Aligning Portfolios with Non-Profit Missions

Non-profit boards and their investment committees are increasingly looking for ways to ensure that the companies, governments, and projects in which the organization is investing are using that capital in alignment with the organization's larger mission.

Advancements in investment research and reporting are unlocking new ways for organizations to assess how their investments affect both society at large and the specific causes the organization is designed to address.

Sustainable investing has been one of the most powerful trends affecting all types of investors over the past decade. Whether integrating environmental, social, and governance (ESG) ratings into investment decisions or looking to measure the direct impact of investments, investors are focusing more on ways to enhance the sustainability of their portfolios.

Many non-profit organizations are moving beyond sustainable investing to focus on ensuring that their portfolios align with the organization's mission and values. Advancements in investment research and reporting are unlocking new ways for organizations to assess how their investments affect both society at large and the specific causes the organization is designed to address.

What’s Driving the Increased Interest in Mission Alignment

The growing interest among non-profit organizations in mission-aligned investing is being driven by two primary goals:

  • Avoiding Conflicts: Organizations are seeking to ensure that their investment portfolios don’t conflict with the organization’s mission and values. For example, the board of an aquarium may choose to divest the stocks of companies with operations that damage marine wildlife habitats. Similarly, an organization that promotes gender equality may choose to avoid investing in companies that have an all-male board or buying bonds issued by a country that doesn’t provide equal rights to women.

    Part of this focus on avoiding conflicts relates to headline risk and the risk of reputational damage. Organizations are concerned that companies in which they invest or bond issuers to which they lend money do something that draws scrutiny from donors or other stakeholders.

  • Enhancing Impact: More non-profit organizations are realizing that the assets overseen by the board and its investment committee can do more to support the organization’s broader mission than simply providing funds for the operating budget. Mission-aligned investing may involve seeking investments that can extend the organization’s impact beyond its own operations.

    For example, the endowment for a college that caters to lower-income adult learners may invest in education technology companies focused on making learning opportunities more accessible for all students. Similarly, the board of a hospital system may invest venture capital in startups developing promising healthcare information technology or biopharma treatments. And an organization focused on reducing homelessness may buy bonds that provide financing for affordable housing projects.

Implementing Mission-Aligned Investing

The amount of work involved in achieving mission-aligned investing is a function of how expansive the board wants to be in defining mission alignment. Avoiding conflicts can largely be achieved through screening and divestment. Advancements in ESG scoring systems and materiality maps have made it easier for boards and their consultants to avoid investments that pose potential conflicts or tilt the portfolio toward companies with above-average scores in areas that matter to the organization.

Enhancing the impact of the organization’s capital, however, is a more involved undertaking. In some cases, this comprehensive approach may involve rethinking the board’s investment program and equipping it with the resources, tools, and consulting support needed to define, measure, and monitor impact investments. Organizations also need to decide whether these impact-focused investments will be integrated into the overall portfolio or treated as a carve-out allocation.

Regardless of what approach an organization takes to mission-aligned investing, it is important to update the investment policy statement to reflect the intentions and practices involved in mission alignment. Furthermore, it is critical that all members of the investment committee understand the organization’s mission and values and can filter out their personal beliefs when making decisions about which investments best align with the organization’s priorities.

Mission-aligned investing involves understanding that organizations have the opportunity to optimize their portfolios for more than just risk and return. Assessing the social or environmental impact of an investment can become a central part of investment decision-making when it comes to mission-aligned investing.

Finding the Right Partner for Mission Alignment

The organization’s consultants will play a critical role in helping achieve mission alignment throughout the portfolio. In addition to providing guidance on how the investment policy statement and overall investment program need to be adapted to meet these objectives, the consultants will need to provide support in evaluating managers and investments and reporting on progress toward mission-alignment goals.

At Graystone Consulting, we have extensive experience guiding non-profit organizations through all the steps of identifying their priorities for mission-aligned investing and executing an investment approach tailored to their objectives.