defined social goals and at tinct sections: their investments generate grantmaking, they can and do have a so-
least return nominal principle to the investor.
Foundation capital under SRI and impact Foundation capital under traditional
Impact investors are willing to relax expecta-
investing approach
tions for risk-adjusted returns in exchange for
substantial and tangible social impacts. While vs.
innovation in this discipline has been going
on for decades, impact investing is a relatively
new field and only in recent years have cen- SRI Impact Investments Grants Traditional Investments Grants
tres of coordinated activity and international
standards begun to develop around this
emerging type of investment.6
Social Impact Social Impact Social Impact Social Impact
1 Max Planck Institute for Comparative and International Private Law and the Centre for Social program-related investment, blended value investment, etc. In general, all describe investments
Investment at the University of Heidelberg, “Feasibility Study on the European Foundation that prioritize social returns over financial returns. These terms are clarified in: Monitor Institute,
Statute”, 2007. “Investing for Social and Environmental Impact” (2009), and on the website www.moreformis-
2 ibid., Note: Estimates for foundation assets span a wide range, from €350 billion to €3 trillion. sion.org.
3 The F.B. Heron Foundation, “New Frontiers in Mission-Related Investing”, 2003. 6 J.P. Morgan, “Impact Investments: An emerging asset class”, 2010. This report estimates that
4 Krosinsky, C. and Robins, N., eds. Sustainable Investing. London: Earthscan, 2008. the value of impact investments will grow to over $400 billion by 2020 and calls on capital
5 “Impact investment” here stands for a collection of terms with related but slightly different markets to create investment vehicles to facilitate this growth.
meanings: social investment, mission-related investment, mission-connected investment,
10 | MISTRA FOUNDATIONObstacles to SRI and impact investing at foundations
FINANCIAL CONCERNS LACK OF INFORMATION AND SUPPORT INSTITUTIONAL CAPACITY OTHER
• Fear of reduced investment returns • Lack of awareness among • Investment process is outsourced • Orthodox division of investment
foundations and asset managers of (esp. small foundations) and charitable activities
• Belief that SRI conflicts with appropriate opportunities
trustees’ fiduciary duty • Desire to preserve manpower for • Program staff fear loss of
• Lack of information sharing and program work importance
• Investment managers reluctant to networking
explore SRI • Board lacks knowledgeable financial • Reluctance to change long-held
• Belief that SRI is more resource- advisor investment policy
• Preference for passive investment intensive
approach to preserve focus on core • Trustees lack relevant training • Feeling that the foundation is
activities • Confusion around terminology already de facto impact investing by
• Lack of competence to monitor operating social enterprises such as
• Limited number of impact • Lack of effective evidence of social impact of investments hospitals, schools, etc.
investment opportunities impact
• High transaction costs of impact
investments
cial impact. Without jeopardizing the fi- impact investing? Despite their dedication Addressing Financial Concerns
nancial performance of their investments, to the common good, evidence shows that SRI strategies have been shown by aca-
foundations can look to invest their mon- foundations currently lag other asset own- demic and applied research to reliably
ey in ways that maximize the overall con- ers in implementing sustainable investment deliver financial returns comparable to
tribution to society. practices. There are several reasons why mainstream investments. On balance,
There is no single approach to SRI or foundations may hesitate to adopt SRI and research on using environmental, social
impact investing. As the case studies in impact investing. Some of these issues can and governance (ESG) analysis in finan-
this report will show, foundations imple- be addressed simply through improved un- cial decision making has established that
ment SRI and impact investments in a derstanding of the concepts, while others this practice has a neutral or even positive
diversity of ways suited to their own pur- call for more substantive remediation. In impact on returns. Summarizing 36 peer-
poses. One foundation may wish to avoid general, fears over financial impacts, lack of reviewed studies from 1995 to 2009, the
investing in companies that contribute information, and perceived or real lack of United Nations Environment Programme
to the social problems addressed in their capacity all hinder foundations from bring- Finance Initiative (UNEP FI) and Mer-
own mission. Another foundation may ing sustainable investment principles into cer Investment Consulting found that
feel that preferential investment in ESG-
aware companies drives business in gen- “We have the strong belief that sustainable investments
eral toward more sustainable practices.
