MRI: Sample Investment Policies

Investment Policy
Statement of Fiduciary Responsibility

We begin the endowment management process recognizing that our responsibility does not end with maximizing return and minimizing risk. We recognize that economic growth can come at considerable cost to community and environment.

We believe that efforts to mitigate environmental degradation, address issues of social justice and promote healthy communities will be successful to the extent that these concerns are brought from the margins to the center of business and investment decision making.

We recognize that addressing such concerns while pursuing financial objectives is an imperfect process. However, we believe that the development of healthier corporate cultures, and through them a healthier economy, depends upon the recognition of these concerns by management, directors, employees and investors. Within foundations, this means reducing the dissonance between philanthropic mission and endowment management.

We believe that in light of the social, environmental and economic challenges of our time, fiduciary responsibility in the coming decades will dictate the integration of prudent financial management practices with principles of environmental stewardship, concern for community, and corporate accountability to shareholders and stakeholders alike. Foundations have a particular role to play in this process, by coming to understand mission not only in terms of the uses of income to fund programs, but also in terms of the ends toward which endowment assets are managed.
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Investment Philosophy

In concert with the Foundation's mission to protect and restore Earth's natural systems and promote a sustainable society by strengthening individuals, institutions and communities pledged to pursuing those goals, we seek to invest our endowment assets in companies that:

provide commercial solutions to major social and environmental problems;
and/or build corporate culture around concerns for environmental impact, equity and community.

The environmental impact of a business is tied to the throughput of materials, generation of waste and to the long-term value of the goods or services it produces. Equity within a corporation derives from participatory management, employee ownership, salary structures, workforce diversity, employee benefit programs or other demonstrated commitments to the well-being of all individuals involved in an enterprise. A corporation can promote community through openness and accountability to all stakeholders, local job creation especially for the economically disadvantaged, corporate giving to and active involvement with community organizations, or other initiatives that provide net benefits to the local economy.
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Spending And Investment Goals

The spending and investment goals of the foundation are:

to generate income and capital gains necessary to support the foundation's operations and fund its grantmaking over the long-term;
to provide capital directly to or own the equity or debt of enterprises which further the foundation's mission;
to avoid investing in companies whose environmental or social impacts contribute to the problems which the foundation's grant-making seeks to remedy;
to set spending levels based primarily on an assessment of current need by the program staff and the Board as a whole, and secondarily on Finance Committee assessments of current and projected investment returns; and
to preserve, to the extent possible consistent with the foundation's spending levels, the real (inflation adjusted) value of its assets over the long term.

We recognize that to the extent that our grantmaking budgets, in combination with our operating expenses, exceed investment returns over a multi-year period, the preservation of the real value of our assets over the long-term becomes increasingly difficult. Because the Board has determined that the foundation should be viewed as a perpetual institution, investments that have the potential to generate substantial long-term capital gains will be particularly important.
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Investment Guidelines

Investment guidelines are based on a 50 year horizon. Interim performance will be monitored as appropriate.

Appreciation and income may be used to finance cash requirements for grants and operating expenses. Assets may be spent down during periods in which neither appreciation nor income are sufficient to fund grantmaking budgets.

The foundation's assets will be managed by professional money managers selected by the Finance Committee in accordance with the asset allocation guidelines set forth by the Finance Committee and approved by the Board. Investment managers have complete discretion to manage the assets in each particular portfolio to best achieve investment objectives and requirements, within the social and financial guidelines set forth in the Foundation's Investment Policy. Managers will be monitored on a regular basis, as described below.

Consistent with the Foundation's Investment Policy, the responsibilities of investment managers include:

The exercise of a high degree of professional care, skill, prudence and diligence in the management of assets under their direction.
Thorough professional analysis and judgment with respect to all investments held in the account. Selection and disposition of individual securities and related matters.
Diversification of securities by issuer, industry, geography, type, and maturity of investments, etc.
Full compliance with all provisions of any governmental regulations and decisions thereunder dealing with the management and investment of foundations.
Cooperating with the Foundation on shareholder activities.

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Asset Allocation

Assets will be diversified both by asset class (domestic equities, foreign equities, fixed income, venture capital, private placements and real estate) and within each asset class (by indexation vs. active management, growth vs. value, large-cap vs. small-cap, and by economic sector, industry and quality).

Asset allocation will fall within the following ranges (as of September, 1997)
Current Target Range:
EQUITIES 50-65%: Active Domestic 21%, International 13%, Index Domestic 20%, International Not currently available.
FIXED INCOME 24% (25-30%): Alternative Investments: Venture Capital/ Private Equity 9% (5-20%), Absolute Return (Hedge Funds) 13% (10-20%)
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Screening

All public equity portfolios, indexed and active, will be managed by investment managers who employ social and environmental screens in addition to traditional financial analysis in their investment decision-making. Because the screening of fixed income portfolios investments is not generally available through institutional money managers, fixed income managers will be sought who are willing to work with the Finance Committee on a case by case basis with respect to avoidance of the debt of companies whose social or environmental impacts are deemed to be adverse to the Foundation's mission.

