Responsible investing, also known as sustainable investing, is a rapidly growing practice, representing almost 40% of all assets under management in Canada. Responsible investing represents an opportunity for mission-driven organizations, such as charitable foundations, to drive positive social and environmental impact through their capital assets. However, data shows that only 12% of responsibly invested assets are held by foundations and endowments.
CEGN commissioned a high-level review of responsible investing activities among Canadian foundations. The study set out to learn how philanthropic funders are currently using their endowments to support a sustainable future for Canada, and what they see as challenges and opportunities going forward. The study included an online survey, personal interviews and desktop research.
What we found was a deep desire among Canadian grantmakers to better align their foundations’ investment portfolio with their social mission. Among respondents to CEGN’s survey, 83% reported that they were following some type of responsible investment strategy, primarily screening, environmental, social and governance (ESG) integration or impact investing. Typically, grantmakers reported first adopting a responsible investing approach because staff, management and/or the board pushed the foundation to use the investment portfolio to support the institutional mission. Several study participants observed that as a younger generation takes the helm at foundations, on their boards, and on investment committees, there is even greater interest in exploring responsible investing. Overall awareness of E, S and G issues is another driver, rising in recent years with discussions of environmental and social issues, including climate change, appearing more frequently in the business pages of newspapers, and as large pension funds adopt ESG screening strategies.
While an organization’s staff and board were instrumental in adopting a responsible investing strategy with their endowment, the finance committee of the board was often cited as a major obstacle. Traditional finance professionals on foundation boards or investment committees were described as hesitant to embrace responsible investing because they erroneously assume it will lower returns. Investment managers were also accused of being poorly informed about, or resistant to, helping foundation endowments develop a responsible investing strategy. However, in many cases a failure to adopt any kind of responsible investing strategy was simply a matter of resource constraints and competing priorities, particularly at small foundations.
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