In a sharp break from past practice, major charitable foundations are initiating or strengthening efforts to harmonize the social and environmental effect of their endowment investments with their philanthropic goals.
"A head of steam has been created around the issue of 'mission-related investing,' " said Douglas Bauer, senior vice president of Rockefeller Philanthropy Advisors, which consults with foundations. "More and more foundations are wrestling with the issue."
The $8.5-billion William and Flora Hewlett Foundation, based in Menlo Park, Calif., recently decided to vote shareholder proxies to reflect its charitable aims. When possible, Hewlett's investment choices also will be guided by effect upon society as a whole, not just financial gain. Endowment managers, the foundations said, "see the greatest investment promise in companies with enlightened managements that recognize that sustainable practices and sound employment policies are in the best long-term interest of their companies and shareholders."
The $6.1-billion John D. and Catherine T. MacArthur Foundation, based in Chicago, formalized a policy for voting shareholder proxies "to reduce or eliminate a substantial social injury caused by a company's actions."
The $7.8-billion W.K. Kellogg Foundation, based in Battle Creek, Mich., established a $100-million fund for social and mission-related investing in the United States and Africa.
"Few foundations have fully realized the potential of what is commonly referred to as 'double-bottom line investing,' " achieving both social and financial returns, said Sterling Speirn, Kellogg's chief executive, when he announced the fund in October. "We want to maximize our social return on the investment front."
The Kellogg Foundation will use the new fund to bolster grant support for needy children, families and communities, said Anne Mosely, vice president for programs. It might invest in education or supermarket development in distressed areas, or in programs to mitigate the sub-prime lending crisis, she said. If successful, the fund would be expanded.
To avoid paying most taxes, foundations generally give away about 5% of their endowments annually and invest the rest. Conventional approaches to fiduciary responsibility have considered endowments separate from charitable aims. Many trustees have avoided investing for social benefit for fear that returns would suffer.
