The charitable impulses of persons with significant financial means make possible much of the most worthwhile efforts in society: from the arts and culture to medical research and campaigns to alleviate poverty and its effects, philanthropic interests are the financial backbone of a multitude of important work that would otherwise occur.
Traditionally, such philanthropic interests have been somewhat isolated from benefactors’ wealth-building activity. Often, a charitable foundation established by the philanthropist would be tasked with administering and disbursing funds targeted for philanthropic purposes, while other entities would attend to the profit-generation side of the enterprise. But more and more, affluent persons with charitable goals are finding it possible and even advisable to bring about greater alignment between their investment and philanthropic activities.
Combining Charitable Aims with Investment Practices
There are several ways in which investment activity and philanthropy can be coordinated to generate greater synergy for a benefactor’s desired charitable outcomes. Ideally, such coordination would leverage the benefactor’s investment practice to the benefit of their social intentions, either by directly supporting aligned enterprises or by creating a more congenial environment for charitable efforts to prosper.
To own or not to own? One such strategy might involve avoiding or divesting from investments that tend to operate at counter-purposes to the benefactor’s desired philanthropic outcomes. An investor with the goal of improving public health, for example, might wish to avoid owning stock in companies associated with unhealthy products such as tobacco or alcohol. On the positive side, such an investor might find it advisable to invest in companies that are conducting research or developing cures for diseases that target the populations a benefactor is interested in helping: certain pharmaceutical or medical technology companies could exemplify this strategy. By supporting companies that are trying to both make an impact on a problem and also generate a profit, the investor may be able to leverage the goal of increasing wealth while also participating in advancing the public good.
Taking the long view. Because their goals often involve changes in society that require significant spans of time, some philanthropists may deploy what is sometimes called “patient capital”: assets invested in efforts that have promise, but may take longer to come to fruition. These could include companies that have strong alignment with the benefactor’s values and philanthropic intentions, but that may not generate a significant—or any—profit in the short term.
Shareholder activism. Those who appreciate the value of taking a more active role may decide to use their rights as shareholders to influence company policy or strategy in directions that align with the investor’s values and aims. Such efforts will often be related to considerations around corporate environmental, social, and governance (ESG) policies, such as expanding opportunities for women and minorities, reducing the carbon footprint, and other important causes.
Values or Profit?
As philanthropically minded investors consider these matters, they should keep in mind that these considerations typically exist on a sliding scale or spectrum between philanthropic outcomes (“impact first”) and traditional investing (“finance first”). The two poles are not mutually exclusive, but the various strategies that may be employed will usually contain a bias in one direction or the other.
As a benefactor considers these matters, it may be useful to ask some probing questions:
- How will I judge the success of my efforts: by an increase in my portfolio value, or by the impact my giving has on society?
- What regulatory restraints do I face, if any?
- What is the potential political impact of my contemplated activity? Can I live with the possible outcomes?
There are other matters that should be considered as well:
- Who should be involved in decisions about the alignment process?
- What are your motivations for taking a different view of wealth?
- Which parts of your portfolio do you want to align: business, family, and/or foundation investments?
- Where could you begin this process: reviewing your existing portfolio(s), allocating a small portion of your capital to experiment, and/or refining your investment strategy?
- Are you willing to commit time to learning about this new area?
Successfully blending philanthropy and investments is, of course, a very large topic. Those who wish to examine it in more depth should consider their broader investment objectives and lifestyle needs and also seek to learn from others who are experienced in these approaches. Rothschild advisors stand ready to assist clients with guidance and information. We also invite you to gain further information by reading our article, “Foundational Gifting Strategies for Financial Legacies.”
Disclosure: This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.