Motivations can range from enhancing in responsible companies generate better performance
financial returns to reducing reputational
risk. There are numerous ways to design
in the long run”. – ANDERS THORENDAL, THE CHURCH OF SWEDEN
a sustainable investment approach fit to a
foundation’s purpose, and just as numer- their asset management policies. 20 studies showed a positive relationship
ous reasons for a foundation to implement Further information and support can between ESG factors and financial perfor-
SRI and impact investing principles in address many, if not all, of these obstacles. mance, 13 showed a neutral relationship,
managing its capital endowment. While this report does not intend to make and 3 showed a negative relationship.7, 8
a point-by-point response to the above list, These academic studies came from univer-
II. Overcoming Obstacles to Implementing it will highlight some key facts that should sities such as Princeton, UPenn Wharton,
SRI and Impact Investment be useful in moving forward with SRI and NYU Stern, and Erasmus University Rot-
Why, then, are most foundations not act- impact investing. It also will direct readers terdam. While the future financial advan-
ing on the opportunities offered by SRI and to better resources where possible. tages of any investment strategy can never
7 UNEP Finance Initiative and Mercer, “Demystifying Responsible Investment Performance”, 2007.
8 Mercer, “Shedding Light on Responsible Investment”, 2009.
MISTRA FOUNDATION | 11affect shareholder value is beyond doubt.12
“Integrating ESG considerations into an investment Given the materiality of ESG issues, any
analysis so as to more reliably predict financial perfor- definition of “fiduciary duty” should allow
for their consideration. A 2005 report on
mance is clearly permissible and is arguably required” fiduciary duty by the international law firm
Freshfields Bruckhaus Deringer established
– FRESHFIELDS BRUCKHAUS DERINGER ON FIDUCIARY DUTY
this position by finding that, “integrating
ESG considerations into an investment
analysis so as to more reliably predict finan-
be proven absolutely, there is enough evi- integration can safeguard and enhance re- cial performance is clearly permissible and is
dence on SRI investments to show that turns”.11 arguably required”.13 UNEP FI built on the
reasonable investment strategies will per- The mechanisms that translate ESG rat- work of Freshfields by publishing a 2009
form at least in-line with status quo op- ing into investment results are as complex report that focuses on the legal considera-
tions. and varied as any other mechanism linking tions of implementing ESG analysis in an
Companies with high ESG ratings have, company fundamentals to security perfor- institution’s investment process.14 The anal-
for example, been shown to outperform mance. For example, ESG ratings are of- ysis conducted by these experts clarifies that
those with low ESG ratings. Long time se- ten understood as a proxy for management trustees may freely consider SRI options in
ries of data, such as the Dow Jones Sustain- quality. In this formulation, companies with managing their foundations’ capital endow-
ability Index (DJSI), which was launched strong ESG performance generally have ments.
in 1999, show how a consistently applied management teams with a strong under- However, even if foundation trustees
ESG methodology could have predicted a standing of the long-term strategic issues in become comfortable with the investment
significant performance gap between the their industries. Or, ESG ratings can be un- case for SRI and recognize that such a pol-
best and worst rated companies.9 derstood to signal risk exposure. In today’s icy would be consistent with their fiduci-
There are numerous studies that indi- business world, some of the most financially ary duty, they may still hesitate to enter a
cate a performance advantage for SRI. significant developments for a company “niche” area they see as having limited in-
In the context of making the investment can arise externally in the actions of regu- vestment options. In fact, SRI is already a
case for SRI to foundations, the PRIME lators, consumers, suppliers, employees or large field. In Europe alone, an estimated
Toolkit produced by the Bellagio Forum media. A company that shows responsible €5 trillion in assets are managed under SRI
for Sustainable Development cites evi- management of its ESG profile is less likely strategies.15 Globally, there are over 2800
dence of the most sustainable companies to be adversely affected by sudden external public SRI funds offered by over 430 invest-
outperforming their industry peers.10 developments. There are many ways to un- ment managers, with some of the financial
Also aimed at foundations, a report by derstand how a company’s environmental, industry’s leading firms among their ranks
the EIRIS Foundation / UKSIF Char- social and governance conduct can impact (e.g. Goldman Sachs Asset Management,
ity Project (www.charitysri.org) concludes investment performance, but the fact that HSBC Global Asset Management, JP Mor-
that “there is growing evidence that ESG such extra-financial factors can and often do gan Asset Management).16 There are prod-
SUSTAINABILITY CAN OUTPERFORM
Cumulative Log Outperformance in %
NAMING AND SHAMING Source: SAM
15 Portfolio 1 – Sustainability Leaders
(Top 20%)
In December 2010, a member of the Portfolio 5 – Sustainability Laggards
10 (Bottom 20%)
Dutch Parliament called for an annual
“naming and shaming” of charities and 5 Benchmark: Companies rated on the
basis of the SAM Corporate Sustainability
foundations that fail to invest responsi- 0
Assessments
bly. The proposal came after a television Metric: Total sustainability score
-5 (economic, environmental, and
program exposed a number of contro- social criteria)
versial investments held by prominent -10 Source: SAM
Past performance is no indication of
foundations in the Netherlands. -15
future results.
