Category Archives: Mission Related Investing

Sustainable Investing

September 23, 2009 – 6:59 am

As philanthropy moves towards impact investing and adopts more blended value approaches, it is worth understanding that there are many different options in this space. PRIs, MRIs, SRI, impact investing, mission aligned investing and sustainable investing all are different takes on how best to deploy capital in ways that generates financial returns while pursuing social impact.

Today, I want to introduce readers to Steve Viederman, the former president of the Jessie Smith Noyes Foundation, where he led the integration of the foundation’s grantmaking and asset management activities. His efforts in this process were profiled in the Harvard Business Review in the 1994 article (long before impact investing become a common topic) Social Investing at the Jessie Smith Noyes Foundation.

Today, at Steve’s request, I’d like to share a draft of a paper he’s written with Nick Robins, head of the Climate Change Centre at HSBC and Cary Krosinsky, vice president at Trucost. The paper updates Nick and Cary’s book Sustainable Investing: The Art of Long Term Performance and examines the lessons learned from the financial crises.

The paper makes the case that companies often generate social or environmental costs to society that will likely have to be covered by the company in the future. In essence, they are incurring “off balance sheet” liabilities that may come back onto their financial statements in the future. We can see this idea in action as companies who have long produced carbon in the course of their activities are suddenly seeing a price being set on carbon generation with the cost being shifted from society’s balance sheet back to the company producing the carbon. Sustainable investing is the practice of explicitly accounting for these social and environmental costs in the process of making for-profit investment decisions.

I bring all of this to your attention because it is an example of the way that generating social returns does not imply a reduction of financial returns. Sustainable investors are attempting to enhance financial returns by paying attention to social costs and benefits being generated. Impact investing often is cast as a trade off where investors willingly take a lower financial return in exchange for generating social benefit. That trade off is not set in stone.

Steve has asked that I share this paper (still in draft form) with my readers to solicit your input. In his email he pointed out that while they’ve received lots of feedback, it has been difficult to engage the foundation world in dialog on this topic (which is disturbing, because foundations should be the ones leading this discussion).

So give the paper a read and shoot Steve, Nick and Cary an email with your thoughts.Steve’s work in the early 90’s may have been a decade or so ahead of its time, but a decade from now, working in philanthropy is going to require an understanding of the full spectrum of blended value. You might as well start climbing the learning curve now.

Click here to download the paper.

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By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropy | Comments (0)

First Loss Capital

January 27, 2009 – 9:50 am

The Chronicle of Philanthropy has an excellent new column titled Innovations that “focuses on pioneering efforts by nonprofit organizations to solve social problems.” The first column is about a program of the Lemelson Foundation called First Loss Capital. The program helps nonprofits obtain debt financing by injecting a “cash cushion” into the deal. Should the nonprofit not be able to fully pay back the loan, First Loss Capital will take the “first loss” meaning that their cash cushion will go to the lender to satisfy what the nonprofit owes. Should the nonprofit pay back the loan, First Loss Capital gets their money back. This sort of cash cushion reduces the risk to the lender of making the loan and can dramatically increase nonprofits’ access to debt financing.

The Chronicle of Philanthropy has authorized this free link to the first Innovations column so that Tactical Philanthropy readers can check it out.

This is exactly the concept that I explored last October in my post titled “Securitizing Philanthropy” in which I examined the implications of the new investment book When Markets Collide, George Overholser’s presentation at the Social Capital Markets conference and Schwab Charitable’s new program to let their donor advised fund engage in a microfinance loan guarantee program.

Structured finance in philanthropy? As the for-profit financial markets are experiencing cardiac arrest, should philanthropy be looking at ways to leverage sophisticated financial tools? I think it should and I’m glad to see that the Lemelson Foundation agrees.

I’m looking forward to reading the Chronicle of Philanthropy’s new Innovations column on a regular basis. In September of 2007, Cheryl Dahle, a journalist who has written about philanthropy recorded a podcast with me. As a follow up she posted a rant laying out why foundations and philanthropy in generally were rarely worthy of press coverage. I responded with a rebuttal in which I made the case for the idea that the media didn’t understand philanthropy as a story and laid out a whole series of stories that the media should be covering. The crux of my argument was that there should be more columns like Innovations. I’m so glad to see that the Chronicle of Philanthropy has launched this column.

If you have ideas for future column, you send them to editor@philanthropy.com.

