At the heart of an institution lies its mission. Mission should inform all aspects of an institution's activities, including the management of its financial resources.

For many people, this relationship between mission and investment is not obvious. Mission for them is something accomplished with the proceeds of investments. But, think of investments in a context like that of grant making:

These questions suggest that how an institution invests can be an additional means for achieving mission. Since companies that issue investment securities have characters and cultures, what an institution invests in can say as much about it as what it funds.

This paper describes mission-based investing -- the incorporation of an institution's mission into its investment decision-making process. It focuses on procedure -- the means and methods of reaching defensible decisions and therefore on the issues that arise in their adoption and implementation. These include:

This section examines the arguments for mission-based investing.

What is mission-based investing?

Mission-based investing is the incorporation of an institution's mission into its investment decision-making process. An institution's mission is its purpose or calling which is often summarized in a mission statement. Thus, the institution's mission may serve as a guide in determining what, if any, non-financial objectives it may set for its portfolio. The objective of mission-based investing may be said to be the alignment of investments with mission. But, it can go far deeper than a mere refocusing. Mission-based investing can lead to complementary, mutually reinforcing approaches to investment and grant-making, on one hand, and philanthropic mission and fiduciary responsibility on the other.^*

An institution's mission can play a driving role in its investment policies. First and foremost, its investments must generate cash for its programs, but they can also be consistent with the institution's mission. Consistency leads to clarity, and clarity about mission reinforces an organization's institutional integrity and extends its influence.

What benefits come with mission-based investing?

Mission-based investing emphasizes that mission comprises the core of all decision-making. It makes clear to both internal and external constituencies that the principles embodied in its mission affect every aspect of institutional life. The process of defining an investment policy makes an organization's mission congruent with its financial stewardship. It works toward consistency because it recognizes that growth and profit are illusory to the extent that they come at the price of a compromised mission.

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Can the mission statement guide an investment policy?

Yes. An institution's investments may give it an additional means for achieving its mission. Since the mission statement guides the organization as a whole, it must direct investment decision-making.

Positive social change begins with the institution itself, with a process of self-examination and self-understanding. A part of that process must be an analysis of the purposes an institution's financial resources may serve. This process permits an informed -- and effective -- advocacy that reinforces the organization's purpose. Another important means of implementing an advocacy program is social screening.

Can mission serve as the basis for social screening of a portfolio?

Yes. Social screening is the inclusion of ethical, moral, or religious criteria in investment decision-making. Institutions do not choose these criteria randomly. Implicitly or explicitly, institutions look to their missions for their expressions of their core issues and sustaining values. Thus, their investment policies represent an elaboration of part of their mission. A Haverford College trustee described its decision to end investments in tobacco: "Our reasons for divesting arise from Haverford's affiliation with the Society of Friends, which has a commitment to peace and social responsibility as bedrock beliefs."^*

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Is mission-based investing legal for foundations, endowments and NGOs?

In general, the law permits institutions of these types to adopt a mission-based investment policy. See Part III for a discussion of the law. However, an institution must get an opinion of counsel based on its unique situation.

In some ways, the law in this area is more advanced than investment committees and money managers. Implicitly, it recognizes the rightness of the institutional imperative toward consistency with mission in investment management.

How prevalent is mission-based investing?

Estimates of the investment universe subject to social screens are imprecise, because money managers do not tend to segregate their screened accounts in their own tracking systems. A conservative estimate made by the Social Investment Forum in 1997 would put the figure at about 5 percent of all investments.

Some managers may adopt "social screens" without identifying them as such. A study sponsored by the American Medical Association indicated that in early 1996 less than 22 percent of the 7,000 U.S. mutual funds held securities issued by tobacco companies.^* To put this statistic in perspective, less than 60 U.S. mutual funds at that time advertised themselves as "socially screened" or "tobacco-free" Thus, far fewer funds owned tobacco company securities than one would expect, given the size and importance of "Big Tobacco.

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II. The Elements of Mission-Based Investing

[Economics] does not predict civics, but civics does predict economics, better indeed than economics itself.

-- Robert D. Putnam (1993)^*

Mission-based investing relies on the techniques of socially responsible investing. This section introduces those techniques that help integrate mission and money.

Mission-based investing: How is it different from social investing?

Socially responsible investing (SRI) is the incorporation of an investor's social, ethical, moral, or religious criteria in the investment decision-making process.^** Mission-based investing, a form of SRI, is the incorporation of an institutional investor's mission in its investment decision-making process.

The term difference in terminology reflects the point from which institutions start in applying social criteria to their investments. The repertoire of techniques available to mission-related investors is identical to that available to socially responsible investors.

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