Mission-related investing – the practice of aligning a foundation’s endowment with its philanthropic goals – has the potential to substantially increase the amount of capital available to address social and environmental challenges. That’s because only 5% of a foundation’s endowment must be paid out each year as grants or “program-related investments.”
The overwhelming remaining share, typically 95%, remains in a portfolio of investments that may or may not bear any relation to the foundation’s mission. It has been almost two years since the IRS issued Notice 2015-62 (the “Notice”), the much anticipated guidance that many hoped would make it easier for private foundations to integrate mission considerations into their investments. Yet, despite growing interest in mission-related investing, implementation remains relatively slow. Although some foundations were early adopters of integrating mission across their investment portfolio, many continue to grapple with whether and how to integrate mission into their investment practices without running afoul of applicable regulatory requirements.
When the IRS issued the Notice, it dramatically improved the legal landscape for mission-related investments. This is good news for foundations interested in implementing mission-related investing, but to benefit fully from these legal developments, foundations will want to make sure that mission-related investment practices closely track the requirements of both federal tax law and the Uniform Prudent Management of Institutional Funds Act, a key source of fiduciary duty standards in most states. Once a foundation decides to engage in mission-related investing and invests the time and effort required to create policies and procedures to implement it, the next challenge is how to structure investments to achieve the target mission and comply with the foundation’s policies and relevant legal standards.
For a summary of the regulatory background relating to mission-related investment, some concrete next steps that foundations may want to consider before implementing a mission-related investment strategy, as well as some tips on negotiating investment agreements in line with a mission-related investment strategy, please see our white paper Mission-Related Investing: A Legal Framework for Integrating Mission Into the Other 95%.
FURTHER INFORMATION
For further information about these matters, please contact Jonathan Klavens at jklavens@klavenslawgroup.com or 617-502-6281.
ACKNOWLEDGMENTS
We wish to acknowledge the valuable contributions of former KLG Senior Counsel Dawn Stolfi Stalenhoef in the research for and drafting of this article.
DISCLAIMER
This document, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Klavens Law Group, P.C. or its attorneys. Please seek the services of a competent professional if you need legal or other professional assistance.
© 2018 Klavens Law Group, P.C. All rights reserved.