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By Sean Stannard-Stockton | Also posted in Capital Market Philanthropy, Foundations, Philanthropic Capital Markets, Philanthropy | Comments (0)

Mission Related Investing for Individuals

January 14, 2009 – 10:35 am

In my column on the future of wealth management and philanthropy that appeared in Wealth Manager magazine last November I wrote:

Mission related investing (MRI) is the term used to describe investments made by philanthropic entities in the pursuit of both financial and social returns. Unlike traditional socially responsible investing that relies on “negative screening”—the avoidance of public companies that do not pass certain social criteria—MRI implies proactively seeking investment opportunities that produce a blend of financial returns and social impact that are in line with the philanthropy’s mission. Still an emergent issue, MRI is characterized by limited deal flow, especially in deals that have minimums low enough to allow widespread participation. But MRI brings philanthropic advising directly into the domain of the wealth manager.

Today, it appears that the Calvert Giving Fund has taken a significant step towards increased deal flow and lower minimums that should make it much easier for wealth individuals and smaller foundations to participate in a strategy that has largely been the domain of institutional foundations.

The Calvert Giving Fund is a national donor advised fund. Like Schwab Charitable, Fidelity Charitable Gift Fund and the Vanguard Charitable Endowment, Calvert provides low cost donor advised fund administration without providing advice on where to give. While structured as a nonprofit, the group is affiliated with Calvert Investments, a leader in socially responsible investing.

For some time the Calvert Giving Fund has offered social responsible investment options to their donor advised funds, as well as “community investment notes” that pay a below market rate of return and finance community development projects. Now they’ve added a Global Impact Ventures Platform. The platform currently offers access to five mission related investment options:

  • Acumen Fund: 10 year Senior Note (debt), 3% interest either paid or compounded into the principal
  • LeapFrog Investments: Equity Investment into Limited Partnership with 10 year life
  • MicroVest: 7 year equity limited partnership
  • Public Radio Fund: Promissory Note, 3 years at 0% or 5 years at 4%
  • Root Capital: Promissory Note, 3 years at 3% or 3 years at 0%, senior tranche

The investments all offer social impact in addition to a financial return. You can read summaries of the social impact potential here.

The really big news is that there is a minimum of only $25,000 to invest in each fund. Community foundations and national donor advised funds have a huge opportunity in the MRI space, because they can aggregate their donor/client’s investments into an investment in a fund like those above and count as a single investor. In other words, while a certain investment might have a $250,000 minimum, a community foundation or national donor advised fund can bring 10 of their donor advised funds in at $25,000 each and reach the minimum.

If an investment advisor or individual wants to invest in traditional profit driven investments, they can open an account at Schwab or Fidelity and have access to thousands of mutual funds, every publicly traded stock and bonds. If you buy stock, you don’t have to call the company, you buy it directly on the broker’s platform. Same thing if you buy a mutual fund. Now the Calvert Giving Fund has created a platform for mission related investing that integrates with existing financial markets.

Very cool. I hope that they are successful in marketing the program to advisors and individual philanthropists. I also hope that institutional foundations that care about mission related investing make some investment on the Calvert platform to help them grow.

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By Sean Stannard-Stockton | Also posted in Community Foundations, Foundations, New Philanthropy, Philanthropic Capital Markets, Philanthropic Investment Strategy, Philanthropy, microfinance | Comments (0)

“Investing” & Philanthropy

December 18, 2008 – 10:04 am

Tactical Philanthropy reader Leslie Forman, marketing director at microfinance organization Wokai, asks a question:

I really appreciate the way you use the language of investment to talk about philanthropy, and I think the long-term outlook is very important, but I have a question about messaging.

Whenever I use the word “invest” when talking about Wokai, the China microfinance non-profit with which I work, the person’s next question is always, “So, what’s the return?” I’ve answered this question several ways:

1. Highlighting the long-term impact on China’s society

2. Explaining the way in which contributions made to fund loans for entrepreneurs in rural China can be recycled (once the original borrower repays the loan)

These answers rarely seem to satisfy the person I’m speaking with. I think it’s because many of these people either work in finance or are active investors, and the word “invest” activates a completely different part of the brain than a word like “donate” or “contribute.”

I’m wondering if you have experienced a similar cycle of questions in your own work, and how you have approached them. One of my favorite posts of yours was the one about the distinction between spending and investing, but I’m starting to think that this language might be more prevalent among people who talk about philanthropy every day than among the wider population of potential contributors.