2001 2002 2003 2004 2005 2006 2007 2008
9 SAM Sustainable Asset Management AG, “Alpha from Sustainability”, 2009. 13 Freshfields Bruckhaus Deringer “A Legal Framework for the Integration of Environmental,
10 Bellagio
Forum for Sustainable Development and Eurosif, “PRIME Toolkit: Primer for Responsi- Social and Governance Issues into Institutional Investment”, 2005.
14 UNEP Finance Initiative Asset Management Working Group, “Fiduciary Responsibility: Legal
ble Investment Management of Endowments”, 2006.
11 EIRIS Foundation Charity Project, “The value of environmental, social and governance factors and practical aspects
15 Eurosif, “European SRI Study”, 2010.
for foundation investments”, 2009.
12 UNEP
16 Data from Morningstar Direct
Finance Initiative Asset Management Working Group, “Show Me The Money: Linking
Environmental, Social and Governance Issues to Company Value”, 2006.
12 | MISTRA FOUNDATIONFOUNDATION SRI AND IMPACT
INVESTMENT IN THE UK
The United Kingdom occupies a unique place
among European countries due to the multi-
tiered endorsement it gives to SRI and impact
investment at foundations. The Charity Com-
mission, the legal body that regulates charities
and foundations in England and Wales, requires
that all foundations subject to statutory
audit and holding material investments must
disclose their “investment policy and objectives,
including the extent to which social, ethical
or environmental considerations are taken
into account”. 17 While this does not obligate
foundations to invest in a certain way, it never-
theless creates an indirect expectation for SRI.
Regarding impact investments, the regulations
similarly call attention to their availability as
a tool, saying, “where social or programme
related investment activities are material in the
context of charitable activities undertaken, the
policies adopted in making such investments
should be explained”.18
Below the level of regulations, UK best
practice organizations provide foundations with
guidance that actively encourages the adoption
of SRI policies. The Charity Finance Directors
Group is an umbrella organization that draws
members from the entire UK non-profit sector.
ucts in all major asset classes following both Accessing Information and Support to In 2009 and 2010 it issued papers aimed at
active and passive approaches, to say noth- Strengthen Institutional Capacity helping the increasing number of UK trustees
that are considering or implementing SRI
ing of private investment funds and individ- Above all, this report aims to provide
policies.19,20 In the second of these reports
ual mandates customized for specific clients. foundations with information that will it collaborated with the EIRIS Foundation, a
In short, foundations interested in SRI will enable them to place their capital endow- UK foundation that supports ethical invest-
have sufficient choice among investment ments in SRI and impact investments. ment. EIRIS, together with UKSIF, has recently
options to create a successful investment The case studies presented here are a new launched the website www.charitysri.org to
strategy. source of such information, but there are encourage and assist foundations in developing
Impact investing, admittedly, is not as also important existing supports for foun- SRI approaches in their investments.
mature a field and generally entails higher dations wishing to engage in sustainable The support system in the UK has produced
transaction costs than SRI. It is important investment. a situation where over 60% of larger founda-
tions have an SRI policy and 91% of the public
to recall, though, that impact investments
feel that foundations should be investing their
do not target market-rate returns. Even fully • The European Foundation Centre Social money in a socially responsible way.21 The UK
implemented, they often represent only Investment Group is a platform for learn- is home to some of the most well-respected
a minor fraction (typically less than 20%, ing and collaboration among foundations foundation SRI and impact investors, such as
and more often less than 10%) of a foun- active in the impact investment area. The the Joseph Rowntree Charitable Trust, The
dation’s portfolio. As the case studies in this group holds regular meetings to discuss re- Tudor Trust, Friends Provident Foundation and
report will show, however, there are intelli- cent research and explore opportunities to the Esmée Fairbairn Foundation. As a whole,
gent ways for a foundation to pursue impact improve the impact investing field, such as the country is a good example of practical ac-
investments by drawing on the support of through the creation of new investment ve- tions that can advance sustainable investment
among foundations.
others. hicles or reporting standards.
