Gearing Up Your Giving: Leveraging the Power of Markets

Far too often donors approach their giving purely as charitable grant-making.

Why not harness the power of markets as part of your change-making strategy?  This post explores three ways to pursue outsize impact with your giving by leveraging the power of markets.

For example, let’s say you have a private foundation, and you distribute the required 5% of the corpus each year as grants to charitable entities. What about the other 95%? It doesn’t have to just sit there in traditional investments. Think about how much more leverage you can get from investing those charitable assets in ways that are aligned with your values and your change-making goals. These days, many donors are finding that mission-aligned investing is not concessionary. What this means is you don’t give up a market rate of return to align your charitable asset investment strategy with your vision for a better world. 

Three Key Pathways for Harnessing the Power of Markets to Increase the Impact of Your Philanthropy

1. Place an ESG screen on how you invest your philanthropic corpus. In other words, invest only in companies that meet certain environmental, social, and governance standards. An increasing array of money managers and investment banks now offer these funds. Recent research by investment bank Morgan Stanley finds that ESG screened investment funds performed on par with the market going back more than a decade. What’s more, these funds have also enjoyed lower downside risk because of a reduced likelihood of corporate scandals. As promising as ESG investments can be, it’s still wise to do your due diligence in selecting them to avoid the risk of “greenwashing”, a term used when ESG claims are not backed up with real evidence. 
2. Use Your Philanthropic Corpus to Make Program-Related Investments (PRIs). In this way, you can put your foundation’s assets to work in alignment with your vision for change. PRIs typically involve accepting low or no return on a financial basis, but their social impact can be transformative. Rather than making an outright grant, a PRI might take the form of a revolving loan fund in which you make capital available to mission-aligned organizations at low or no interest. Because of their concessionary nature, they can also be counted towards your foundation’s 5% annual giving requirement.
3. If you are operating an active business, consider how you operate your business as part of your change-making strategy. Take Australian entrepreneur Andrew Forrest, the entrepreneur who has pivoted his mining company into a clean energy infrastructure, making massively outsized investments in R&D to develop clean hydrogen technology.

A Spectrum of Possibilities for ESG and Impact Investing

Examples in Action

We've already talked about Australian entrepreneur Andrew Forrest and his pushto develop clean hydrogen technology through his business holdings.  Mellody Hobson of Ariel Investments also plays a leading role as a board member of other operating businesses and she has championed ESG investments as well as reforms to corporate governance and practices on multiple levels in ways that are aligned with her broader philanthropic aims. 

Tony Davis brings all three of these market-harnessing strategies together. After a successful stint as a cofounder of the Anchorage Capital Group, he stepped aside from the hedge fund world and set up his family office. From the start, he maintained a philosophy that there was no reason to separate his efforts to make the world a better place from his ongoing engagement in the market as an investor. He set up his family office to deploy his assets for making change across the full spectrum, from charitable grants all the way to maximizing market investments. His vision for social change ultimately led him back into the market to help others do the same. He founded the Inherent Group as an SEC registered investment fund focused on sustainable ESG investments, not just for his own money, but for others as well. It operates alongside the Inherent Foundation, through which he continues to engage in charitable grant-making and PRIs.