Foundations hold the majority of our wealth in investments. Without legal requirements mandating disclosure, we must take the initiative to increase transparency.
Many philanthropic foundations have come to appreciate the importance of increasing transparency around their wealth, funding practices, and governance to address power dynamics and build more equitable relationships with community partners. But something rather large—$105 billion large [1]—is missing from current discussions about increasing transparency in the philanthropic sector: foundation investments.
Lack of Transparency in Foundation Investments
Foundations, including MakeWay Foundation (MakeWay), hold the majority of our wealth in investments. For most, these investments generate returns that fund granting. The public can access information on the $8 billion in granting activity that occurs annually in the charitable sector through the Canada Revenue Agency’s (CRA) database, which the CRA compiles from data that charities submit yearly. However, beyond basic information such as the amount of money foundations have invested and the value of our capital assets, there is very little information publicly available about the $105 billion foundations hold in investment portfolios.
It does not make sense, does it? Information is available about the tax-exempted dollars that foundations gift to charities, which are legally bound to further charitable purposes for societal benefit. Yet information about tax-exempted dollars managed by and invested in private interests is unavailable to the public. So, if you want to know which charities a foundation has provided grants to, the information is readily available. However, if you are looking for details about the amount of tax-exempt funds foundations have invested in fossil fuels, tobacco, or controversial weapons, you are out of luck.
We are talking about significantly different scales of funds: $105 billion invested compared to $8 billion designated for grants. Impact investing proponents have highlighted the opportunity to direct these funds toward program and mission-related investments. Investment transparency could accelerate these efforts.
The Responsibility for Transparency is on Foundations
Understanding what foundations are investing in is just one of the important issues regarding investment transparency. Another aspect is the decision-making process behind these funds. To increase transparency in grantmaking, many foundations have taken steps to share information about their decision-making personnel and grantmaking policies with the public. However, there has not been any similar movement for investments. Given that investment committees and policies significantly influence the allocation of that $105 billion, MakeWay believes that it is reasonable for the public to know who has control of these funds and their decision-making process. The public should know whether a for-profit company manages tax-exempted investments and, if so, what company.
None of this is meant to suggest that foundations are intentionally secretive about investments. It is more accurate to say that investment transparency has not been a top priority for most foundations. As we have seen in the impact investing world, the idea that investments can advance a foundation’s mission is a relatively new concept. Additionally, there are barriers to increasing investment transparency: insufficient capacity, legal concerns, and a lack of comprehensive information from investment managers.
While the CRA recently announced that a new T3010 is coming in January 2024 with more reporting requirements on investments and donor-advised funds, it is unlikely that the new reporting requirements will include detailed information on specific investments and decision-making. At this point, the onus is on foundations to consider disclosing investment practices.
MakeWay’s Commitment to Investment Transparency
At MakeWay, we are committed to improving investment transparency as we adapt our investment strategy. We are actively working toward greater transparency and plan to share what we learn about this process along the way.
We have identified three areas where we can improve transparency around our investments:
- Governance: The policies and personnel governing our investments, such as the composition of our investment committee, our investment policies, and any documents that govern our decision-making, including impact frameworks.
- Management: The investment managers who oversee our investments.
- Our investments: The distribution of our investments by their asset classes, the funds we invest in, and, eventually, details about our holdings.
MakeWay has started to share a lot of this investment information on our website, and we are determining the most effective way to share the remainder. In the meantime, we are undertaking research to help us navigate all of this. We hope these efforts will help other foundations interested adopt a more transparent approach to their investments.
MakeWay looks forward to sharing our work in the months ahead. We invite our foundation peers to contact us to share their thoughts and experiences or join us in this work.
[1] This number is based on 2021 T3010 data provided by the CRA and represents the sum of line 4140 long-term investments for all charities with the public and private foundation designation.
