A common thread that tends to bind together nonprofits and those who serve them is the desire to have a positive impact on our society. Perhaps now – more than any time in the past – that positive influence doesn’t need to come solely from your organization’s programs and outreach. You should also consider your endowment. Your nonprofit’s endowment usually represents the core of your organization’s assets. So it makes sense that you can actually use your nonprofit’s investment nest egg – along with a strategy called “impact investing” – to leverage your finances in a way that can make a social difference.
What is impact investing?
In the past, you may have heard it called socially responsible investing. The earliest forms of this strategy typically consisted of restricting the inclusion of certain types of companies (i.e. tobacco and firearms manufacturers) in your portfolio. Over time, there has been an evolution from that early approach to a more robust platform we now call impact investing.
Most impact strategies use a two-tiered approach:
- Tier 1: Retains the policy of avoiding investing in objectionable companies and sectors
- Tier 2: Includes making investment decisions with environmental, social, and governance (ESG) criteria in mind.
In other words, impact investing includes screening out “negative” companies, as well as actively seeking out “positive” ones. This evolution has created a much more robust set of options for implementing your organization’s impact investment plan.
Does impacting investing have limitations?
Being able to evaluate companies on a large-scale basis for ESG characteristics is still a relatively new concept. Technological developments in investment reporting have certainly made it easier than ever to access information about the companies in which we invest. Shareholders can now clearly see what companies are accomplishing (or not accomplishing), beyond just producing financial results. Social media has made a big difference. Investors now expect to see their favorite companies tweet regularly about their latest community-impact program, or new ways of reducing their environmental footprint.
While this new wave of transparency is fairly common in the United States and other developed parts of the world, it’s still a challenge for companies in less-developed areas. Social media is also tough for smaller U.S. companies that haven’t yet developed social-media platforms
What does that mean for investors?
If you rigidly limit investments in your nonprofit’s endowment portfolio just to companies who are skilled at marketing their positive contributions, you may miss out on some important choices. You may want to work with a Wealth Advisor who can help your organization make well-rounded investment decisions that still meet your impact-investing criteria.
How can my organization start an impact-investing program?
Like many areas of nonprofit management, updating your investment approach is a task that warrants getting advice from trusted outside professionals.
It’s wise to first look for a professional Wealth Advisor who will act as a financial fiduciary for your organization (meaning they are bound to put your organization’s interests above their own) and also help integrate your endowment investments with your organization’s long-term goals and needs. Second, you should ask prospective advisors whether they are familiar with the impact-investing landscape, and how they would suggest implementing such a strategy for your organization.
RegentAtlantic has a long history of helping nonprofit clients use their endowment investments to positively impact society at large.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
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This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.