Leslie brings up a really good question. Is it appropriate to use the word “invest” when there is no financial return to the investor/donor? Jed Emerson is the person who developed the concept of “blended value”, the idea that all organizations produce a blend of social and financial value. At the World Economic Forum conference that I attended in November, we were talking about whether something was “social investing” or “philanthropy”. Jed just about screamed “It is all just investing!” (Jed has a way with words).

Not all philanthropic giving is “investing”. George Overholser has laid out the difference between philanthropy that seeks to “buy” social good and that which attempts to “build” nonprofit organizations. Only “build” philanthropy is a type of investing.

In my post where I laid out why I was “investing” in FORGE, I didn’t use that word simply because it is the “cool” way to talk about philanthropy these days. I used it because my investment in FORGE was meant specifically to help them build a better organization. I have zero expectations that my donation will be used to serve refugees. I expect my money to be used by FORGE to build their organization so that they can better pursue their mission in the future.

Back to Leslie’s question. The word “investing” is correctly used in philanthropy if a donation is designed to build an organization. It is also appropriate if it is structured as a loan or donation to an individual that is expected create future benefits. Wokai’s donor/investors are making an investment. But the “return” is accruing to the people receiving the loans.

Let’s say I could make a financial investment in which all returns were paid to my child or to a friend of mine and the principal would be repaid to me. Clearly, that investment is producing value. Clearly it is an “investment” even though the returns do not accrue to me.

But these sorts of investments are not well understood. I do think that the shifting language can be confusing to donors. The best way to illustrate the concept to donors is to show them what the return is and point out that if that return accrued to them, they would clearly be making an investment. The fact that the return accrues to someone else does not change the nature of the transaction as an investment.

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By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropic Capital Markets, Philanthropic Equity, Philanthropy | Comments (1)

Wealth Management & Philanthropy

December 1, 2008 – 9:44 am

This article appears in the November issue of Wealth Manager magazine. It chronicles the way that I think the wealth management industry is currently underserving their clients when it comes to philanthropy and social investing.

The Next Wave: Part Three
By Sean Stannard-Stockton
Originally Appeared: Wealth Manager Magazine, November 2008

This is Part 3 of 3. Please read part 1 and part 2.

The world of traditional finance is mature and well mapped. Clients do not expect their lawyer to file their taxes nor their CPA to provide legal advice. The finance discipline has been sliced and diced into numerous areas of expertise and for the most part, clients understand the role of each advisor and can identify their own needs and match them to the appropriate advisor. To the extent that clients need help identifying domain experts, they are accustomed to their wealth advisor helping them navigate the map of financial service providers. Within philanthropy and the world of social investing, this map has yet to be drawn.

To whom will your clients turn for advice on which philanthropic vehicle to create? Who will help a client family define its philanthropic mission statement? Who will analyze the financial characteristics of a MRI opportunity? Will the same person consider the social implications of such an investment? Philanthropy is still an immature industry. Philanthropy-minded clients need a concierge who understands the philanthropic landscape and can point them to the appropriate people and resources.

Just as a traditional client might ask their wealth manager for assistance in evaluating a mortgage or learning more about alternative investments, philanthropic clients’ needs are not limited to the management of their investment portfolio. The wealth manager who strives to become a philanthropic concierge must build a broad network of contacts within philanthropy and know where to turn when their client asks for help.

Philanthropic investing has another characteristic that makes the role of philanthropic concierge even more important than its counterpart in traditional wealth management. In philanthropy, the social return that giving creates accrues to society at large and not just to the individual client. This means that true philanthropic concierges will benefit their clients by connecting them with similar clients and be able to identify co-funding or collaborative opportunities across their client base and ultimately throughout the philanthropic ecosystem.

The Second Great Wave of Philanthropy is going to transform both wealth management and traditional philanthropy. We must be aware that as much as financial professionals can add tremendous value to philanthropic clients, philanthropy requires much more than business knowledge. Wealth managers who recognize the value they can provide to philanthropic clients will discover a whole new frontier to explore. Like any frontier, the landscape is difficult, but the adventure is worth it.

This is Part 3 of 3. Please read part 1 and part 2.

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By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropic Capital Markets, Philanthropic Investment Strategy, Philanthropy | Comments (0)

Wealth Management & Philanthropy

November 28, 2008 – 9:48 am

This article appears in the November issue of Wealth Manager magazine.
It chronicles the way that I think the wealth management industry is
currently underserving their clients when it comes to philanthropy and
social investing.

This is Part 2 of 3. Please read part 1 and part 3.

