Charitable foundations face a “clear governance risk” if responsibility for investment strategy is not shared across the trustee board, according to a new report.
Investment: The Pillars of Stronger Foundation Practice by the Association of Charitable Foundations (ACF) argues that investment decisions must not be “siloed or delegated” to finance experts on the board, and that all trustees should be offered basic investment training to reduce risk.
The recommendation is one of several made to help foundations make decisions which align their investment strategy with their wider mission.
Seven pillars
Foundations should ensure that their investment strategy is supported by seven “pillars”, ACF says.
In addition to sharing responsibility across the board, this includes prioritising the foundation’s social objectives over financial returns alone, making sure that investment managers “can be heard and challenged” on their decisions where necessary, and responding promptly and transparently to scrutiny.
The report also urges foundations to consider what actions are needed to meet the urgency of the climate crisis, and to share more information and expertise with other foundations.
Finally, it advises trustee boards to bring in more “diverse voices” to advise on investment decisions, and argues that in the most effective foundations, “trustees and staff consider whose voices are not being heard when investment is discussed.”
Investment policy must ‘avoid falling behind’
The report states: “Many foundations have historically separated the function of investments from grantmaking, and viewed the contribution of investments to mission as solely the generation of a financial return to be spent on grant-making.”
However, writing in the introduction to the report, Carol Mack, chief executive of ACF, warns that this approach is out of date.
“Society is demanding ever greater transparency from institutions and asset holders about the sources of their wealth and how it is invested and stewarded,” she says.
“New approaches to creating a sustainable economy are emerging and the climate crisis means action is both necessary and urgent. Foundations will need to move forward to avoid falling behind.”
Billions in assets
Danielle Walker Palmour, chair of the working group which produced the report, said: “As UK charitable foundations, some of the most capital-rich organisations in the charity sector representing over £67bn, the reality is that most of our assets are invisible, even to us. But investment strategy is integral to foundation strategy.
“As members of this working group, we have explored how investments can be brought into our strategic arsenal to be of true service to our missions. It is vital we engage with and shape that work to ensure it is consistent with our objectives.”
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