Non-profit but for sustainability | mercer

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There is a clear trend for non-profit organizations to integrate environmental, social and governance factors into their investment pathways, but barriers to terminology and the ESG investment process result in a need for expertise and guidance beyond the organizations go beyond the traditional remit of non-profit organizations.

That is the view of Georges Dyer, Executive Director at Intentional Endowments Network and Gilles Lavoie, Non-Profit Investment Advisor, Mercer Canada, on the podcast Critical Thinking, Critical Issues, hosted by Paul Fleming, Mercer’s Head of Endowments and Foundations in the UK.

In his daily role, Dyer supports foundations in positioning investment guidelines with institutional mission, values ​​and sustainability goals. The network consists of over 200 members, including leading universities, foundations, outsourced CIO firms and consultants, investment managers and not-for-profit partners.

Lavoie provides complementary expertise specializing in optimizing risk-adjusted returns for Mercer’s institutional investors and is part of the global nonprofit team that conducted this year’s Global Nonprofit Investment Survey. In a wide-ranging discussion, the two industry experts highlighted the need for nonprofit foundations to thoroughly examine the changes they can bring about, using ESG expertise and frameworks to augment nonprofits’ principled funding approaches.

In practice, looking at ESG factors is about assessing financial risks “explicitly and systematically,” Dyer explained. If nonprofits can be more effective at “identifying the risks and opportunities” than through a close ESG lens, then the result is simple: “better long-term investments.”

Lavoie echoed this sentiment, noting that “virtuous” organizations now have an opportunity to reflect their intrinsic values ​​in their investment programs and present a more coherent direction to their key stakeholders.

Such organizations are increasingly turning to ESG factors as they see it as consistent with their overall fiduciary duty. As a result, 72% of nonprofits intend to increase their engagement in ESG-focused investing over the next 12 months.

But Lavoie said ESG investing in the nonprofit space goes beyond fulfilling fiduciary duties — it’s about driving meaningful societal change, particularly in the interconnected areas of climate change and diversity, equality and inclusion.

The demand from non-profit organizations for such strategies is so widespread that it is changing attitudes towards risk and return. Now 36% of respondents believe they have to make trade-offs when it comes to bridging the gap between ethics and investment returns, and more than half of this group believe trade-offs have to be made in the form of limited absolute returns.

“When we talk about risk, we talk about it hurting returns a bit, but they still provide those opportunities,” Lavoie said, pointing to a recent example of a discussion with a colleague in which he noted how the “Decisions and practices” made around ESG investing can influence factors as widespread as the searing heat waves seen around the world this year.

“But the opposite is also true,” he said. “If you do nothing, climate change will have an impact on your portfolio because the companies you invest in will be affected by climate change. Regardless of what you do, there will be repercussions. It’s important to understand the problem from those two perspectives: how your portfolio is impacting climate change and how your portfolio is exposed to climate change, and then seeing how you can adjust that if you’re uncomfortable with the risks involved. ” he added.

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