Rhetoric About Impact Investing Outpacing Reality
Tuesday, 2nd June 2015 at 4:00 pm
A survey of US-based Chief Executives, including those from large private foundations, suggests that the rhetoric around impact investing seems to be outpacing the reality.
The research also shows that the proportion of dollars allocated to impact investing is still small.
The report – Investing and Social Impact: Practices of Private Foundations by the Centre for Effective Philanthropy – found a sizeable number of large US-based foundations (41 percent of respondents) are engaging in impact investing, but the median percentage of endowments going toward this practice is only two percent; the median percentage of program/grant budgets going toward it is even lower, just 0.5 percent.
The report found that considerable rhetoric about aligning impact and investments has, so far, outpaced the reality, despite the research being limited to the subset of larger, private foundations that responded to the survey.
The data also reveals that few foundations are using the concept of ‘negative screening’ to exclude particular companies and/or organizations — like fossil fuels, tobacco, or private prisons, for example — from their investment portfolios.
The survey found that 83 percent of the foundations surveyed do not employ "negative screening" to avoid investments in controversial industries such as fossil fuels or tobacco, while none of the respondents reported screening to exclude nuclear power, private prisons, adult entertainment, or animal testing from their investment portfolios.
“We found that a sizeable percentage of responding foundations report engaging in impact investing, but tend to commit very small percentages of their endowment and/or program/grant budget, to the effort. In addition, most foundations that responded to our survey report having no negative screens on their endowment investments,” research co-author Phil Buchanan said.
Of the CEOs who responded to the survey, 41 percent, or 26 of 64 CEOs, say their foundation engages in impact investing.
“Almost as many CEOs report that their foundations either plan to engage in impact investing (six percent of CEOs) or are not sure of their plans for the future (33 percent). Only one in five CEOs report that their foundation does not plan to engage in impact investing,” the report said.
“Foundation CEOs and boards view their primary fiduciary responsibility as maximizing financial returns, and do not generally take into account mission, values, or programmatic goals when considering endowment investments.
“For now, the story appears to be one of few investment dollars allocated with considerations other than financial returns in mind. With many foundations unsure of their future plans, however, the story is likely still being written.”