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Unleashing the Power of Foundations & Endowments
Posted by Janelle Metzger

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This article is part of a series that explains the differences between foundations and endowments, their power to advance the sustainable investing agenda, and investigates a variety of investment approaches.

It’s no surprise that the more money philanthropies have, the more good they can do in the world. That’s why foundations and endowments have the power to create progress, champion sustainability and create an equal playing ground. Let’s first explore what foundations and endowments are, and the differences between each. 


What are foundations?

Foundations are tax-exempt, non-governmental and nonprofit companies. Similar to charities, foundations are set up as a Section 501(c)3. A popular example of a foundation is the Bill & Melinda Gates Foundation. Foundations fund affinity social causes  and provide grants to those doing charitable work or research. To remain a nonprofit, a foundation must spend 5% of its assets as grants.  

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What are endowments?

Endowments are charitable donations to a nonprofit organization, most notably hospitals, churches, museums, charities or foundations. Endowments are also administered by colleges and universities. Donations are invested mainly with the goal of generating income to fund operations or execute the charitable objectives specified by the donor. 

Endowments

Given the nature of their structure, foundations and endowments (F&E) have the advantageous ability to bring meaningful societal changes through grantmaking and mission-related investing. However, some F&E capital is invested in “taboo areas” that contradict the core mission of the organization, such as fossil fuels and human rights violations.

As recently reported in the news, Harvard divested from its fossil fuels investment in a move to achieve increased sustainable investing. While the vast majority of American universities have some reliance on fossil fuels, the divestment from Harvard signals a shift to decarbonize the environment and can initiate a domino effect - not to mention increase reputation and potential positive gains.

Through divestments and long-term investments in Environmental Sustainable and Governance factors (ESG), the United Nations’ Sustainable Development Goals (SDGs), foundations and endowments can position their portfolio as sustainable, impact-driven, mission-oriented.

Aneuvia is a registered investment advisor that provides foundations and endowments with sustainable investing, integration of ESG and corporate strategies and impact investing consultation.

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