Rhetoric About Impact Investing Outpacing Reality, Study Finds

While many private U.S. foundations are engaged in impact investing, they tend to commit a very small percentage of their endowments or program/grant budgets to those efforts, a report from the Center for Effective Philanthropy suggests.

Based on a survey of sixty-four CEOs whose foundations award at least $10 million in grants annually, the report, Investing and Social Impact: Practices of Private Foundations (20 pages, PDF), found that twenty-six respondents (41 percent) said their foundation engages in impact investing, most commonly in the areas of community development, employment or economic development, and education. But among those foundations, the median percentage of their endowment allocated to impact investments was only 2 percent, while the median percentage of program/grant budgets allocated was just 0.5 percent. The survey also found that 83 percent of the foundations surveyed do not employ "negative screening" to avoid investments in controversial industries such as fossil fuels or tobacco, while no respondent reported screening to exclude nuclear power, private prisons, adult entertainment, or animal testing from their investment portfolios.

The top three reasons given by survey respondents for not engaging in impact investing were that it will not help the foundation achieve its goals; that the foundation lacks the expertise, skills, or staff to engage effectively in impact investing; and that the foundation is focused on achieving a financial return from its investments. According to the survey, 86 percent of respondents said achieving a financial return was a "very important" factor in their foundation's investment decisions, while only 36 percent said the same about achieving philanthropic goals and only 8 percent said investing in companies or organizations aligned with the foundation's values and/or mission was "very important."

"Although many of the large foundations we gathered data about are engaging in impact investing — in investments that are explicitly seeking a social return — the story at this point in time remains one more of small-scale experimentation than significant investment," said CEP president and report co-author Phil Buchanan. "When it comes to screening out investments that may conflict with a foundation's goals, missions, or values, only a small minority of foundations have taken this step."

"Rhetoric May Outpace Reality in Aligning Investments with Social Impact at Large Private Foundations." Center for Effective Philanthropy Press Release 05/20/2015.