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February 15, 2008

Foundations Move Toward Mission Related Investing, One Foundation at a Time
    by Anne Moore Odell

Climate change issues may push foundations to examine their portfolios and proxy voting policies. -- A small, but growing number of foundations are stepping up to confront and fight climate change on two fronts. First, more foundations are supporting work that mitigates climate change in their missions and as part of their charitable giving. Second, more foundations are seeing the importance of managing their investment portfolios and proxy votes to support clean energy and address climate change.

However, for most foundations there is still a large disconnect between what their missions support and what their invested endowments actually support.

The As You Sow Foundation works to increase corporate responsibility, and although it doesn't have a major endowment itself, it has been helping other foundations vote their proxies for over ten years. In 2004, As You Sow published the guidebook "Unlocking the Power of Proxy," and has published a Proxy Season Review in 2005, 2006 and 2007. Its 2008 Proxy Season Review will be released later this year.

"There has been a dramatic increase over the past year or two of foundations that been looking to align their investments with their missions." said Michael Passoff, associate director of As You Sow Foundation. "We can see that there is more awareness among the foundations themselves, more alerts, more discussions on list serves, more presentations at conferences," continued Passoff.

As You Sow's 2007 Proxy Season Review lists 29 foundations that filed resolutions and/or have moved to align their investments with their missions. Ten years ago, As You Sow was one of the only foundations to be working in this area. Along with As You Sow, a number of foundations are actively managing their portfolios, filing shareholder resolutions, and voting their proxies. Leaders among foundations include the Boston Foundation, Doris Duke Charitable Foundation, Ford Foundation, Nathan Cummings Foundation, and Jessie Smith Noyes Foundation.

Although the number of foundations that are actively working to align their investments with their missions is very small out of the total number of private foundations in the US-the Foundation Center lists the number of private foundation in the US in 2005 at over 70,000-these foundation pioneers are not to be discounted. Not only are they starting a much needed conversation about mission related investments (MRI), these foundations include some of the largest and influential foundations like the Ford Foundation, David and Lucile Packard Foundation, and John D. and Catherine T. McArthur Foundation.

Passoff pointed to an expose of the Gates Foundation in the Los Angeles Time published January 2007 that asked some of the difficult questions that more foundations are going to have to answer. Are foundations actually working against themselves if they invest in companies that are part of the problems their missions are trying to address?

Climate change might just be the lighting-rod issue that drives foundations to commit to aligning their portfolios with their missions and to be more active shareholders.

"Climate change is the latest, largest cross-over proxy voting issue," said Passoff. "Most foundations are similar to mainstream investors. Whatever the foundations programs might endorse, their boards are more conservative. However, boards see clean energy as a good investment. It's a relatively easy way to switch out portfolios that also looks like a good way to make money."

"Taking Action on Climate Change," a report from the William and Flora Hewlett Foundation published late last year outlines some steps foundations can take to help fight climate change. The report suggests what philanthropic organizations should know to start acting on energy efficiency, renewable energy, coal, cars and fuels for transportation. Although the Hewlett report states that investments should match a foundation's mission, the report doesn't focus on proxy voting or shareholder activism.

"I have been working on this for nearly 20 years," said Stephen Viederman, former president of the Jessie Smith Noyes Foundation, and currently on the finance committee of the Reynolds Foundation and the Needmor Fund. Viederman told "program officers are generally supportive but there are no incentives for them to take the lead within the foundation, especially since the locus of decisions on such matters is with the finance committee."

Viederman said there are a lot of reasons more foundations don't vote their proxies or have investments that match their missions, for example, there are few qualified consultants and many investment consultants actually discourage mission investing.

Another reason foundations give for not voting their proxies is the time it would take away from grant making.

"There continues to be a dearth of foundations with well articulated, publicly disclosed proxy voting policies," said Laura J. Shaffer, Director of Shareholder Activities at Nathan Cummings Foundation (NCF). "In terms of other active ownership strategies, such as filing shareholder resolutions and participating in investor coalitions like the Investor Network on Climate Risk (INCR), participation continues to be confined to a small few."

Shaffer told, "Most foundations give away about 5% of their assets each year to address problems like climate change, social inequality and the HIV/AIDS epidemic, but fail to effectively employ strategies to leverage the other 95% of their assets to address those same issues. Thoughtfully and consistently voting their proxies, which often include shareholder proposals focusing on ESG issues, is a relatively easy way to begin. Filing shareholder resolutions can also have a significant impact."

In April of 2002, the Nathan Cummings Foundation established new Shareholder Activity Guidelines. The guidelines call for NCF to take an active approach to ownership, including voting its proxies and filing shareholder resolutions where appropriate. The Foundation's votes are guided by an emphasis on long-term shareholder value and by NCF's overall themes of accountability, transparency and social and economic justice.

Beyond voting proxies, some foundations are joining with others to address climate change. "We support such efforts through collaborative investor initiatives like the United Nations Principles for Responsible Investment, the Carbon Disclosure Project (CDP) and the Investor Network on Climate Risk (INCR)," said Shaffer. "NCF has also given grants to both the CDP and Ceres, which serves as the secretariat for the INCR."

In 2007, NCF cast 684 votes on more than 200 different proxies and supported roughly 70% of shareholder proposals relating to environmental and social issues and 90% of shareholder proposals relating to corporate governance issues in 2007.

Another foundation involved in shareholder activism and MRI is the Vermont Community Foundation (VCF). VCF established proxy-voting guidelines in 2006 and also a statement on mission investing.

"We are eager to have more foundations begin to address the firewall between their grant making and their invested assets," Faith I. Brown, executive vice president for finance and operations for VCF, told "We feel that as mission-based institutions, we have a responsibility to deal with the issues of how to align all of our activities with our mission, including our investments."

VCF developed its proxy voting policies to help guide its investment managers in their proxy voting. While most of VCF's assets are in commingled funds in which proxies cannot be voted separately, they believe it is still beneficial to engage managers in conversation about their proxy votes. VCF has also been active with its managers on Sudan and have co-sponsored proxy voting resolutions in 2007 and 2008.

Foundations are the last of the mission-based institutional investors, long after university endowments and pension funds, to realize the power of their portfolios. However during the 2008 proxy season, climate change might just be the issue more foundations rally around, voting their proxies to both manage financial risk and protect the environment.

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