If Not Now, When? The Disconnect Of Turning Outward With Philanthropy And Inward With Investments
By: Jesse Simmons, Client Service Senior Associate at Align Impact
With the compounding challenges of the COVID-19 pandemic and associated job loss, struggles for racial justice, devastating wildfires, and an increasingly disconnected White House, 2020 has seen an increase in philanthropic giving.
The growth in giving has come from a range of grantors recognizing the immediacy of these challenges and the importance of their capital in driving solutions. This giving implies a sense of agency: that asset holders can influence the state of the world by thoughtful gifting of their capital. A common refrain we have heard is “if not now, when?”
But this increase in giving has coincided with an opposite financial reaction to the challenges of 2020: a focus on de-risking investment portfolios as investors hunker down to preserve assets so they can weather the outcomes of these storms, while failing to realize that their investments can also influence the severity of these very storms.
Investors who divorce their investment strategies from their giving priorities are missing an important opportunity — not just to optimize their impact, but also to optimize the performance of their investments. In fact, many investors fail to recognize the role that select impact investments can play in risk mitigation. In other words, there are a number of ways to invest in areas that advance your charitable objectives that can also help achieve your portfolio risk mitigation objectives.
So if one of your priorities is to find ways to help make the world more livable for ourselves and our descendants, your approach can include strategies that mitigate both investment risk and risks like climate risk: insulate against adverse events while also decreasing the likelihood and intensity of those adverse events. For example, if you want to protect against the threat of climate change, you can both protect your assets while also using them to mitigate climate change, such as through renewable energy investments. Investments in renewable energy can provide strong financial returns at low risk levels (owning a real asset generating an essential product) while also facilitating the transition to clean energy.
The following examples are a snapshot of investment opportunities that can help investors contribute to social and climate solutions (mitigation) while achieving strong capital preservation (resilience).
Investments such as these can have material impacts on critical issues like climate change, racial justice, and business resilience; investors alone can choose which of those outcomes to target. Yet we still see individuals, corporations, or foundations giving to climate change mitigation or racial justice while simultaneously investing in fossil fuels or banks that practice discriminatory lending or that have poor records on diversity and inclusion. The consequences of this disconnect is exacerbated by the size of the capital pools: Americans gave $428 billion to charity in 2019, less than 1% of the $71 trillion invested in equity and fixed income markets.
To make the world work for 7.8 billion people, investment capital must be activated as part of the solution. Fortunately, there are investment opportunities to drive impactful solutions while protecting value. You can build your financial nest egg while also leaving your descendants a healthier climate and a more just society. If not now, when?
Disclaimer: This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results.
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[1] This has included increases of granting budgets, per 60% of respondents to a September 2020 report by Council on Foundations, Philanthropy California, and Dalberg Advisors, and has included innovative steps such as the Ford Foundation issuing bonds to increase its 2020 giving.
[2] Project Drawdown
