Mission related investing has become an increasingly popular way for foundations, endowments, and individual investors to align their investments with their philanthropic goals and make a positive social impact. By investing in companies, funds, or projects that address social or environmental issues, mission investors seek both financial returns and measurable social returns. Key examples of mission investing include impact investing, program-related investing, ESG investing, and shareholder advocacy. This article explores four major ways mission investors are driving social change with their capital.
Impact investing provides capital to address social issues
Impact investing channels capital to businesses and funds with the intentional goal of generating positive social or environmental impact alongside financial return. Investors seek out impact investments in sectors like sustainable agriculture, affordable housing, healthcare, education, clean technology, microfinance and more. Community development financial institutions (CDFIs) are a common instrument for impact investing in underserved U.S. communities. The Global Impact Investing Network estimates the global impact investing market size at $715 billion as of 2019.
Program-related investing applies a foundation’s endowment
Program-related investing allows private foundations to allocate a portion of their endowment to support their philanthropic mission. PRIs are investments made at below market rate terms when conventional investing can’t achieve the desired social objectives. Examples include low-interest loans, loan guarantees, linked deposits, and equity investments in nonprofits or social enterprises. The Ford Foundation’s $280 million PRI portfolio includes financing for nonprofits, affordable housing, and financial inclusion.
ESG investing focuses on corporate sustainability
ESG investing incorporates environmental, social, and governance factors into investment analysis and decisions. Investors evaluate how companies manage issues like climate change, human rights, executive pay, and transparency. Rather than avoiding industries entirely, ESG investors use shareholder power to improve corporate sustainability. Popular ESG investing strategies include positive and negative screening, best-in-class selection, thematic investing, impact-aligned benchmarks, shareholder advocacy and more.
Shareholder advocacy drives corporate accountability
Active shareholders can steer companies toward more ethical and sustainable business practices through shareholder resolutions and proxy voting. Advocacy campaigns address issues like climate change, political spending, board diversity, human rights and more. Prominent examples include the Interfaith Center on Corporate Responsibility and As You Sow. Shareholder advocacy leverages investor influence to reform company policies and increase accountability.
Mission investing harnesses the power of capital markets to provide solutions to social and environmental challenges, while serving investors’ financial objectives. As mission investing options continue proliferating, foundations, endowments, family offices and individual investors have growing opportunities to make investments that reflect their values.