Charity Commission, “Accounting And Reporting By Charities: Statement Of
17 The
Recommended Practice”, Paragraph 55, Section d, 2005.
18 ibid., Paragraph 50.
19 CFGD, “Unlocking Socially Responsible Investment”, 2009.
20 CFDG and EIRIS Foundation, “Socially Responsible Investment: A practical introduction
for charity trustees”, 2010.
21 ibid.
MISTRA FOUNDATION | 13• The Bellagio Forum for Sustainable De- of hands on engagement with beneficiary nificantly accelerate the adoption of SRI
velopment is a network of primarily Euro- charities with the use of innovative financ- and impact investing at foundations. By
pean foundations and other grantmaking ing mechanisms to complement grants. providing comprehensive access to the lat-
organizations that focuses on partnership These initiatives provide valuable resources est information and structuring interactive
opportunities in the field of sustainable for European foundations, especially in support mechanisms, such a knowledge
development. Significantly, the Bellagio the area of impact investing. An American sharing platform would help foundations
Forum in collaboration with Eurosif, the initiative, More for Mission, provides infor- gain confidence in their capacity to transi-
European Social Investment Forum, pro- mation and support for foundations align- tion their assets into investments that con-
duced the PRIME Toolkit, which out- ing their investment portfolios with their tribute to their mission.
lines the importance of SRI investment at philanthropic goals, both in financially ori-
foundations and offers an implementation ented SRI investments and socially oriented III. Implementing SRI and Impact Investing
guide. impact investments. The website www. SRI is a well-established, financially sound
moreformission.org contains detailed infor- investment approach, and impact investing
• The European Venture Philanthropy mation on how foundations can adopt, im- is a fast-emerging discipline with an already
Association (EVPA) is a group of founda- plement and monitor “mission investing”. robust support infrastructure. Together,
tions that engage in the variant of impact More for Mission receives support from 87 they offer foundations a further way to put
investing called venture philanthropy, U.S. foundations with assets of $31 billion. their values into action. But what should
which combines the private sector model A similar initiative in Europe could sig- trustees do if they accept these proposi-
Resources for SRI and impact investment
SRI IMPACT INVESTMENT
IMPLEMENTATION RESOURCES
• CFDG and EIRIS Foundation, “Socially Responsible Investment: A • Rockefeller Philanthropy Advisors, “Solutions for Impact
practical introduction for charity trustees”, 2010. www.charitysri. Investors: From Strategy to Implementation”, 2009. www.
org/homearea/documents/Charitytrusteetoolkit2010.pdf rockefellerfoundation.org
• Bellagio Forum for Sustainable Development and Eurosif, “PRIME • Rockefeller Philanthropy Advisors, “Philanthropy’s New Passing
Toolkit: Primer for Responsible Investment Management of Gear: Mission-Related Investing. A Policy and Implementation Guide
Endowments”, 2006. www.eurosif.org/sri-resources/prime-toolkit for Foundation Trustees”, 2008. www.rockefellerfoundation.org
INTERNATIONAL STANDARDS AND NETWORKS
• United Nations-backed Principles for Responsible Investment • The Global Impact Investing Network (GIIN) – www.thegiin.org -
(PRI) – www.unpri.org - This framework of investment principles This non-for-profit organization was founded in 2009 to be a forum
was established in 2006 to help investors achieve better long- for identifying and addressing the systemic barriers that hinder the
term investment returns and create sustainable markets through impact investing industry’s efficiency and effectiveness. It develops
better analysis of ESG issues in investment process and the standards, organizes knowledge sharing activities, and distributes
exercise of responsible ownership practices. emerging research in the field of impact investing.
