Can Investments and Charitable Giving Co-exist?

by Robert I. Evans & Avrum D. Lapin

Obtaining financial support for non-profit organizations has always required unique approaches, looking for the next set of creative ideas and methods to tap into pockets of financial resources. Long considered “trail blazers” in mobilizing support for myriad non-profit organizations of all types and sizes, the Jewish community has often introduced exactly those innovations that become the “new angle” to attract dollars for causes, projects, or organizations that have become critical to the sustainability of a vibrant Jewish world.

We tell ourselves that we remain at the cutting edge, but are we? And in trying to stay there, are we true to the “first principles” and values of tzedakah or being opportunistic?

Since 1950, The Development Corporation for Israel has attracted billions in investments through the well-known Israel Bond program to provide infrastructure dollars from “common people” as well as institutional investors for important projects in Israel. Along the way, several mutual funds have been created that are Israel-focused, too.

Now we are starting to learn about innovative approaches for faith-based projects that cross the lines between charitable and investment considerations. Relatively new to the world of finance, Exchange-Traded Funds (ETFs) are beginning to expand into the non-profit world and especially into various Christian denominations . . . but not into Jewish causes . . . yet.

Various business publications have recently highlighted faith-focused ETFs. The Wall Street Journal reported in mid December that five funds, FaithShares Baptist Values, Lutheran Values, Catholic Values Fund, Christian Values Fund and Methodist Values, launched recently. Each ETF is tailored to the denomination’s specific doctrines and investing guidelines. The WSJ even noted that there is one family of mutual funds offering investment possibilities directed specifically to Islamic prospects: the Dow Jones Islamic Market International Index Fund.

The Journal quoted one expert, David Kaufman, as saying investors “usually have to pay up a little bit for owning something that’s screened according to their values,” thereby intimating that returns could be somewhat lower than investments in other opportunities and that costs may be a bit higher than those in other venues. Presumably investors are prepared to make some small sacrifices if they believe that their investment dollars are socially conscious and supplementing their personal priorities to make ours a better world.

The formal term for this is Socially Responsible Investing (SRI) and was featured as part of a recent webinar offered by the Union for Reform Judaism (URJ) to its member Reform congregations in addressing investment strategies for synagogue endowments. SRI means adopting a double bottom line, according to Richard Slutzky, a philanthropic and financial consultant at Bank of America Merrill Lynch. “The first is rate of return,” he stated, “and the second is an accord between values of the investor and the entities in which it invests.”

Obviously, the investment portfolios of each of the respective ETFs have policies that impact on practices reflective of various faith-based guidelines and restrictions. But as we look at concepts presented by ETFs, we wonder how – if at all – this approach could make a difference in charitable giving and with priorities that donors will consider in 2010. Are ETFs an opportunity for investment-conscious people to share their resources in a new way? Will their charitable giving will be impacted? Will this undermine a long honored basis of philanthropy . . . to give without any expectation of return, only the satisfaction of having made a difference?

On the downside, we worry that potential donors may use their dollars in ETFs as an excuse not to support aspects of the Jewish non-profit community . . . assuming that we, in the Jewish world, will create Jewish-focused ETFs. On the other hand, proposed transformational projects in the Jewish community abound so perhaps ETFs will enable some projects to attract investors and critical dollars beyond “normal” opportunities.

Perhaps “past performances” could be a partial yardstick in addressing this important question. Since its earliest days, some buyers of Israel Bonds, for example, have sometimes refused to support Israel-focused projects because of their dollars directed for low-interest paying Israel Bonds. The investment losses they are taking because of Israel Bonds in their personal or institutional portfolios were seen by some as “tzedakah,” and, therefore, took some dollars away from other important charitable purposes.

We predict that new approaches to attract dollars for critical Jewish community causes will undoubtedly arise. But the byword at this time should be caution. We do not want to emulate questionable techniques or raise concerns that diminish charitable intent. Mixing investment strategies with charitable giving is like “mixing apples and oranges.” We believe that some people violate tried-and-true practices and others are much more traditional in their approaches. Let’s watch this one carefully in the months ahead!

Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to EHL Consulting works with dozens of non-profits on fundraising, strategic planning, and non-profit business practices. Become a fan of The EHL Consulting Group on Facebook.