Editor: Tim – thank you for your time today. The first recommendation of the Task Force’s report calls on public and private foundations “to maximize their impact in fulfilling their mission by investing at least 10% of their capital in mission-related investments (MRI) by 2020 and reporting annually to the public on their activity”. While some Canadian foundations are leading in this area, many have been hesitant to engage in impact investing. What is your advice on the initial steps that funders might take to respond to this recommendation?
Brodhead: It is really a learning and awareness exercise that needs to be undertaken by foundation Boards. Tackling the widespread misunderstanding that mission-related investments are high risk and/or not allowed is the first priority. We also need to realize that it is in fact irresponsible not to look at some of the environmental and social risks connected with many traditional investments. The risks presented by climate change are a good example. Insurance companies and some corporations are doing this kind of long-term planning that takes into account environmental risks, but that level of thinking isn’t currently in place in Canada. The next step is to build a better understanding of the positive benefits of mission-related investing and how it can leverage the impact of traditional granting programs. Given the realities of the world, we have a responsibility to increase our impact. As foundations begin to understand this area better, they will start to look for new ways of investing.
Editor: Some of the challenges we hear from funders are that investment committees aren’t supportive and/or that there is a lack of MRI options focusing on the environment. How do you view these challenges and what would be your advice to funders on these points?
Brodhead: At McConnell, our Board had to be convinced, as well. What made a difference in our case was that we hived off 5% of our endowment for program-related and mission-related investments. The former are like grants in that they can only be made to charities and support our program objectives, whereas the latter are more like traditional investments except that they explicitly advance the Foundation’s mission or purpose. The Board told the Investment Committee that this 5% would not be included when we assess the overall financial return on our endowment, i.e. when it assesses the Committee’s performance, because for these investments we are intentionally seeking both a financial and a social return in line with our overall goals.
And in terms of environmental or social investment options, there are funds out there and the market place is growing. Staff need to do due diligence and this does create an additional level of work. But given the opportunity for significantly increased impact, it is an important area for us to put resources into.
Editor: What role do you think CEGN might play in helping our members meet that first Task Force recommendation?
Brodhead: There are growing opportunities for environmental investments, especially around decreasing energy use and reducing carbon emissions. I would urge environmental funders to show leadership in this area. Breaking down the rigid distinction between granting and investing is a first step. We need to think of all the possible ways of making an impact. In essence, we need to think more like entrepreneurs.
Editor: There has been an excellent response to the release of the report, how will the Task Force now follow-up to help ensure implementation of the recommendations?
Brodhead: Members of the Task Force will be meeting with federal and provincial representatives about some of the regulatory changes recommended in the report. We’ll also be helping to spur more public discussion about the role that investments can play in helping to meet the level of need within the community. I am also concerned that we pay attention to the capacity side and help ensure that there isn’t a great gap between the supply of social purpose investment vehicles and the demand for them.
Editor: Thanks Tim for these good insights. This is an important issue that spans the foundation community and one that CEGN hopes to contribute to in the coming year. On May 11, 2011, we’ll be working with Community Foundations of Canada to hold an afternoon workshop on mission-related investing with a specific focus on the implementation of that first Task Force recommendation. The session will be held in Vancouver on the final day of CEGN’s conference and just before the start of CFC’s conference. There will be more details soon!