The network includes over 800 institutional investors representing
$22 trillion in assets. • Social Capital Markets (SOCAP) - www.socialcapitalmarkets.net –
Runs a series of events connecting foundations, social entrepreneurs,
investors and other institutions involved in impact investment.
• Take Action! - http://www.takeactionforimpact.com – Annual
conference for impact investors focused on “premium or above
market returns”.
14 | MISTRA FOUNDATIONtions? There are several valuable resources • Best in class – ESG metrics are used to de-
for foundations considering this question, termine the sustainability performance of ACTIVE OWNERSHIP
which provide detailed suggestions on how companies relative to their industry peers. On top of using ESG information in invest-
to structure a process to bring SRI and/or For each industry group, the sustainability ment management, an investor can also
impact investments into a foundation. leaders are selected for investment, pro- conduct a further SRI activity known as “ac-
vided they meet the financial requirements tive ownership”, which consists of engage-
Types of SRI of the fund manager. This allows funds to ment and share voting. Working directly with
Before starting the implementation pro- preserve a sector weighting that is compara- companies, or through an external partner
cess, it is first important to understand the ble to their mainstream benchmark. offering engagement services, investors can
different investment approaches that fall use dialog to address ESG concerns and pro-
under the rubric of SRI: • ESG Integrated and Thematic Funds pose constructive solutions. Equity investors
– In this approach, no division between can also participate in shareholder resolutions
• Screening – Negative screening excludes ESG analysis and financial analysis exists. and vote their shares in annual meetings or
companies from the investment universe ESG metrics and outlooks are analyzed via proxy. Ultimately, investors reserve the
whose activities relate to an unaccepta- alongside traditional company funda- right to disinvest from companies that are
ble degree to defined industries (e.g. to- mentals as another critical driver of long- non-responsive to their concerns.
bacco) or whose scores on certain ESG term value. Thematic funds are a subset A 2010 report by the Nathan Cummings
metrics fail to pass a defined threshold of the ESG integrated approach, in that Foundation, entitled “Changing Corporate
(e.g. avoidance of child labour). Positive they start from the premise that certain Behavior through Shareholder Activism”
argues that foundations should maximize
screening actively selects companies into ESG challenges will create investment op-
their financial resources by practicing the
an investment universe based on passing portunities (e.g. water scarcity), and then
active ownership disciplines of engagement
a certain ESG threshold. In both cases, look to make investments in companies
and proxy voting. Like using ESG information
the screens limit the available investment who are correctly positioned to either cre-
in investment management, active ownership
universe. Fund managers then choose in- ate solutions to or avoid the consequences furthers a foundations mission and looks to
vestments based on traditional financial of these issues (e.g. desalination technol- preserve long-term value.
considerations. ogy firms).
MISTRA FOUNDATION | 15IV. Designing an Implementation Process
Communicate Decide Direct internal /
Clarify investment Formulate Monitor Participate in
with investment implementation external resources
objectives and investment investments knowledge
advisors and approach- to implementation
relation to mission policy sharing
managers
In general, the process aimed at imple- which case the foundation and its advisors
menting SRI or impact investments is a must determine whether these meet its re-
combination of internal dialog and ac- quirements. If they do not meet the foun-
tion, external communication and work- dation’s requirements, or if a manager has
ing with service providers. Once a foun- no SRI or impact investment capabilities,
dation becomes interested in adopting the foundation should determine whether
SRI or impact investing it should discuss that manager would and could develop
the idea in a meeting of trustees and key that capacity. Again, external advisors
staff. This discussion should aim to clarify can help here. Alternatively, if a founda-
the objectives of any potential investment tion determines that it must change asset
policy and articulate how they fit within managers to comply with its investment
the overall mission of the foundation. policy, it should conduct a thorough
With this sense of purpose in hand, the manager search and interview managers
foundation should assess what resources it on questions related both to ESG analy-
has in-house that could be used to devel- sis and traditional investment practices.
op the desired investment policy. Often, Impact investments may take the form
foundations will have good expertise in of investments in funds or direct invest-
certain areas, but will need external help ments that do not go through managers,
on specialist topics, such as the evalu- in which case the foundation will have to
ation of SRI managers or the linking of develop this capacity in house, possibly
program knowledge to impact investment leveraging the expertise and resources of
due diligence. Using external help where other organizations active in the impact
needed, the foundation should formulate investing space.
