Match Money with Mission: Board Responsibilities and Socially Responsible Investing

We remain perplexed how some foundations and other nonprofits and their investment committees continue to avoid  socially conscious investments for their endowment funds without considering that it may be in violation of their fiduciary obligations  – that of obedience – to the organization and its Mission.  

Director’s Duties 

Almost every nonprofit board member is aware that  “In addition to state laws, the legal duties of nonprofit board members are defined as “the three “D’s”,” which include duty of care, the duty of loyalty, and the duty of obedience. ”[1]  It is frequently debated – and sometimes confusing – how these duties intersect with investment strategies employing Socially Responsible Investing (“SRI”), Environmental, Social, and Governance (ESG”) screening, and investments that may yield less than market rates but further Mission purposes, such as Impact Investments, Program Related Investments (“PRI’s) and Mission Related Investments (“MRI’s). 

Most legal and investment advisors believe that it is appropriate for nonprofit organizations to invest their funds to further their charitable mission.   As one example, Vanguard reviews these governance issues, as well as the requirements under the Uniform Prudent Management of Institutional Funds Act (UPMIFA) in a white paper on the subject – concluding that nonprofits have considerable latitude in considering ESG investing, including four investment strategies: 

  • Portfolio Screening
  • Impact Investing
  • ESG Integration
  • Active Ownership[2]

We would add an additional “duty” to the arguments encouraging greater use of ESG/SRI/PRI and MRI investment by endowments: “Thall Shall Not Be Hypocrites”.  Our mothers’ had some oft-repeated, succinct refrains on this subject:

  • “Put your money where your mouth is”
  • “Practice what you preach”

How, for example, can a nonprofit with a mission to “Save the Rain Forest” justify investing its funds in stocks of, say, petroleum companies? Really?



Arguments against ESG Investing

                 Legalities aside, there remains a lively (sometimes heated) debate regarding the relative risks/rewards of ESG/SRI/MRI/PRI investments compared to historically “conventional” investments.  Sorry about the alphabet soup, but that’s a big part of the problem – the blurring of so many, often overlapping terms.

In our many discussions with leaders from across the nonprofit and financial sectors, it quickly became apparent that these new and exciting products and services suffer from inexact, confusing, and overlapping terminology. Much has been written on the pros and cons of ESG type investing, and we won’t try to summarize it here.  But, having sat through a number of sometimes-lively investment committee discussions, the “cons” generally take the form of:

  • The returns on these new investments are not proven, and are often, like impact investments, illiquid without secondary markets
  • “We can earn greater amounts on “normal” investments – including alternatives like private equity – allowing for increased payout amounts in the future, thereby doing more good work.”

You get the point. All reasonable perspectives.  But let’s examine these arguments a bit further:

            ESG is Becoming Mainstream

            In his 2020 annual letter to investors, Larry Fink, the CEO of Blackrock (the world’s largest investment manager, with over $7 billion under management) stated: “Climate Risk is Investment Risk”, and outlined “a number of initiatives to place sustainability at the center of our investment approach.” [3]  Additionally, in 2018, the firm issued a statement outlining its policies whereby “All active funds and advisory strategies are expected to fully integrate ESG (screening)”[4] Another example? Here’s one from Jamie Dimon, CEO at JPMorgan Chase:  “We know that accountability, transparency, and integrity are the cornerstones of doing good business, which includes effectively managing environmental, social, and governance matters.”[5]

These are only two viewpoints – albeit by major, well respected firms – but many others are increasingly joining in. By some estimates,  “The value of global assets applying environmental, social and governance data to drive investment decisions has almost doubled over four years, and more than tripled over eight years, to $40.5 trillion in 2020.”[6]  

New Products, New Markets, Many Opportunities

            Although often justified, criticisms of Wall Street ills and stories about its vices (think Gordon Gecko, i.e. Greed is Good) overshadow the importance of what, at its core, Wall Street was designed to do. Specifically, it’s focus is on providing access to efficient capital markets that enable the creation of vibrant economies, new investment vehicles, products, providing liquidity, and matching buyers and sellers. And what do we know about Wall Street? They follow the money. As the demand for ESG investments has soared, Wall Street and other financial firms – some nonprofits themselves – has responded with a dizzying array of new investment products which are negating historical impediments to ESG-type investing such as lack of liquidity, diversification and limited choices.  Want a low-cost ESG impact fund? Check! A private equity ESG fund? Check!  Fixed Income Strategies?  Check. Thus, lack of investment choices and secondary markets is no longer a deterrent to socially motivated investing.

