Aligning philanthropy and investments

Please note: This article does not constitute advice. Barclays Private Bank does not endorse any of the companies or individuals referenced in this article.

As well as managing their philanthropy, many donors are also striving to maintain a successful financial portfolio.

Historically, these objectives of investing and doing social good have been separate from one another. As such, certain family members or foundation trustees have typically overseen the stewardship of capital, while other family members or staff have taken responsibility for giving strategies.

An increasing number of wealth holders are becoming aware of the ways in which aligning their investments with their philanthropic goals has the potential to enhance their mission and/or values¹.

Here, we explore some of the factors driving this shift towards a more integrated view of wealth and the key considerations for those wishing to take this approach.

Linking social purpose and investment goals

Bringing philanthropy and investments together is, of course, a very large topic and may not be for everyone. If you’re interested, we encourage you to research this further, consider your broader investment objectives and lifestyle needs, and seek to learn from others who are experienced in these approaches. 

If you decide to explore this in more depth, some options you may consider include:

• Avoiding or exiting investments that might undermine the outcomes you are seeking through your philanthropy.
• Actively investing in companies or projects that aim to generate impact, as well as financial returns.
• Considering how funds from your philanthropy could support social enterprises and ethical businesses.
• Taking a long-term view of your finances by investing in companies that align with your values but may not provide an immediate profit. This is often referred to as ‘patient capital’.
• Using your rights as a shareholder to vote or influence companies on social or environmental issues, such as the living wage, tax transparency, gender equality or decarbonisation.

The Spectrum of Capital

Donors often have a range of options when it comes to using their capital for good. The ‘Spectrum of Capital’ diagram below illustrates some of these, from ‘impact first’ approaches (philanthropy) to ‘finance first’ approaches (traditional investing).

It also outlines the intentions and goals that might underpin and influence your decision about which approach is best for your unique circumstances.

As you begin to explore this topic in greater depth, you may also want to consider the following points.

Regulation 

Regulations (or guidance) in the country in which a charitable entity operates may impact how you use your investment capital. You will need to be aware of these if you wish to start investing for good. 

In the UK, for instance, guidance states that a foundation may consider its overall return in terms of both its financials and the advancement of charitable purposes². This guidance may help foundations move beyond the conventional model of keeping capital preservation and social impact investments separate from one another. 

Skills

Shifting to a more holistic approach requires an appropriate blend of skills. This may mean bringing in new board members, team members or advisers with investment capabilities. 

Learning from peers, more experienced foundations or investors, and grassroots organisations can also be valuable. 

Measurement

Accountability and transparency are important, but measuring the social impact of grants and investments can be extremely complex. 

The key is to ask the right questions and give the same prominence to investment decision-making as you would donations and grant decisions.

Before you begin, ask yourself the following questions: 

• What are your motivations for taking a more holistic view of wealth? 
• Who should be involved in decisions about aligning investing and philanthropy? 
• Which part(s) 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?

Foundations and membership bodies are also sharing a wealth of knowledge to support investing in this space. These include (but aren’t limited to) Impact Frontiers, the Association of Charitable Foundations, The Impact Investing Institute and Charity Finance Group.

Case study

Paolo Fresia: A holistic approach to investing and impact

Impact investor Paolo Fresia reflects on the journey that led him to combine his investment portfolio with his aspirations for doing good.

It was summer 2016. My mother had recently passed away and I wanted nothing more than to be a responsible steward of the capital she left me. 

After years of hiding from my inherited wealth, I hired a team of financial advisers. They showed me a list of the United Nations’ Sustainable Development Goals³ and asked where I’d like to focus my investments.

I thought: “Who cares what I want when it could be completely different from what the world actually needs?”, and “How did I come to inherit such large sums when many have so little? Is it possible to use my resources to shift the system and reduce inequality?”

‘Not as impactful as I’d hoped’ 

Next, the advisers produced a chart showing available impact investment opportunities. Back then, this was microfinance, a scattering of healthcare, education and environmental themes. I initially decided to go with the most investable opportunities. 

However, this approach to investing was not as impactful as I’d hoped. Being mainly confined to public markets did not allow for additional and/or flexible capital to truly tackle the world’s largest problems. 

Everything changed two years later when I did some serious financial planning. My new adviser asked me to imagine that I live to be 100 and to plot my projected expenses until then, and derived an asset allocation that would ensure I meet those cashflow needs. 

With the knowledge that my family’s financial needs were now covered, I gained the confidence to take greater risk across my excess assets, which allowed me to maximise my impact across both my investments and my philanthropy. This meant shifting to a much higher percentage of longer-term, illiquid investments, rigorously vetted for their potential to maximise social and environmental impact. 

Identifying core themes

I decided on three core themes for my investments and three for my philanthropy. These were not solely based on my preferences or passions, but also considered which issues tend to be the most underfunded or severe, and where capital can be most effective to provide solutions.

For investments, these themes were sustainable supply chains, climate change and gender. And for my philanthropy, I chose saving lives in the poorest countries, grassroots social movements in Europe, and LGBTQI+ activism in the Global South. 

The final piece of the puzzle was to combine financial planning with the themes that I had prioritised. This way, I could actually invest for impact, rather than simply ‘do impact investing’. 

An optimal rate for giving

I worked with another financial planning expert to define an optimal rate for my giving, which is 3% of my total wealth per year. 

Investing for impact often means challenging the preconception that a portfolio should grow in size, above all other priorities. Having defined how much is ‘enough’ for myself and my family, I’m perfectly happy to spend down my excess wealth gradually, if that means having greater impact.

Answering to future generations 

I visualise myself in 15 years, when my children are part of a generation defined by the climate and other emergencies. I imagine them asking “Papà, how did you try to prevent these?” By bringing my philanthropy and investments together and rigorously prioritising to maximise impact, I’ll have a better explanation than “I did my best”.

Future generations will not care that we had good intentions. They’ll judge us by our actions.

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