CHARITABLE PLANNING

Jeffrey D . Haskell

Impact investing has gained popularity with charitable donors and foundations .

ET ’ S SAY YOU HAVE A HIGH-NET-WORTH CLIENT WHO cares about wildlife conservation and consistently makes sizable donations to charitable organizations that support preservation initiatives . They hear a local news report about a corroded gas line releasing harmful pollutants into nearby streams and rivers , causing the aquatic life to perish . They then realize they own shares of the energy company responsible for the gas line .

Moral Dilemma : What To Do ?

It ’ s a common conundrum — many people and organizations that want to solve the world ’ s most damaging and persistent problems have investments as their lifeblood . Those assets need to be invested in order to grow and sustain their philanthropic work . So what happens when donors ’ charitable missions are directly contradicted by their own investments ?

For foundations , it can sometimes seem as though their assets and grant-making programs are in direct opposition to each other , or at the very least failing to work together to accomplish a charitable mission . And since many foundations invest 95 % of their assets while distributing about 5 % each year for charitable purposes , it ’ s even conceivable that the damage done by the investments exceeds the good accomplished by the distributions !

Over the last decade , more donors and foundations have been attempting to address this issue and get all of their horses pulling in the same direction . They want their investments to enhance their philanthropic efforts

What happens when donors ’ charitable missions are directly contradicted by their own investments ? or at least not run counter to them . And for foundations , if their 5 % minimum charitable distribution requirements are regarded as the “ do good ” portion of their portfolio , the goal for the other 95 % might at least be conceived as “ do no harm .” Hence , the adoption of “ impact investing ,” a widely popular investment strategy that aims to generate a positive social or environmental impact in addition to providing a financial return .

Some impact investing approaches are relatively straightforward , while others are more complex and carry additional risks . Below we outline four distinct approaches , ranging from fiscally conservative to financially risky , that can help ensure that assets earmarked for charitable use are serving the greater good .

1 . Community Investing : A ‘ Safe ’ Introduction

One of the easiest ways for a committed donor or private foundations to dip a toe into impact investing waters is by simply moving their money from a traditional bank to a community development financial institution ( or CDFI ) such as a community bank or community credit union . These financial institutions are common throughout the United States , and you ’ ve probably heard of them without realizing that they have a social mission tied to their financial products .

JUNE 2023 | FINANCIAL ADVISOR MAGAZINE | 27