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When working with foundations in strategic planning or evaluation efforts, I always advise that we start with the organization’s values. What are the fundamental drivers of the foundation’s work, what it wants to achieve and how it will be successful in those efforts. In a recent conversation with Brad Norton, Director of Endowment Solutions, for Winfield Associates, we looked at another important area for foundations to consider – aligning their investments with those core values.

Q: First off, why do you advise your foundation clients to prioritize aligning their investment criteria with their core values?

A: We advise all our foundation clients, regardless of size, to create an Investment Policy Statement (IPS) that articulates the investment return objectives, asset allocation ranges, and responsibilities of Trustees and third-party advisors/managers. Incorporating trustees’ values into the investment strategy is a process. This requires trustees to reflect on the foundation’s mission statement and consider selecting investments that have value alignment in their business practices. These practices could range from workforce diversity to reducing environmental waste to shareholder-friendly policies.

Q: I’d imagine that sometimes achieving that alignment is easier said than done. What sort of guidance do you provide foundations in exploring what alignment can look like for them?

A: Every foundation has its own culture and value system. The first question to ask is “Do we want our portfolio to seek maximum returns, regardless of investment type, to provide the highest level of funding to communities?” or “Do we want to align our values with investments that will seek competitive returns but may constrain our opportunity to earn the highest returns?” If values alignment is the primary objective, then a foundation must determine whether to:

Identifying corporate citizens making positive contributions to society should be a goal. A caveat is the more restrictive the values screening, the ability to generate higher returns may be constrained.

Q: Do you have a couple of examples of how different foundations have used their core values to clarify or strengthen their investment policies?

A: Yes, we have seen foundations clearly set expectations with their investment advisors in terms of acceptable types of investments. As the IPS is an internal document, the foundation can rely on the advisor to select appropriate investments as well as communicate to the underlying investment manager what are acceptable attributes. Investing in companies pursuing sustainability practices is an area of focus for many foundations. Trustees can confidently “advocate” their foundation’s values through the investment process.

Q: What advice might you have for a foundation that is thinking about how best to follow its core values into an investment strategy?

A: There are numerous approaches a foundation can consider. Incorporating core values into an investment strategy does not have to be an all-or-nothing proposition. Spend meaningful time discussing trustees’ values and how to incorporate these values during your next IPS review. An IPS is a “living” document that should be reviewed every few years. Similar to corporations that may seek to reduce fossil fuel consumption every year, a foundation could set a goal to increase its value aligned investments allocation annually to avoid a one-time portfolio realignment which could potentially harm investment performance.

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