A Note for Community Foundations
The IRS guidance in question refers to section 4944 of the Internal Revenue Code, which regulates jeopardizing investments made by private foundations. The section—and therefore the guidance—only pertains to private foundations. However there is no equivalent guidance applying to community foundations, and so the Council advises our community foundation members to feel comfortable following a similar standard of prudent investment.
If you have questions about how this guidance applies to your foundation, contact firstname.lastname@example.org.
Important issues are rarely black and white. This is all the more true when you are talking about the United States Tax Code. Though hardly colorful, the volumes of statute, regulations, rulings, guidance, and discussion that flow from Congress, the Treasury Department, and the IRS can tax the interpretive skills of even the most knowledgeable readers.
That’s why when a moment of clarity comes about, it is a big deal. That’s why last week’s guidance on Mission Related Investments (MRIs) is a really big deal. In four pages—printed in black and white—the Treasury Department offered long-sought clarity to foundations around the country: “When exercising ordinary business care and prudence in deciding whether to make an investment, foundation managers may consider all relevant facts and circumstances, including the relationship between a particular investment and the foundation’s charitable purposes.”
Did you catch that? For the first time, the Treasury Department has made clear that private foundations can invest their endowments with an eye towards charitable return in addition to (or even in spite of) financial return. This change had been a priority of the Council for years, and we have worked with partners like Mission Investors Exchange and the Council of Michigan Foundations to make this announcement possible. The timing could not have been more telling.
Just as the Administration was preparing to release this information, more than 300 foundation staff and trustees had joined the Council on Foundations to learn about mission investing from leaders at the Case Foundation, Mission Investors Exchange, and the Omidyar Network. (If you missed it, the recording is available on our website.)
The conversation covered a sample of the goals, objectives, and tasks that can drive a foundation’s mission investing. It also touched on the work of the Council, MIE, Case, and others to make the tools of mission investing accessible to more foundations.
That matters because more and more foundations are hoping to leverage mission investing as a tool to advance their charitable purposes. This field is new, so the data can be spotty, but we can say this: in 2011 research by the Commonfund Insitute showed 9% of private foundations used environmental, social, or governance (ESG) criteria to guide investment decisions; research released by Commonfund and the Council this year shows that 23% of private foundations are currently or are considering using ESG criteria. In addition, another 19% of private foundations responded that they now use other types of mission-aligned investing strategies, such as negative screening and direct impact investing.
The growth is tremendous, and it is only made possible through a robust infrastructure of supporting actors. Leaders from foundations large and small have blazed the trail. Networks like the Council can connect their peers to lessons learned. And a supportive environment in Washington, DC, puts them all on sound legal footing.
There’s still a lot of work to be done. As this movement gains momentum, there will be missteps. Investments may fail and exuberance may wane, but this new guidance means MRIs are a tool that’s here to stay.
For more information on mission investing, check out the Council’s Impact Investing Resource Page, and if you want to dive deeper into the new guidance you can join the Council and MIE for a special webinar on September 29 at 2 pm ET (a recording will be available afterwards).