Does your charity have investments and an endowment? Do you have an investment policy? Are you trying to maximize return to grow the endowment and pay for ongoing charitable activities? Who is responsible for investments and why? These are all questions that nonprofits should be seeking to address with their investments and – crucially – aligning them to the mission and vision of the organization.
Many charities, like individuals, are guilty of betraying their values when it comes to their investments. For example, a health charity might be working towards curing cancer, but then hold shares in tobacco companies (either directly or though funds/indices) that are part of the problem they are fighting against. A clear conflict of interest between a cause driven organization and profit driven companies. Charities (and individuals) seem to behave as through investment decisions somehow lie outside of the normal ethical boundary of their cause. Charitable activities are one thing, and financial decisions are another.
The nonprofit sector holds billions of dollars in investments. If that money is diverted towards organizations working to improve society and paying returns then the charitable sector as a whole can leverage even more benefit from their work. For example, social enterprises and impact investments can be effective ways of charities stretching their social and environmental impact much further. Foundations are already starting to do this with their endowments, but there’s no reason why charities with endowments couldn’t do the same.
But if charity investments are focused more on maximizing financial return, then the outcomes may be antithetical to the end result charities are working towards. Not only should charities be swayed by this ethical imperative to increase social benefit rather than fighting against it, but they should also note that polls show the majority of individuals would have a negative opinion of and be less likely to give to charities that invest contrary to their mission.
While more and more charities are developing ethical investment policies (about 60% of charities with investments over $1.5m according to EIRIS), there is still a long way to go. Socially responsible investments (SRI) can sometimes be a good filter, but they still have their limitations and can include controversial companies who are ‘best of sector’ performers (which doesn’t matter much if you want to exclude certain sectors). So, each charity’s investment policy – if it is truly going to align with its mission – needs to have input from the Trustees/Board and be developed in a transparent way. Nonprofits can then start to recognize that the buck doesn’t stop at their charitable activities.