Charitable foundations do not always run portfolios that are more socially responsibly invested than the average investment fund.
Those foundations that had adopted socially responsible investment (SRI) strategies were still thinking largely about exclusion rather than searching actively for assets that were aligned with their ideology, according to Russell Investments endowment and foundation strategy director Heather Myers.
"I think of the whole socially responsible investing as the negative screening parts: no tobacco or alcohol, and that is usually mandated by the church or a school where they can't have those," Myers said.
However, attitudes are changing and foundations are increasingly exploring the possibilities of aligning their ideas with their investment behaviour.
"Part of the discussion is: 'Okay I believe in it, but I want to make sure I can make money out of it.' That is the whole SRI discussion," Myers said.
"The groundswell [for SRI adoption] primarily has been for family foundations where it aligns with what they are talking about.
"But it really depends on what type of organisation is within that entity of charitable organisations.
"Mission-related investing is something that is becoming bigger, where I have a mission and I want to align part of my investment portfolio with my mission. If I'm helping a local community I might want to invest in a community bank or something."
Myers, who is based in Russell's New York office, visited Australia earlier this month to speak with charitable organisations in the region.
She said the global financial crisis (GFC) had slowed down the adoption of SRI strategies by foundations.
"There was interest there prior to the crash in 2008, but when the crash happened I think everyone paused, and said: 'Okay, I just have to focus on what I have to focus on,'" she said.
During the GFC, many foundations got into financial difficulties as the value of their assets declined sharply. Some funds had to close down, while those that survived had to review the structures under which they were established.
"There is the concept of 'in perpetuity', and most foundations are in perpetuity," Myers said.
"All along they thought they were in perpetuity, but when they saw a decline in their portfolios they said: 'My benefactors need my money now and I know that if I spent a lot I'm going to have a lot smaller chance of staying in perpetuity and so let's have that discussion.'"
However, as many global economies are on their way back to recovery, the debate about SRI strategies is back on the agenda.
"Now you can see that groundswell come back up, and this year, 2010, there has been a lot of discussion on it. People have come back and feel they can breathe again after the financial crisis," Myers said.
