The Guardian reported that the Gates Foundation will review its asset investments to address concerns that the companies it supports cause the very problems it is trying to fight. "The announcement comes after a major investigation by the Los Angeles Times discovered that some of the billions spent by the Gates Foundation on improving health in the developing world came from its investments in companies that caused illness and disease through pollution and exploitation," writes the paper.

Subsequent to the original LA Times report (here and here), however, the Gates Foundation modified its official statement clarifying its investment philosophy and indicating that no review was to occur. According to disappointed post by Jeff Reifman, the reason for the change is that Bill Gates is not a big fan of Socially Responsible Investing. Most blog reactions, in fact (such as that of Technology Expert) encourage the Gateses to execute an investment review.

Blended Value Investing & SRI

The review suggested by the LA Times is driven by what is better known as blended-value investing (see WEF's authoritative report). Traditionally, the asset management of philanthropy foundations has occurred in a vacuum, directed by asset managers that know little of a foundation's social mission. The result is the kind of contradiction the Gates Foundation has discovered - that its assets fund companies that create the very problems its project finance hopes to eradicate. The idea behind blended value investing is to see the entire portfolio - both project finance and assets under management - through a single lens, to find common cause between the two.

Blended value investing is a good idea and at the very least brings to the surface the dilemma most social service organizations face - executing a Utopian mission within a flawed social system. It is, however, also the manifestation of a wider movement known as Socially Responsible Investing (SRI).

Over the past few years SRI has attracted significant attention and substantial assets. According to the Social Investment Forum, assets under management in the US that use ethical screening totaled about $2 trillion, or 11% of all professionally managed assets. Given the substantial assets of the Gates Foundation - US$ 34 billion and growing - this announcement will be very welcome news to SRI proponents. It would, at the very least, provide further legitimacy to what was originally a lobbying tool for NGOs. Beyond that, however, the Gates Foundation should be commended for not embracing SRI, because it is unclear who SRI benefits.

The Ethics of SRI

SRI works by affecting the flow of large investments, applying ethics to corporate action. Multinational companies have, no doubt, immense influence over their supply chains. Sometimes, they are also cited for egregious and unethical practices, particularly when they work in developing countries with weak legislation.

The way to correct for these problems, however, is through government legislation and oversight - which is how it works in the developed world. SRI, by contrast, allows fragmented special interest groups to lobby across borders, instead of giving sovereign governments control.