Mission Investing and Foundation Boards

What Boards Need to Know About Mission Investing

• Five Strategic Questions:–What is it?–Why do it?– Can we do it?–How do we manage it?–Where do we begin?

What is Mission Investing?• Mission Investing is a tool of

philanthropy• Two Components:– Targeted social (and/or environmental)

benefits– Targeted financial returns

• Integrated operations:– Program and finance

• PRIs, MRIs, and Mission Focus

Mission Investing and its Siblings

• Impact Investing: Broader Scope than Mission Investing, same targets (HNW, Family Office, Banks, Funds)

• Responsible Investing: Institutional in orientation; Environmental, Social, Governance; Long-Term in Focus (Pension funds, Endowments, Sovereign Wealth Funds)

• Social Investing: ESG + Values Alignment (Retail and Institutional Investors)

Mission Investing across Sectors: A few examples

• Community Investment: Targeted to low- and moderate income places and people

• Economic Development: Targeted to place, domestic and international

• Environmental Investment: carbon mitigation, land conservation, sustainable agriculture

• Health and Healthy Communities: healthcare provision, smart growth, health outcomes as measurement

• Arts: Support for arts generally, access to underserved communities

What Mission Investing looks like

• Add two relevant examples (to whom you are talking) here, with foundation doing the investment and vehicle through which they invest highlighted.

Why do Mission Investing?• Institutional Mission• A new tool in the toolbox:– Expanded resources internally– Leveraging resources externally– A new form of engagement with grantees,

policymakers and other stakeholders

• Donor Engagement• Value alignment• Total Philanthropy!

A famous quotation

• “Should a private foundation be more than a private investment fund that uses some of its excess cash flow for charitable purposes?”

State of the Field

• We don’t know

The Opportunity Set

• Mission investing across asset classes:– Banks and Credit Unions– Fixed income and loan funds– Public equities and shareholder engagement– Private equity, venture capital, and direct investing– Real estate and real assets

• How to find opportunities:– Trade associations– Databases– Conferences– Peers

Can we do mission investing?

• What’s needed internally:– Strategy and Process:

• Targets for mission investing• Building resources• Due diligence of opportunities• Board level review

– Capacity across functions:• Building a pipeline• Evaluating financial viability• Evaluating social return• Legal review; management and monitoring

Challenges to consider:• Agency issues:– Boards– Staff– Consultants–Managers– Grantee/Investees

• Mission fit and deal flow• Time horizons and management• Measuring impact

How do we manage mission investing?• Structure:– Board level oversight:• Sub-committee• Coordinating with Program and Finance

committees

– Investment Policy Statement• Clear targeting of priorities• Explanation of risk/return expectations

How do we manage mission investing?

• Process– Engaging Staff (and full Board)– Communication to stakeholders:• Engaging existing service providers• RFPs for new service providers• Identifying investment opportunities

– Due diligence/underwriting• Establishing benchmarks for social return• Reasonable assumptions about rates of

return

Some Questions to Consider• What resources?– Source of investment funds– Integrated approach vs. carve out

• How narrow the target?– Tight mission fit vs. bigger pipeline of

opportunities

• Who will manage?– Dedicated staff or new mandate for existing

programs?– Internal vs. external management of

underwriting and management

How do we start?• Internal Champions• Educate Board and Staff:– Scan the field (what other foundations are doing,

what is happening in impact investing)– Scan your own opportunity set (grantee pool,

place- and sector-based intermediaries and end users)

– Bring in practitioners– Present these findings to the board and to staff

• Dip your toe in the water (depositories are one relatively easy place to start)

What to watch out for• Investments that should be grants• Grantees that misunderstand that

investments are not grants• High transaction costs• Greenwashing

What can you hope for?• Better outcomes for people and

places• Better outcomes for grantees and

investees• More effective use of foundation

resources• Leveraging of other resources from

donors, foundations, anchor institutions, impact investors, etc.

• More knowledge about mission areas; new ways to engage stakeholders