You're probably here because you're at least slightly interested in SRI, ESG, Sustainable or Impact investing. That's great news!
I'm going to give you the main takeaway from this article right in the beginning... Are you ready?
We all need you to take a step beyond simply reading about sustainable and impact investing.
Your philanthropic and charitable dollars are a drop in the bucket compared to your investment dollars.
Why we NEED Sustainable & Impact Investing
Hint: Philanthropy alone is not enough...
So why should you consider using sustainable, responsible and impact investments?
More importantly, where are these donations going?
Quite simply, charitable giving alone will NEVER be enough to solve social problems while the majority of our wealth is invested in companies whose primary objective is shareholder profit.
Consider this. In 2017, we gave away $410 BILLION dollars in the US.
Billions. Wow. Sounds like a lot of money… Or is it?
Comparatively, there are about $196 TRILLION dollars EVERY DAY circulating in the global economy.
This means what we gave in a YEAR is only 0.21% of the money in global circulation EVERY DAY.
According to the Chronicle of Philanthropy, the vast majority of charitable giving goes to colleges.
In 2018, the Harvard Endowment fund had $39.2 billion in assets. In 2017 they received another $9.6 Billion in donations.
Can you tell me what social problems another $9.6 Billion in donations to Harvard solved?
In 2017, $6.8 BILLION dollars were deposited into donor advised funds. That’s more than double the $3.3 Billion received by the United Way. (The top in cash donations according to the Chronicle of Philanthropy)
This is important to understand because Donor Advised Funds do not support a charitable cause. They simply hold the dollars until they are distributed to a charitable cause.
To be clear, I am not opposed to donor advised funds. I have clients who utilize donor advised funds. However, currently there is no mandated minimum distribution from a donor advised fund similar to the 5% minimum donation from a foundation.
This means that a large amount of these "charitable" dollars are never getting in the hands of the non profits who need the money.
Countless foundations have been setup and funded as a way for the wealthy to avoid taxes and to pass on a charitable legacy. Often times, what actually passes on is a bureaucracy of board meetings and a foundation that makes the minimum 5% donation required by law.
What this all really means is that:
Philanthropy alone does not solve social problems.
Philanthropy can result in billions of “charitable” dollars laying dormant in donor advised funds or foundations.
According to Grantspace.org, there are roughly 1.5 Million non profits in the USA.
NPTrust.org shows that there are roughly $872 Billion in Foundation dollars and $121 Billion in Donor Advised Fund Assets in 2018.
Divide the total foundation and donor advised fund assets by the number of charities ($993 Billion by 1.5 Million non profits) and each non profit could receive over $600,000!
To be clear, I'm not advocating that we liquidate every foundation and donor advised fund. But, I do think it's worth looking at the math to prove that there is more than enough money available to fund our existing non profits adequately.
Funding is not the problem
Distribution is the problem
To illustrate this...
The first private family foundation in the U.S., the Russel Sage Foundation was founded in 1907.
It wasn't until 2007 that foundations were mandated to distribution a minimum of 5% per year.
That's 100 years with no requirements for "charitable" dollars to be distributed to charity!
There is a better way
Our charitable dollars are not working hard enough. This is why you should consider making a decision to use sustainable & responsible impact investments.
What if we stopped focusing on the 5% that foundations grant to non profits and instead focused on the 95% of foundation assets that often times have no sustainability mandate?
Philanthropy and charitable giving is not enough.
All too often what happens is, a foundation is focused on solving a social problem such as malnourishment in a poor village.
But the foundations investment side has no sustainability mandates or investment limitations. This can lead to investments that are are harming that same village!
Philanthropy and charitable giving alone are not enough to solve the problems we face.
We should support companies that are using business as a force for good and stop supporting companies that use business as a source of profits alone.
So let's ask the question...
Which dollars have the most impact?
Hint: The bigger number has more impact!
This is my long winded way of telling you...
It's great if you make conscious purchasing decisions. Good for you for buying a hybrid car, shopping locally and for all of the other sustainable decisions you make on a daily basis.
But... I'm betting, based on experience, that you haven't yet made the change to incorporate sustainable responsible impact investments.
You're comfortable making sustainable decisions with your "little" dollars but you are probably less comfortable making sustainable decisions with your "big" dollars. Your investments.
I get it. Investing responsibly can be a confusing subject. If you’re a delagator and would like help, we can help you.
If you’re a DIY’er, here are some resources to help you learn more about using your investments for good.
Start with our Ultimate Guide to ESG Investing
Green Century Investments
Fossil Free Funds
Invest with Values.com
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If you're convinced that this may be a good idea for you, but don't know how to get started feel free to schedule a phone call. We're happy to help...
We're a different kind of financial firm than you may be used to.
2 - Farrell, D., Lund, S., Skau, O., Atkins, C., Mengeringhaus, J., & Pierce, M. Mapping Global Capital Markets: Fifth Annual Report (2008).