Risk Rated Returns     

            The issue of ESG investments yielding less return than “conventional” investing remains debatable, with countless articles and studies supporting different views. Certainly, the jury is still out – ESG investing is in its infancy when compared to capital markets that have been around since the 17th century! Some believe the idea of ESG investing became formalized in 2004 as part of a UN initiative; others point out that the concept – then know as “Socially Responsible Investing” emerged in the 1960s[7]  

Whatever the timeline, its interesting to note that some studies “debunk the myth that there is a performance penalty associated with ESG investing (over the last 10 years)”[8] 

Certainly too soon to tell, but could this be a factor of demand and supply? This seems to be logical with over a third of investors embracing SRI/ESG in their investment decisions (and, conversely, liquidating stocks of companies that don’t meet their standards).  Many increasingly believe that ESG/SRI and related investments do not equate to lower financial returns. One example: Participants at a recent webinar held by Philanthropy California – an alliance of Northern California Grantmakers, Southern California Grantmakers and San Diego Grantmakers  – collectively the largest group of grantmakers in the country – along with representatives of well-know investment advisors – unanimously agreed that it is entirely reasonable to expect to achieve market rates of returns with impact investments.[9]

  Endowment funds are invested “forever” – so financial returns are an issue. But overall impact on Mission is equally, and some believe more – important. Foundations and other nonprofits that invest directly into their missions – via such instruments as PRI’s and MRIs – believe, despite providing financial returns that could be “below market” – can provide greater mission impact. Even the UPMIFA provides the latitude for nonprofit boards to: “Consider an asset’s special relationship or special value, if any, to the charitable purposes of the institution”[10] The IRS – way back in 2015 – eased so-called “prudent man” restrictions with new guidelines which provide that “when deciding how to invest the foundation’s assets, a foundation manager can factor in how the anticipated charitable outcomes from the investment might further the foundation’s mission in addition to the financial returns that are typically considered.” [11]

“Walk the Talk”

Another of Mom’s sayings.  In our view, NP Directors should no longer use “lower returns”, “lack of choices”, and other historical rationale to avoid ESG, SRI, and related investment strategies, particularly when it can support industries harmful to, and in some cases, creates the need for the organization’s mission.  

The recent proliferation of socially conscious investing options has made the historical tradeoff between “doing well” and “doing good” largely an anachronism. What’s more, the significant growth in impact investing is due to a realization on the part of many philanthropists that today’s intractable social problems require bigger solutions—and more money. As the Heron Foundation explained in 2012, “The urgency and size of the problems we face require that we work differently. Everything at our disposal is now a mission-critical resource. Philanthropy’s financial tool kit should include every investment instrument, all asset classes, and all enterprise types.”[12]

Mom would agree with that.

[1] Barlow, W (2019, January 04). Non-Profit Board Legal Responsibilities. Retrieved September 30, 2020, from

[2] ESG investing—a governance guide for nonprofit fiduciaries. (n.d.). Retrieved October 6, 2020, from

[3] Larry Fink’s Letter to CEOs. (n.d.). Retrieved October 05, 2020, from

[4] ESG integration – Sustainable investing – Investment Themes. (n.d.). Retrieved October 05, 2020, from

[5] Excerpt from the 2018 JPMorgan Chase & Co. Environmental Social & Governance Report 

[6] Baker, S. (2020, July 02). Global ESG-data driven assets hit $40.5 trillion. Retrieved October 06, 2020, from

[7] Kell, G. (2018, July 31). The Remarkable Rise Of ESG. Retrieved October 06, 2020, from

[8] Riding, S. (2020, June 13). Majority of ESG funds outperform wider market over 10 years. Retrieved October 06, 2020, from

[9] Impact Investing. (2020, October 01). Retrieved October 07, 2020, from

[10] ESG investing—a governance guide for nonprofit fiduciaries. (n.d.). Retrieved October 6, 2020, from

[11]   Steps to Catalyze Private Foundation Impact Investing.” National Archives and Records Administration. Accessed January 15, 2019. 

[12] Stanford Social Innovation Review: Informing and Inspiring Leaders of Social Change. Accessed January 15, 2019.

1 thought on “Match Money with Mission: Board Responsibilities and Socially Responsible Investing”

  1. Thanks, David! Though we don’t have the assets of a large foundation, we have been thinking about how we direct our far more modest personal investments. Your article is helpful for understanding the issues and opportunities.

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