a general investment policy, which the in- Importantly, after a foundation makes
stitution should then communicate to its its investments, it should monitor them
investment managers and ideally publish for financial and social performance and
in its annual report or its website. ongoing compliance with the SRI and im-
After (or in the process of ) formulating pact investment policy. This can be inte-
a high-level policy, the foundation should grated with an active ownership strategy,
start a dialog with its existing asset man- where problematic investments can be
agers to assess their willingness and ability addressed through company engagement. V. Case Studies of European Foundations
to offer investment solutions in line with Finally, a foundation that determines to The following case studies showcase Euro-
the foundation’s goals. Here, foundations adopt SRI or impact investing in its capi- pean foundations that have been through
may use investment consultants that have tal endowment should participate in the the process of adopting SRI or impact in-
a view across many asset managers that ongoing dialog on these topics, by joining vesting principles and that wish to com-
offer sustainable investment solutions. relevant networks or groups and by com- municate their learning experiences to
Many managers will have access to SRI municating its experiences for the benefit others considering the same journey. We
products and to impact investments, in of others. selected these eight because they reflect
16 | MISTRA FOUNDATIONA sample investment policy:
FRIENDS PROVIDENT FOUNDATION
(excerpt from 2010 Annual Report)
Ethical Investment Policy (SRI)
The Foundation’s investment policy reflects
its continued commitment to ethical invest-
ment approaches. Our funds are in ethically
screened funds to ensure that activities such
as tobacco, armaments and gambling, and
investments in companies and products
which could harm civil society or adversely
impact the name and reputation of the
Foundation are avoided. Furthermore, as
more opportunities arise to pursue a posi-
tive ethical investment approach that deliv-
ers market rates of return, the Foundation
will consider those investments as appropri-
ate, balancing the need for diversification
and minimizing management fees.
Social investment policy
(Impact investment)
Trustees have agreed that up to 5% of
the investible funds could be invested into
instruments to which the Foundation’s
general charitable objectives and specific
programme aims could be applied. The pri-
mary aim of social investments is to pursue
the Foundation’s broad charitable objectives
and focused programmatic objectives using
financial instruments other than grants. The
secondary aim of social investments is to
produce a financial return. Trustees are pre-
pared to consider accepting a higher level
of risk or a lower level of financial return
than the market norm, especially for those
social investments that are closely aligned
with the Foundation’s specific programme
the diverse landscape of European foun- their leaders have thoughtfully examined aims. For investments that generate broader
dations generally. They are spread geo- what it means to invest in line with their positive social impact and meet the Founda-
graphically across six countries; they range principles. We hope the factual informa- tion’s general charitable objectives but
in size from €37 million to €7 billion; and tion and candid views expressed in these without specific alignment with programme
they come from a variety of organizational case studies spur other foundation leaders aims, trustees might look for levels of risk
traditions spanning privately-endowed to to the same reflection. and return that are closer to the benchmark
state-funded. Most importantly, though, for that asset class.
we selected these foundations because
MISTRA FOUNDATION | 17CASE STUDY TABLE OF CONTENTS
Dreilinden....................................................... 20
Fondazione Cariplo......................................... 22
Fondation de Luxembourg.............................. 24
Church of Sweden.......................................... 26
Fonds 1818..................................................... 28
Deutsche Bundesstiftung Umwelt (DBU)........ 30
Friends Provident Foundation......................... 32
CHURCH OF SWEDEN
Mistra............................................................. 34
MISTRA
DREILINDEN
FONDS 1818 DBU
FRIENDS PROVIDENT
FONDATION DE LUXEMBOURG
FONDAZIONE CARIPLO
18 | MISTRA FOUNDATIONCase Studies Overview
FOUNDATION ENDOWMENT SIZE TYPE
Fondazione Cariplo Private (banking origin)
DBU Private (publicly funded)
Church of Sweden Faith-based
Fonds 1818 Private (banking origin)
Mistra Independent public
Fondation de Luxembourg Umbrella foundation
Dreilinden Private / family
Friends Provident Private (corporate origin)
0 1 000 2 000 3 000 4 000 5 000 6 000 7 000
( in millions)
Our wide-ranging tour of foundations begins in Germany with 1818 is an open account of testing and exploring different sustainable
dreilinden , a small but powerful example of a foundation using every investment options, and demonstrates the importance of communica-
investment tool possible to further its mission. Next, we move south to tion with the broader community. the deutsche bundesstiftung um -
present the large foundation cariplo , which has used the weight of its welt ( dbu ) reinforces this need to contribute to the sustainability di-
leadership to establish an investment platform exclusively for other alog, and shows how another multi-billion euro foundation is taking a
foundations, and which supports one of the largest impact investing pragmatic approach to adopting SRI. In England, a traditional strong-
programmes in Europe. The case of fondation de luxembourg provides hold of sustainable investment in Europe, friends provident founda -
an excellent example of an umbrella foundation that sees SRI as an tion has adopted a creative, integrated approach to impact investing
opportunity to better service its clients, while the church of sweden that has vastly magnified the presence of this small foundation. For
makes the case for an SRI style that looks for investments that positively our final study, we return to Sweden to showcase mistra , one of the first
contribute to sustainable development. The story of the dutch fonds fully SRI invested foundations in Europe and the sponsor of this report.
