research paper : ethics of investing in the nonprofit sector

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GROUP 4 Yifan Li, Ashley Chui, Ke Zhang

OF INVESTING ETHICS

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Misconception of the public 2008 Brookings Institution survey

NO Confidence in Charitable

organization 33 %

10 % Very good job

Spending money wisely

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DISADVANTAGE OF THE SECTOR

Business Model

Profitable incentive

Trust from the public

Continued maintenance

P R I N C I P L E 2 2 The board of a charitable organization must institute policies and procedures to ensure that the organization (and, if applicable, its subsidiaries) manages and invests its funds responsibly, in accordance with all legal requirements. The full board should review and approve the organization’s annual budget and should monitor actual performance against the budget.

P R O J E C T D E S C R I P T I O N

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Have a board-approved annual budget for its current fiscal year, outlining projected expenses for major program activities, fund raising, and administration.

14 BUDGET PLAN

Make available to all, on request, complete annual financial statements prepared in accordance with generally accepted accounting principles.

11 AUDIT REPORT

10 ACCUMULATING FUNDS

Spend at least 65% of its total expenses on program activities.

8 PROGRAM EXPENSE

POLICY BBB WISE GIVING ALLIANCE

Avoid accumulating funds that could be used for current program activities. To meet this standard, the charity's unrestricted net assets available for use should not be more than three times the size of the past year's expenses or three times the size of the current year's budget, whichever is higher.

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INVESTMENT POLICY

Money market funds Equities Fixed income 


Guidelines for investing Donor restrictions Delegation of Responsibilities

General economic conditions;

Possible effect of inflation or deflation;

Investment Considerations Expenditure considerationsPurpose

(Board, Oversight Committee, Management)

Protecting the value Growing those assets to increase their value Maintaining access to the assets

Sufficient investment return

Donor’s intents should be respected

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MEET OUR STAKEHOLDERS

OUTSOURCED FINANCIAL EXPERTS BOARD COMMITTEEDONORS

ROBUST

GOVERNANCE STRUCTURES

SAVVY

INVESTMENT STRATEGIES

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WHEN INVESTING WHAT TO CONSIDER

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CAPACITY

OF THE ORGANIZATION

1 EXTERNAL

INTERNAL

Outsourcing Human Resource

Possible effect of inflation or deflation

Expected Tax Consequences

Human Resource

General financial portfolio

The role of investment

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Security Risk: the impact of certain risk factor criteria as it applies to the investments held by the institutional money managers.

RISK

2 Manager Risk: aware of the types/level of risk each individual manager is bringing to the portfolio – and there should be guidelines in place to manage those risks. Return on Investment (ROI)

Invest conservatively for the lowest risks - Bonds

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Impact investing refers to investments "made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return."


IMPACT INVESTING

3Purpose vs. Outcome Two of the main mantras for impact investors are “outcome measurement” and “intentionality.” We say it is very important to measure and prove outcomes; we also say the investor and investee should intend to achieve good things.

Weekly Prompt

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ACCOUNTABILITY OF THE INVESTED BUSINESS

4 Before we invest, we need to evaluate whether:

Accountability for the management and optimization of the investment portfolio is defined.

Individual performance management is aligned with good portfolio management practices and Key Performance Indicators.

The invested company has financial transparency.

CASE STUDY Gates Foundation to reassess investments

Launched in 2000 The largest private foundation in the US Holding $38 billion assets

Mission: Improve the quality of life for individuals around the world

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DUTY VIRTUECONSEQUENTIALIST

ANALYTICAL FRAMEWORK

41% of its assets (8.7 billion) invested in companies that failed in social responsibility tests

Made only one-program related investment

Affect the organization’s reputation

To boost the return of investment Stay true to the mission

100% Mission alignment

Financial oversight

C O N C L U S I O N

Manage risk

Code of conducts/ policies

Transparency

Avoid conflict of interests

Ability to adopt innovative business model

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Question

Is it more important for nonprofits to invest for outcome or for purpose?

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THANK YOU

Reference

https://ssir.org/articles/entry/amplifying_impact_with_mission_investments https://ssir.org/articles/entry/arriving_at_100_percent_for_mission._now_what https://www.councilofnonprofits.org/tools-resources/investment-policies-nonprofits https://ssir.org/mission_possible_how_foundations_are_shaping_the_future_of_impact_investing? ct=t(Newsletter_Mission_Possible1_12_2017)&mc_cid=0323bb8f2e&mc_eid=3043387bf7 https://ssir.org/articles/entry/ethics_and_nonprofits https://ssir.org/articles/entry/talking_about_ethics_in_impact_investing https://insights.som.yale.edu/insights/how-should-nonprofits-invest https://www.philanthropy.com/article/New-Nonprofit-Puts-Money-Over/239635 https://www.give.org/for-charities/How-We-Accredit-Charities/ http://www.latimes.com/news/la-fi-gates11jan11-story.html http://www.thenonprofittimes.com/wp-content/uploads/2015/03/SEI-Nonprofit-Risk-Management_JAN2014.pdf https://www.law.umich.edu/clinical/internationaltransactionclinic/Documents/May%2011%20Conference%20Docs/ NGO%20Ready.pdf