posted on: Friday, August 03, 2007

In the past year alone, there have been dozens of news articles and opinion pieces on the topic of aligned investing and foundation investment policies, in both mainstream news outlets and sources focusing on philanthropy and the nonprofit section. As hot as the topic may seem to philanthropoids, many leaders actually doing the heavy lifting in nonprofits across the country may find it too arcane, or simply too far removed from the grant making practices of foundations. They might well think “sure, I support socially responsible investing generally, and I’m glad more foundations are looking at it, but how is that actually going to help the people I serve? To be honest, I’d rather have more grants.”

This is a serious consideration for an organization like NCRP that seeks to encourage more grantmaking to progressive organizations working in social and environmental justice, civil rights and community development, among others. How much energy should a group like NCRP put into advocating for more aligned investing by foundations?

The numbers tell the story. How foundations invest their money may be even more important than grants to low income and minority communities (if not to the grantees that serve them, however.) In 2005, private foundations in the U.S. gave $36.4 billion in grants, but they managed $550.5 billion in investments, according to Foundation Center. Even if they were to take only 5% of those funds into an aligned investment approach, that would be huge change. Further, depending on how aligned investment policies are structured, the majority of those $25 billion or more in funds – roughly 2/3 the total value of foundation grants - could be directed to investment in vitally important infrastructure and economic development in poor communities and threatened environments throughout the U.S. – in things like child care centers, preschools, affordable housing, transportation infrastructure, green development, and the like. In fact, the share of the aligned investment funds going to these causes may be much more than the share they currently receive of grant funds. Imagine what good could come if one of the screens foundations used was a preference for investment in low income areas, akin to what the Community Reinvestment Act sets forth.

Beyond the sheer numbers, several other things make the push for aligned investing a promising strategy to help vulnerable communities, and a smart one for groups like NCRP. First, there is already high momentum within the foundation community for it. Major funders like Ford, MacArthur, Rockefeller and Mott are already pursuing it. Second, unlike efforts to apply new standards to all foundations, most of the impact can come from changing the behavior of a small proportion of foundations – the top 100 foundations alone account for over $225 billion in assets, nearly half the total for all foundations, according to Foundation Center data. Third, this trend could bring some unusual allies into play - investment firms looking to offer aligned investment products may bring their power (and greed) to the debate (strange bedfellows, indeed) become allies of such a push (strange bedfellows), and may offset or overwhelm opponents.

Of course, “God is in the details”, and there are many thorny issues to be worked out. How to do aligned investing, how to measure it’s impact, and in the case of any legal or regulatory requirements, how to define what qualifies as aligned investing are very complex questions. We may not yet be ready to handle billions of dollars flowing in new directions, as Sean Stannard-Stockton cautions. That shouldn’t make us hesitate, though, to push for changes in tax law that might provide incentives to really increase that flow, as Lucy Bernholz, among others, has suggested. The financial markets are very fluid and respond well to demands for service from massive amounts of money – we shouldn’t worry that systems won’t adjust if aligned investing suddenly becomes the norm (wouldn’t that be a good problem to have?). Further, a tax or regulatory change may have the secondary effect, of legitimizing the aligned investing approach, and hand foundation staff some leverage to use in their internal debates with board members. In this way the monetary value of the incentive might be less important, though it must be real, not simply symbolic.

So perhaps the NCRP gloss on promoting aligned investing should be something like this: (1) we want to encourage funders to be as creative as possible in pursuing benefits for the vulnerable people NCRP cares about, (2) a key way we want to do that is by highlighting and praising those who do this well, and (3) tax and regulatory changes can offer important incentives both to reward those who do this well and encourage those who are hesitant. What do we think?

(For an excellent and concise overview of aligned investing strategies and the practical ways they may benefit low income communities, read this paper by Blueprint R+D and Monitor Consulting Group.)

Peter Manzo is an NCRP board member and the Director of Strategic Initiatives for the Advancement Project, a civil rights advocacy organization based in Los Angeles and Washington, D.C. pmanzo@advanceproj.org