SRI APPROACH INVESTMENTS BY TYPE
Best-in-Class /
Negative Screening Positive Screening Thematic Funds ESG Integration Active Ownership Impact Investing Traditional Investments SRI Impact Investments
Fonds 1818
Friends Provident
Fondazione Cariplo
Dreilinden
Church of Sweden
Mistra
Fondation de Luxembourg
DBU
0% 20% 40% 60% 80% 100%
MISTRA FOUNDATION | 19Foundation description
Mission To empower women and sexual minorities and support the mainstreaming
of gender issues
Private / family foundation
Type Private / family foundation
Key data % of assets in:
Total assets €39 million SRI 83%
SRI investor since 2006 Impact investments 17%
SRI and impact investment activity
Goal of SRI / impact investment Dreilinden uses SRI and impact investments to support its mission on mul-
activity tiple levels. It targets a 4% annual return on investment, which comes from
DREILINDEN lower-yielding (0.5-1.5%) impact investments mixed with public market
SRI investments. These SRI investments have outperformed their equity
and fixed income benchmarks since the launch of the foundation in 2006.
Brief description of SRI and The foundation invests 41% of its capital in equities and 42% in bonds, all
impact investment activity of which are screened on customized SRI criteria based on the foundation’s
mission. 17% of capital goes to impact investments in funds supporting mi-
crofinance, base of the pyramid SMEs, and independent media enterprises.
Organization and process For the SRI portion of Dreilinden’s assets, the foundation works with a
specialist SRI rating agency to develop an investable universe of issuers.
The agency provides data regarding the sustainability performance of issu-
ers and Dreilinden inserts a customized weighting of those metrics based
on the foundation’s overall objectives. Issuers that score high in areas such
as gender equality and human rights are more likely to be included in the
investable universe. This list is passed on to the foundation’s asset manager,
which applies traditional financial analysis to select individual securities
and has discretion as to the timing of trades. The board regularly reviews
and challenges the list.
The foundation generates impact investment opportunities through
personal knowledge of the space and performs risk assessment and finan-
cial due diligence on each opportunity. These investments aim to contrib-
ute directly to the foundation’s mission, and Dreilinden regularly works
with fund managers to improve impact.
Innovative features Despite being a relatively small foundation, Dreilinden achieves an out-
sized impact through its hands-on approach to sharing its specialist knowl-
edge in areas such as gender issues, human rights and monitoring social
impact with fund managers and other investors.
Plans for the future Dreilinden is working with ratings agencies to integrate the leading stand-
ards on gender issues in company ratings.
Most important recommen- Use your specialist knowledge. Your foundation likely has expertise that the
dation to other foundations investment community will value and that will enable your foundation to
create investment opportunities that directly further your mission.
20 | MISTRA FOUNDATION“What I was most interested in was not just to follow the
patterns that other people had laid around impact invest-
ing but really to look what it meant for the mission state-
ment that we have at Dreilinden”. –ISE BOSCH
A CONVERSATION WITH ISE BOSCH, FOUNDER
ise bosch has been a sustainable investor for foundation’s expert input on ways to improve 2006, Dreilinden’s only portfolio change has
almost 20 years. Starting in 1990, she began social monitoring with simple but effective been to increase the share of impact invest-
putting her personal and family money into gender equality measures. Moreover, the ments from 14% to 17% Otherwise their
SRI, and in 2006 she founded Dreilinden for other investors in these private funds, which strategy has been constant, which will provide
the express purpose of making investments often are much larger organizations, look a reliable benchmark to consider improve-
that improve the lives of women and girls. to Dreilinden as a source of knowledge on ments in the future.
