The author of The Discomfort Zone, which blogs about Sustainable Enterprise, Emerging Markets, and Governance: Perspectives on International Development, left a comment on my post about private foundation investment strategy:
Your example of a foundation invested in a fossil fuel company, but supporting alternative energy has two flaws. In saying that success in grantmaking may undermine its asset returns, and hence its existence you presumes that the foundation needs to exist for eternity. Why, if the foundation has indeed achieved a paradigm shift and its goal?
It is also realistically unlikely that the impact of grantmaking would be so drastic as to threaten the profits of a fossil fuel company. The assets of a foundation are more than an order of magnitude higher than its grants.
While I accept that foundations should do some asset analysis, it should probably be restricted to examples such as you give (invest in diametrically opposite sectors). The Gates Foundation is correct in saying SRI isn’t their core competence. More important, SRI raises far too many ethical questions of its own, to be embraced without pause.
You should take some time to read their complete post on the subject. I don’t agree with all of it, by far, but it is a compelling argument.
I admit that most foundation’s grants will not undermine a whole industry, but the simplified example was suppose to allow us to see the impact of investments on grant making, even if the effect is small.
I continue to wonder how buying shares in a company from another investor really does much to “support” that company’s actions. The main thrust of why I think that SRI investing is fine, but certainly not required of foundations is that I fail to see how not avoiding certain companies does much if anything to “support” those companies’ business practices. When you buy a product from a company, you are directly supporting them. But buying their stock in the publicly traded markets does not help them one way or another. Although I admit, it might make the foundation board members feel good about themselves.