Magazine article The CPA Journal

A Primer on Cause Investing

Magazine article The CPA Journal

A Primer on Cause Investing

Article excerpt

CPAs are often exposed to investing and investments through their clients-auditing the disclosure schedules they provide, getting comfortable with valuations, and dealing with matters concerning ownership, for example. There has been a tremendous increase in institutional investors pursuing their mission through their investments. What makes this a challenge is that there are many ways of doing so: by divestment (screening out certain "unacceptable" investments); positive screens (actively seeking investments that support an initiative or mission goal); or looking at the structure of the entities in the investing chain (advisor, consultant, manager, administrator) and applying a diversity, equity, and inclusion (DEI) framework to staffing.

The investing landscape is changing, and there is a role for CPAs to be helpful. As management considers its approach to cause investing, it becomes apparent that the language and metrics used are not universal, and may not even be consistent within an organization. Cause investing can be of interest to any business, but may especially be of interest to not-for-profit entities with greater investing activities, such as foundations (private, operating, community) and college endowments.

Many entities will likely embrace cause investing, but what each means by that term will be different, as seen with the move to outsourced chief investment officers (OCIO). Each organization will likely define it in different ways and implement it in myriad frameworks, but a central taxonomy will allow for better discussion through the use of a commonly accepted nomenclature. This nomenclature does not have to be universally accepted-as long as the decision makers within an organization agree on what the terms mean (to them and their organization) and the investing implications for each, they can have meaningful conversations. The purpose of this article is to offer a common ground to facilitate such discussion.

Types of Cause Investing

Some of the popular examples of cause investing include the following:

* Mission-related investing (MRI)

* Program-related investing (PRI)

* Environmental, social, and governance investing (ESG)

* Impact investing

* Sustainable investing

* Socially responsible investing (SRI).

Each type refers to a particular investing strategy with a specific purpose. There can be overlap, and some organizations will use different terms to describe the same approach. Consistency between organizations is not as important as consistency within the organization.

Mission-Related Investing

Every nonprofit has a mission, and mission-related investing (MRI) is choosing investments that further the organization's mission. The translation of the mission into an investable thesis is easier for some missions than others. The operationalization of the mission into a set of companies for consideration for investment involves understanding the nature of the operations of a company that would further the promotion of the mission.

The IRS provides guidance on jeopardizing investments and the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The guidance provides that an organization "may consider the relationship of a proposed investment to the foundation's charitable purpose when determining whether an investment is prudent" (Celia Roady and Matthew R. Elkin, "IRS Provides Guidance on Mission-Related Investments by Private Foundations," Morgan, Lewis and Bockius, Sept. 29, 2015, http://bit.ly/ 2T2A8Dm). This is welcome relief for institutions that undertake MRI.

The John D. and Catherine T. MacArthur Foundation has a thoughtful treatise on mission-related investing. They provide a chart of how they conceptualize what they term "mission investing," shown in Exhibit 1. It is instructive to note that mission-related investments come under the heading of "impact investing." The term impact investing can have many meanings (as discussed below); here it is used more in the vernacular of "investments that will have an impact that is related to the mission. …

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