Thanks to the deep experience of Ise Bosch women’s issues. The foundation also engages In the future, Dreilinden expects more
and the Dreilinden board, the foundation’s the broader investment community through options to become available for foundations
€39 million capital endowment creates im- its membership in the PRI. Dreilinden thus seeking to make investments that advance
pacts on a scale normally reserved for much has a significant influence on how the finan- their core values. Notably, impact invest-
larger entities. This happens because of—not cial sector addresses gender inequality. ing will become mainstream and products
in spite of—the high customization Dreilin- Nevertheless, Ise Bosch recognizes that will proliferate. This evolution will require
den demands from its investments. there are limits to the inclusion of Dreilin- key interventions and support from founda-
Dreilinden’s capital is divided between tra- den’s principles in investment decision mak- tions and intermediaries. Critically, national
ditional SRI investments in public securities ing. Despite working with rating agencies and foundation organizations can advance SRI
and impact investments in illiquid private fund managers to integrate mission-related and impact investing among their members.
funds. In both of these areas, the foundation metrics, the data and investment options in In Germany, for example, the Bundesver-
applies a tailor-made investment framework this area remain limited. The foundation has band Deutscher Stiftungen has offered free
that directly reflects its organizational values discovered that if it gives too much weight sustainability rating of member foundations’
and goals. In the SRI portion (83% of to- to human rights performance the investment portfolios from April 2010. At the same time
tal assets) Dreilinden selected an SRI rating universe shrinks to a financially unaccepta- however, national organizations that deal
agency to design company screens based on ble degree. Constantly pushing this bound- only with traditional foundations may be
a specific set of concerns and beliefs regard- ary, however, keeps Dreilinden at the cutting missing the experience of new grant making
ing gender equality and human rights. As a edge of the possibilities for gender empower- institutions that are organized under novel
result, the foundation preferentially invests in ment through investment. structures (such as Dreilinden). National or-
companies that take a progressive stance on Dreilinden’s knowledge-based engagement ganizations and foundations should raise this
women’s issues, to the extent that this can be with the investment community should en- issue as an important topic for discussion,
measured. In its impact investments (17% of courage other foundations to connect their and should look to foundations like Dreilin-
total assets), Dreilinden looks for funds that program expertise with their investment phi- den for examples of the highly customized
directly benefit women in developing coun- losophy. Currently this is a missed opportu- and mission-relevant investment strategies
tries. Such funds may consciously incorpo- nity according to Ise Bosch, who says that at that are available today to institutions of any
rate these values in their investment policy, most foundations “all the knowledge around size.
for example by requiring that a certain quota grant making is not connected to investment”,
of portfolio companies be led by women, or though this is “changing slowly”. Just as Recommendations to other foundations:
they may reach these same ends indirectly, for Dreilinden uses its knowledge of gender issues • Leverage your program expertise to find
example by enabling free media, which tends to improve the range and quality of investment and create highly-relevant investment op-
to have an outsized benefit on minority and options in this space, so could other founda- tions both in SRI and impact investing.
gender rights. tions leverage their own specialist knowledge
Drelinden’s expertise on gender issues al- to engage constructively as investors. • Be patient with your investment strategy
lows them to work with partners to create While enthusiasm and a desire for progress after you have designed it. This will allow
investment opportunities that advance the should motivate foundations who take up the you to make adjustments confidently after
foundation’s mission. Ise Bosch proactively challenge of SRI and impact investing, these 5-10 years of track record.
takes gender-relevant international standards impulses must not cause foundations to be-
to Dreilinden’s SRI rating provider and sug- come impatient in their investment strategy. • Express your interest in SRI and impact in-
gests ways they can become new metrics used “This is long term work” says Ise Bosch. “We vesting to your national organization, and
in SRI ratings. The fund managers of Dreilin- want to evaluate our strategy based on 5-10 then actively participate in advancing the
den’s impact investments also welcome the years of experience before changing it”. Since subject.
MISTRA FOUNDATION | 21You can also read
