Impact investing and philanthropic foundations: strategies deployed when aligning fiduciary duty and social mission

ABSTRACT

This article investigates the factors that prevent and facilitate impact investing strategies for philanthropic foundations to align their capital with their mission. Using qualitative data from foundations in both the US and South Africa, we identify five factors (i.e. mandate and country legislation, internal skills capacities, supporting infrastructure, market capacity and strong leadership) that pertain to the international foundations located in the North, and three factors pertaining to foundations in the South (i.e. understanding of fiduciary duty, the role of financial advisors and tax legislation) which influence the deployment and uptake of impact investing strategies. Findings also suggest that the adoption of a total portfolio management approach is the most adequate strategy to align fiduciary duty and mission, and therefore resolve this ethical tension that can be present in foundations. It concludes with suggestions for future theory and practice.

KEYWORDS:

• Impact investing
• foundations
• fiduciary duty
• total portfolio management

Acknowledgements

The authors would like to thank the respondents of this study for their valuable insights. They are also grateful to the Bertha Foundation for their partial funding awarded to Dean Hand to undertake this research project. The Foundation’s ideals of social justice and inclusive innovation resonate deeply, and the resulting thesis formed the basis of this manuscript. They would also like to thank Dr Camille Meyer for his feedback on earlier versions of this paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Ethics approval

All procedures performed in studies involving human participants were in accordance with the ethical standards of the University of Cape Town research committee and with the 1964 Helsinki Declaration and its later amendments or comparable ethical standards. This study was approved by the University of Cape Town, Faculty of Commerce, Chair of ethics committee. Reference no: REC2017/009/008; received on 8 September 2017.

Additional information

Funding

This first author received partial funding from the Bertha Centre for Social Innovation and Entrepreneurship, Cape Town, South Africa to conduct the study at the Graduate School of Business, University of Cape Town.