Sustainability check for German foundations
Facing Finance reviews the investment guidelines of German foundations
Charitable foundations in Germany are largely funded by the investment income generated by their endowment assets. So far, however, only a few foundations have publicly committed themselves to sustainable investment guidelines. Legislation is also lacking. The Facing Finance project “Fair Anlegen & Stiften” (Investing & Giving Fairly) aims to encourage German foundations to incorporate sustainability criteria into their investment guidelines and thereby act in accordance with their statutory purpose. The project is funded by the German Federal Environment Agency (UBA).
With more than 24,650 foundations (as of 2022), Germany is home to the largest foundation sector in Europe. Around 92% are charitable: in line with their purpose, they fund projects that aim to have a positive impact on society and the environment – for example in the areas of child and youth welfare, development cooperation or nature conservation.
However, what foundations spend money on is only one side of the coin when it comes to their social and ecological balance sheet. The financial resources to carry out charitable projects often come from the returns generated by investing the foundation’s assets on the capital market.
With total assets of at least €110 billion (as of 3/2021), German foundations are a particularly wealthy group of investors. They influence society and the environment not only through their grant-making, but also to a considerable extent through their investment decisions. If foundations hold shares or bonds in companies, they can profit through interest and dividends from harmful business models that disregard social and environmental standards or human rights, environmental and climate protection. Thus, foundations may be funded by the very abuses they are supposed to eliminate (according to their articles of association).
Ironically, there are no legal requirements for foundations to meet ethical and sustainable investment standards. In the absence of state regulation, foundations have a great deal of individual responsibility, which they are expected to fulfil through strict guidelines and engagement processes. However, few charitable foundations have publicly committed to sustainable investment practices.
For advice and information on the importance of sustainable and transparent investment guidelines, see our 2022 Guide to Charitable Giving and Social-Ecological Investment:
Study: How sustainably and transparently do the largest charitable foundations invest?
Facing Finance examined the extent to which the 37 largest charitable foundations consider sustainability criteria when making their investment decisions, and how much of this information they make available publicly or through direct dialogue.
The result: foundations are wealthy but mostly opaque investors: the foundations surveyed have total financial assets of at least €30.9 billion. However, only half of the foundations refer to ESG (environmental, social and governance) criteria.
For more details on the foundations studied and our recommendations, see the report published in 2023 (German).
Interview (hr-iNFO radio): Money for the common good? The power of foundations (in German)
As charitable and tax-privileged organisations, foundations should be more transparent and sustainable in their investment practices. The project “Fair Anlegen & Stiften” aims to encourage foundations to view their investment practices as an essential part of their charitable purpose and to better fulfil their responsibilities.
Interested foundations are welcome to contact Facing Finance:
Phone: +49 (0) 30 3266 1679