The Next Wave: Part Two
By Sean Stannard-Stockton
Originally Appeared: Wealth Manager Magazine, November 2008

Mission  related investing (MRI) is the term used to describe investments made by philanthropic entities in the pursuit of both financial and social returns. Unlike traditional socially responsible investing that relies on “negative screening”—the avoidance of public companies that do not pass certain social criteria—MRI implies proactively seeking investment opportunities that produce a blend of financial returns and social impact that are in line with the philanthropy’s mission. Still an emergent issue, MRI is characterized by limited deal flow, especially in deals that have minimums low enough to allow widespread participation. But MRI brings philanthropic advising directly into the domain of the wealth manager.

In the late 1990s, the board of the F.B. Heron Foundation posed the question, “Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?” Traditionally, foundations have erected a firewall between the investment side of the house and the program side. F.B. Heron was asking, “What about the 95% of our assets that are not given away each year?” The answer they found was mission-related investing, toward which they now dedicate 24% of their endowment.

MRI opportunities have been available in the debt arena for some time. Community reinvestment bonds are debt backed by loans made to build affordable housing or other community development projects. Banks have been required to make these sorts of loans since the Community Reinvestment Act of 1977. However, philanthropists are now exploring the full range of MRI, including equity investments. Heron makes grants to nonprofits seeking to revitalize inner city and rural communities. But according to the foundation, they also “invest in private equity funds that provide needed equity for commercial real estate projects in these communities (often in cooperation with community-based groups) and financing for businesses seeking to expand in or relocate to these communities.”

The interest in MRI is spurring product creation that over time should make MRI investing more accessible to private investors. San Francisco’s Good Capital is a venture capital fund that invests in nonprofits and for-profit entities with a social mission. Their goal is to provide positive but below market-rate financial returns and strong social impact. The Bay Area Equity Fund, managed by JPMorgan, is a venture capital fund that strives for full market-rate returns while investing in companies that generate high quality jobs in low and middle-income neighborhoods of the San Francisco Bay Area.

One of the problems of MRI’s equity side is the fact that a donor/investor cannot take a true equity stake in a nonprofit. Since nonprofit accounting has no entry equivalent to equity, all incoming money must be booked as revenue. But an effort is underway to change this. Nonprofit Finance Fund, which has long financed nonprofits via debt products, has recently launched NFF Capital Partners. This project, run by Capital One founding executive George Overholser, has developed the SEGUE accounting system, which “provides philanthropic investors with a clear and auditable record of the organization’s progress towards self-sustaining operations, along with a clear record of how much growth capital is consumed along the way.” SEGUE units are often referred to as “philanthropic equity.”

Just as today’s wealth manager creates portfolios of assets that fit the financial risk and return goals of their clients, philanthropic wealth managers will need to help their clients navigate the rapidly evolving MRI field. Matching financial and social risk/return expectations to each client will be a necessary role for wealth advisors hoping to provide clients with best-in-class service.

This is Part 2 of 3. Please read part 1 and part 3.

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By Sean Stannard-Stockton | Also posted in New Philanthropy, Philanthropic Capital Markets, Philanthropy | Comments (4)

SoCap2008 Video

October 23, 2008 – 8:29 am

The good people at FORA.tv were at SoCap and filmed a number of sessions. This is the video of the session I moderated on New Wealth Management. The audio is fine on the video, but the mics only fed to the camera, so the large, packed room had trouble hearing us at first. That’s why you’ll notice we decide to stand up to present. 

The session after mine was about Mission Related Investing. I thought the session was excellent and it was interesting to hear from the KL Felicitas foundation (a leader in MRI) talk about their experience. KL Felicitas is a relatively small foundation so they have a different sort of story to tell than the multi-billion dollar foundations who are starting to get into MRI. Click here to view the video.

You can find a listing of all SoCap08 videos, including the keynote address by Matthew Bishop (who coined the word Philanthrocapitalism) by clicking here.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, Effective Giving, Impact Measurement, New Philanthropy, Philanthropic Capital Markets, Philanthropy, Speaking, multimedia, video | Comments (0)

SoCap 2008: New Wealth Management Panel

October 13, 2008 – 4:35 pm

I just moderated what ended up being a standing room only session at SoCap 2008. Don’t tell the fire marshal, but the the audience was a exponentially larger than the room posted limit of 49. It was actually rather exciting to see the “demand” side of equation for social investments beyond capacity and to see the “supply” side consisting of panel members from UBS, Merrill Lynch, Guggenheim Partners, Veris Wealth Partners and my own firm Ensemble Capital Management.