Notwithstanding the above, the Foundation may deem it desirable to own shares of certain companies whose actions are contrary to the concerns of the Foundation's grantees, creating particular problems for communities and the environment. If, in the judgment of the Foundation, ownership of such shares will afford the Foundation the opportunity to influence the behavior of these companies, ownership positions will be maintained at minimum levels necessary to support requisite shareholder activities.

Venture capital investments will be screened, with particular attention to the use of investments in early stage private companies as a tool for shaping corporate culture and furthering the Foundation's mission. Later stage venture investments and private equity investments will be screened to the extent possible, recognizing, however, that in later stage investments the opportunities for proactive interventions in support of our mission are limited or, in the case of certain partnerships or asset classes, unavailable. In such cases the Foundation will try to assure itself that the investments will be benign in relation to its mission.

As a general rule, the Foundation will seek to have no more than 20 percent of its assets invested in asset classes in which social and environmental screening is not available. The Foundation recognizes that screening is a blunt instrument for achieving change. The screens typically employed by money managers are broad and imprecise with respect to the Foundation's mission. Companies that are deemed acceptable by many social investment screens may not be acceptable to the Foundation. Further, the impact of screening portfolios on the behavior of investee companies is generally indirect and limited. Screening has limited impact on the cost of capital to companies, although that impact might increase in the case of small cap companies and over time as the cumulative capital under management in screened accounts increases. On the positive side, interactions among committed money managers who screen, the Foundation Board and staff, and investee companies can play a role in influencing corporate behavior and changing corporate culture.

The impact of screening on financial returns is a subject of on-going analysis, both internally, with respect to the Foundation's own investment performance, and externally, with respect to the social investment movement as a whole. A number of recent studies, however, confirm the Foundation's own assessment: the application of social and environmental screens does not significantly affect financial performance, positively or negatively. The differences in performance between screened and unscreened portfolios can be found in manager selection and stock selection. The Finance Committee, however, will continue to monitor, assess and seek to improve its understanding of the relationships which may exist between financial returns and the impact of screening on our mission.
In evaluating the impact of a company, we look for:

demonstrated Board and management commitment to environmental issues, including an environmental policy statement,
incentive packages that reflect positive and negative environmental performance, and demonstrated support for strong public environmental policies;
accountability to all stakeholders, including employees, consumers and the communities in which they are located;
a commitment to environmental justice;
products, processes and services that have a direct and positive environmental impact;
efforts in the manufacture, processing or marketing of food that are consistent with sustainable agriculture;
a record of maintaining healthy and safe workplaces;
a record of regulatory compliance;
an on-going audit program that goes beyond regulatory requirements;
a record of waste and toxic emission reduction toward a goal of zero emissions, including commitment to reuse and recycling;
a commitment to sustainable use of natural resources;
diversity of Board, management and workforce;
nondiscrimination in employment on the basis of race, ethnicity, gender, sexual orientation, and disability;
R & D funding for new processes and materials that minimize environmental impact; and
- respect for the reproductive rights of all women. We will not invest in companies that:
- produce and/or use nuclear power (including those that mine uranium ore or develop or maintain nuclear reactors);
- produce synthetic pesticides, herbicides or other agricultural chemicals, especially those that are believed to cause birth defects or disrupt endocrine systems in humans and animals; or
- derive more than five percent of their revenue from the manufacture and sale of tobacco products.

In industries that do not meet our screens, companies that have signed the CERES Principles or demonstrated particular leadership within their industry with respect to social responsibility and environmental impact may be considered on a case by case basis.
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Venture Capital And Alternative Investments

Because it involves investments and, in some cases, active involvement in early stage, private companies, venture capital can be a powerful tool for contributing to the Foundation's mission.

Financial objectives of venture capital and private equity investments are to generate returns, through the realization of long-term capital gains, that are superior to those of public markets. Investments will be sought which provide premiums over public market returns sufficient to compensate for the risk and illiquidity of private investments, and which, in some instances, take into account value added to our philanthropic mission. Early stage investments and investments that have particularly higher mission-related potential will be balanced with later stage private equity investments which usually do not afford opportunities for either screening or shareholder involvement.
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Monitoring

The Finance Committee will monitor the performance of the Foundation's managers on a quarterly basis, with at least one face-to-face meeting each year. Issues to be addressed include: Year-to-date and cumulative performance will be assessed in terms of our screened portfolio as against other screened and nonscreened portfolios under management, in comparison to the relevant indexes, including the Domini Social Equity Index, and in relation to the performance of other foundations. Social research and interactions with portfolio companies, including shareholder activities will be reviewed. Adherence to the Foundation's screens and values. Transactions and transaction costs. Market capitalization, portfolio balancing and holdings overlap among managers. Systematic risk (beta) and standard deviation (sigma) for each portfolio.
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Examples of Foundation Investment Policies

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