Values-Based & ESG Investing for Nonprofits and Associations
Values-Based or ESG investing does not require your organization to accept lower returns or take on more complexity. It does require a structured process for defining values, building consensus, and incorporating those decisions into your investment governance.
Getting Started with Values-Based and ESG Investing
For many nonprofits and associations, pursuing ESG investing or values-based investing raises questions about performance impact, implementation cost, and how to reach consensus among board members with different perspectives. How far your organization goes depends on your board’s priorities, the level of customization you need, and how much deviation from a traditional benchmark your committee is comfortable with.
Nonprofit and association ESG investing approaches range from excluding specific sectors to integrating environmental, social, and governance factors into how investments are evaluated. Whether your organization is interested in ESG investing, SRI investing, or a different values-based approach, your criteria should be well-documented in your Investment Policy Statement so the strategy is governed by policy rather than individual preference. Working with an adviser experienced in navigating those conversations can help your organization evaluate the trade-offs to develop a strategy aligned with your organization’s needs.
How We Help Nonprofits Navigate Values-Based Investing:
Values-based, SRI, or ESG investing looks different for each nonprofit and association. The right approach depends on your board’s priorities, your risk tolerance, and how your organization’s values translate into investment criteria documented in your Investment Policy Statement. Some organizations start with a single sector exclusion, while others pursue full ESG integration or use separately managed accounts for security-level customization. We work with your board and committee through each stage of that process.
Values Definition
Values Definition
Board Alignment
Board Alignment
Approach Selection
Approach Selection
Performance & Cost Trade-Offs
Performance & Cost Trade-Offs
ESG Investing for Nonprofits: Key Considerations for Your Board
Nonprofits and associations considering ESG investing often have questions about how it affects performance, how to implement it within an existing portfolio, and whether it is consistent with their fiduciary obligations. Every organization’s situation is different, and an adviser experienced in nonprofit ESG investing can help your board work through these questions as they apply to your specific investment program and governance structure.
Below are some of the most common considerations.
Does ESG Investing Affect Performance?
ESG investing may affect portfolio performance depending on the approach and level of customization your nonprofit or association implements. Any constraint on a portfolio introduces some degree of tracking error relative to a broad benchmark. A single sector exclusion may have minimal impact, while a heavily screened portfolio may deviate more meaningfully. Your board should understand what tracking error means and be comfortable with the trade-off before implementing an ESG strategy. We help committees evaluate the potential performance implications of different approaches and set realistic expectations before implementation.
How Do Nonprofits Implement ESG Investing in an Existing Portfolio?
Nonprofits and associations do not have to overhaul their entire portfolio to pursue ESG investing. Many organizations start by applying ESG or SRI criteria to a portion of their allocation, such as equities, while leaving the rest unchanged. Others begin with a single sector exclusion and expand over time as their board becomes more comfortable with the approach. How your organization implements ESG depends on the criteria defined in your Investment Policy Statement, the investment vehicles available, and the level of customization your committee has agreed to. A phased approach often builds stronger board support than an all-at-once transition.
Is ESG Investing Consistent with Our Fiduciary Responsibilities?
ESG investing can be consistent with fiduciary duty for nonprofits and associations when the approach is documented in your Investment Policy Statement and reflects a board-level decision. Your portfolio should remain positioned to meet its financial objectives, and your ESG criteria should be monitored the same way any other policy guideline is.
What Does Ongoing ESG Oversight Look Like for Your Board?
Nonprofit and association boards that implement ESG investing take on additional governance responsibility beyond standard investment oversight. Your committee should regularly evaluate whether your ESG criteria still reflect your organization’s values, whether the portfolio is aligned with those criteria, and whether new issues have emerged that warrant updating your approach. When changes are made, the rationale should be documented in your Investment Policy Statement so the decision-making process is preserved for future board members. We support that process by bringing relevant developments to your committee’s attention and helping facilitate the conversation when criteria may need to evolve.
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Raffa Insights & Resources
Sample Investment Policy Statement
Download our Sample Investment Policy Statement to use as a reference point when evaluating your own policy or starting the conversation with your board.
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FAQs
What is the difference between ESG, SRI, and values-based investing?
Nonprofits and associations use different terms for mission-aligned investing, but the distinctions matter. Socially Responsible Investing (SRI) focuses on excluding investments that conflict with your organization’s values, such as tobacco, firearms, or fossil fuels. ESG investing evaluates companies based on environmental, social, and governance factors alongside financial analysis. For example, an ESG approach might favor companies with stronger environmental practices, diverse leadership, or more transparent governance structures. Values-based investing and mission-aligned investing are broader terms that can encompass both SRI and ESG approaches. The term your organization uses matters less than having a structured process to define your criteria, document them in your Investment Policy Statement, and implement them in your portfolio.
What are the most common approaches to ESG investing for nonprofits?
Nonprofits and associations most commonly use three approaches to ESG investing: exclusionary screening, ESG integration, and thematic or impact investing. Exclusionary screening removes sectors or companies that conflict with your organization’s mission from the portfolio, based on criteria defined in your IPS. ESG integration evaluates companies on environmental, social, and governance factors alongside financial analysis. Thematic or impact investing targets specific outcomes like clean energy or community development, typically applied to a portion of the portfolio. These approaches can be implemented through ESG-screened funds, ETFs, or separately managed accounts depending on the level of customization your organization requires.
Does ESG investing conflict with our fiduciary responsibilities?
ESG investing can be consistent with fiduciary duty when the approach is documented in your Investment Policy Statement and reflects a board-level decision. Your portfolio should remain positioned to meet its financial objectives, and your ESG criteria should be monitored the same way any other policy guideline is.
How do we decide which values to reflect in our nonprofit's investments?
Your organization’s mission and existing operating principles are the starting point for defining ESG or SRI investment criteria. A structured process that includes stakeholder conversations and a board survey can identify which values are most relevant in the context of your nonprofit or association’s portfolio. The goal is to move from general statements to specific criteria that can be codified in your Investment Policy Statement and implemented in the portfolio.
Can we implement ESG investing without overhauling our entire portfolio?
Yes. Many organizations start by applying ESG or SRI criteria to a portion of their portfolio, such as the equity allocation, while keeping the rest unchanged. Others begin with a single exclusion or a low-cost ESG fund and expand from there. A phased approach often builds stronger board support over time.
How do we get our board aligned on ESG investing when opinions differ?
Nonprofits and associations pursuing ESG investing often have board members with different views on what values should be reflected in the portfolio. Start with a structured process that surfaces those differences early. Stakeholder conversations and a values survey help identify where board members agree and where they diverge. Use the financial data and documented trade-offs to inform the conversation. The result is an ESG policy that reflects the group’s input rather than any single perspective.
Our advisers regularly work with boards to understand various perspectives, offer insight, and work towards alignment. If you are interested in working with a team that has over 20 years of experience partnering with nonprofit boards, schedule a complimentary consultation.
How should ESG criteria be incorporated into our Investment Policy Statement?
https://raffaadvisers.com/nonprofit-services/investment-policy-development/Nonprofit and association ESG, SRI, or other values-based criteria should be documented in your IPS the same way any other investment guideline is. The policy should define what values are being reflected, the specific approach being used, the benchmarks against which performance will be measured, and the process for reviewing and updating the approach over time.
Raffa’s team of advisers regularly assists boards with including values-based investing in their investment policies. To learn more about how we can help, schedule a meeting with one of our advisers.
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