Prior to the session I ran into an acquaintence who works for the The Institute for the Future. She was explaining to me that trends take 30-50 years to play out. So the Internet was first developed in the 1960’s, but it took 30 years for the internet to go mainstream and yet we’re still likely 10+ years from the Internet being fully “mature” in its growth cycle. I think the same is true in social investing. The first socially responsible investment fund was launched in the 1970’s, so we’re now 30 years into the trend. I have the sense (and the panel today was a nice affirmation) that we’re hitting the “knee in the curve” of growth in social investing. But that means that if you compared our industries to the growth path of the Internet, we’re probably sitting at around 1995.

The fun thing about the panel was that we didn’t have to explain why social investing was important. The crowd got that. So we got to surface some core disagreements between the panelists. Is there a trade off between social returns and financial returns? Is there enough deal flow for everyone who wants to invest with social impact to be able to find opportunities?

This is going to be a good conference. You can follow along with the blog team via the official SoCap blog.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, New Philanthropy, Philanthropic Capital Markets, Philanthropic Investment Strategy, Philanthropy, SoCap2008 | Comments (1)

SoCap08 Offer for Tactical Philanthropy Readers

August 26, 2008 – 6:58 am

The people behind the Social Capital Markets Conference that I wrote about yesterday want you there to listen to their “rock star line up” of the social capital movement. So as a special offer, they are offering a 30% discount on the conference registration fees to Tactical Philanthropy readers.

You can find conference info here and the registration form here. Just enter the special discount code for Tactical Philanthropy readers: “TP30″. The discount is valid until September 8.

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, New Philanthropy, Philanthrocapitalism, Philanthropic Capital Markets, Philanthropy | Comments (0)

Social Capital Markets Conference

August 25, 2008 – 7:40 am

From October 13-15, in San Francisco, the Social Capital Markets Conference (SoCap08), will bring together a rock star line up of the social capital movement. Speakers include:

  • Matthew Bishop | THE ECONOMIST
  • Jed Emerson | BLENDED VALUE
  • Doug Bauer | ROCKEFELLER PHILANTHROPY ADVISORS
  • Carla Javits | REDF
  • Jim Fruchterman | BENETECH

In addition, there will be representatives from:

  • ROOT CAPITAL
  • GOOD CAPITAL
  • SKOLL FOUNDATION
  • IDEO
  • B-LAB
  • CALVERT
  • MILKEN INSTITUTE
  • KIVA.ORG
  • ACUMEN
  • GRAMEEN FOUNDATION
  • GOOGLE.ORG

Here’s the official overview:

Social capital. Doing well by doing good. Making money make change. Philanthrocapitalism. Whatever you call it, its the emerging approach of harnessing the power of capital to support a new breed of smart, innovative entrepreneurs committed to changing the world in big, meaningful ways.

The Social Capital Markets Conference 2008 (SoCap08) will bring together the entrepreneurs who want to change the world and the capital that wants to make it happen. SoCap08 is a new event designed to bring together all of the people and organizations with a similar deep passion to change the world through sustainable businesses. Investors and entrepreneurs will find themselves helping to build a new community, gaining encouragement as they realize that they are not alone, but are a part of something big, important – and rapidly growing. Participating organizations include Good Capital, The Economist, REDF, HIP Investors, Citibank, Stanford Social Innovation Review, Living Cities, The United Nations Development Programme and Google.org, among many others.

When: October 13-15, 2008
Where: Fort Mason, San Francisco, California
Who: Hundreds of leading social entrepreneurs and investors from around the world
What: Bringing together the people who are accelerating the flow of capital to good
For more information go to: www.socialcapitalmarkets.net or contact info@xigimedia.net.

I’ll be speaking as well as moderator of the New Wealth Management panel:

Social investing is a wave that’s growing. Wealth managers are finding their clients want to explore and get involved in all these new alternative investment opportunities that mix social mission and impact with financial return. How do you manage your fiduciary responsibility while responding to client demand? From the client perspective, how do you explain these new things you want to get involved in to your financial advisor? Learn from some wealth managers how they and their clients who are navigating this new territory in a session designed for both the investor and the financial professional.

It should be a really interesting conference. I’d love to see a contingent of Tactical Philanthropy readers in attendance!

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By Sean Stannard-Stockton | Also posted in Cross-Disciplinary Conversations, New Philanthropy, Philanthrocapitalism, Philanthropic Capital Markets, Philanthropic Investment Strategy, microfinance | Comments (0)