‘You say SRI, I say…’: Defining the terms of purpose-built philanthropy

Steve Prostano
Posted by Steve Prostano
Family Wealth Advisors

As high-net-worth investors discuss plans for charitable giving and investing with their financial advisors, it is absolutely crucial for them to be on the same page in terms of the outcomes desired, both financially and philanthropically.

Small group of colleagues looking at a strategy document as seen through a glass window with a hint of urban reflection“Impact investing,” for example, remains a vague and highly subjective concept. What one person considers impact investing might sound unrealistic to another and vice versa. For this reason, advisors and their clients need a set vocabulary of terms going into the first meeting; only then can they discuss goals (and ways of achieving them) without stumbling over communication roadblocks.

To help facilitate the conversation, Bank of the West Family Wealth Advisors has created a glossary of terms on purpose-driven philanthropy, as part of our ongoing efforts to educate and inform clients on maximizing their philanthropic impact.

Family Wealth Advisors coined the umbrella term “purpose investments” to include impact investing, environmental and social governance (ESG), socially responsible investing (SRI), microfinance, social impact bonds, mission-related investments (MRIs), and program-related investments (PRIs). As the glossary explains it, purpose investments is a “for-profit investment approach that enables clients to align their entire investment strategy, or a portion of their portfolio, with their philanthropic strategy (reflecting client values, ethics, principles) by applying deliberate and thoughtful investment selections across all asset classes.” It’s important to note that there is no prerequisite, such as being a philanthropist, to engage in purpose investing – except for a kind heart, that is!

And what exactly is SRI anyway? Again, our glossary makes it clear: SRI “encompasses any investment strategy which seeks both financial return and positive social outcome.” It also is known as sustainable investing, socially conscious, green or ethical investing. Furthermore, as part of the SRI spectrum, there is the concept of Environmental and Social Governance (ESG) criteria, which “considers environment, social and corporate governance disciplines in an investment while seeking to achieve competitive financial return and positive social impact,” the glossary reads. Meanwhile, impact investments, which are a type of purpose investments, are “investments made in companies, organizations, or funds with the intention to generate and measure social and environmental impact alongside financial return.”

Ever wondered what exactly a Donor-Advised Fund (DAF) is? Our glossary has your answer. It is a “charitable vehicle sponsored by an IRS-registered 501(c)(3) public charity, which administers the account.” To make the definition clear, the glossary goes on to say that a DAF “can accept both liquid and illiquid assets, allows donors to gift anonymously, and does not require a 5% payout per year. Donors obtain an immediate tax benefit when contributing to a DAF and submit grant recommendations to the sponsoring charity when they are ready to disburse funds.”

If you have more questions about strategic philanthropy or building out your philanthropic vocabulary, I will continue to dive into our glossary of terms in the coming months to help our investors maximize their philanthropic impact and returns.

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