The competence center for charitable foundations Regenerative systems as motors for change – a thought piece
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Pushing for positive change. Foundations can do so not only by providing grants and implementing charitable projects; those that make sustainable investments based on ESG criteria also have a greater impact. This benefits not only people and the environment but also the foundations themselves, according to Helen McDonald, UK Head of Foundations and Impact Advisory Services.
Focus shifting to sustainable investments
To solve our world's biggest problems, above all climate change and social inequality, three things are needed: innovative ideas, the political will, and financial resources. Funding can be obtained from philanthropic sources, among others. Increasing numbers of wealthy private individuals, companies, and institutions are setting up foundations and devoting themselves to charitable goals. The COVID-19 crisis has recently shown how important this contribution to society is. Philanthropists provided emergency monetary assistance very quickly.
As awareness grows among the public about charitable, humanitarian, health-related, ecological, scientific, and social issues, so does demand for sustainable investments. "Foundations want their investments not only to produce financial results, but also to have a positive impact on the environment and society," states Helen McDonald, a financial expert in the foundations area. "We are seeing this mindset increasingly becoming part of the fiduciary obligation."
Foundations are developing their strategies for sustainable investments
Foundations were early adopters of sustainable investing. Helen McDonald explains, "They were some of the first institutions that incorporated sustainability into their investment decisions." At first, foundations tended to concentrate on sustainable investments based on norms or values. That excluded equities and economic sectors that could have potentially negative effects on society or that went against their own values.
More recently, many foundations have supplemented this approach by integrating environmental, social and governance (ESG) factors into the investment decision-making process. "Among other things, they do so to achieve better returns," the expert explains. Moreover, foundations are building capital pools for investments that, besides turning a financial profit, have a targeted and measurable social and environmental impact. Helen McDonald says, "All this is very complementary to a program of grant-giving."
SSAF: the range of sustainable investments
The Sustainability Strategy, Advisory and Finance (SSAF) unit combines all of Credit Suisse's investment activities worldwide in the area of sustainability into one organization. The SSAF devises an appropriate sustainability strategy. The unit's aim is to facilitate investable projects and initiatives that have a positive economic and social impact while focusing primarily on generating a financial return for clients.
Source: Credit Suisse
Word is spreading about the success of sustainable investments
Investment success in the sustainable sector has not gone unnoticed among other investors. "If we look at the rise of sustainable investments over the last few years, we are seeing more and more investors embrace this movement, including governments and large institutions such as pension funds and insurance companies and even family offices and private individuals," McDonald says.
Globally, assets worth USD 30.8 trillion are invested sustainably, representing a 34% increase over the prior two-year period. This was revealed in the latest audit by the Global Sustainable Investment Alliance in 2018. "We believe this number has grown significantly since then," says the expert.
Sustainable investing market development
Sources: 1Global Impact Investing Network, data based on GIIN members' self-reported figures on impact of assets under management.
2Global Sustainable Investment Alliance, data provided every two years.
Sustainable investments take the burden off philanthropy
Helen McDonald dismisses the idea that sustainable investing might grow at the expense of charities. "The needs of the world appear to be increasing exponentially," she emphasizes. It is true that sustainable investments supply urgently needed capital for financing and scaling solutions for many of the UN's Sustainable Development Goals. However, the expert says they should be used in conjunction with government spending, international aid, and charitable donations, rather than cannibalizing them.
Helen McDonald iterates that is because not every worthy cause is suited to a model promising high returns. Examples include humanitarian aid, domestic violence, and homelessness. "On the flip side, if we can find market-based solutions, such as technology, to drive climate solutions or affordable housing, that is a great way for sustainable investments to take some of the burden off philanthropy," states the expert. The question for foundations then will be how to best deploy their capital and resources to achieve their ends most effectively.