Art Market

Museums Can Make a Statement through Sustainable Investing

There has been much debate recently on the makeup of museum boards and whether the source of a donor’s wealth should be considered when accepting a major gift. These are complex issues in a time when government funding for the arts is in decline and museums increasingly rely on private philanthropy. Museums cannot diversify their boards and donor networks overnight—but what they can do immediately is make a statement with their money.
Museums are typically established as nonprofit organizations that serve the public. They aim to represent and advance the interests of society through the display and teaching of cultural history. Today, both patrons and artists contend with issues that occupy the public conscience: escalating social and political tensions, and threats to health and infrastructure in a changing climate. As endowed organizations, museums have a powerful voice that can parallel the stories told within their galleries.
In the current environment of deregulation, the responsibility to do the right thing for society is shifting from the government to the private sector. Museums, especially those aiming to maintain their collections in perpetuity, should consider their responsibility as investors to influence the path of major environmental and social issues that also threaten their own institutional viability. Museums can leverage their financial power—over $30 billion of capital in their endowments, according to data provided by Candid—to invest in companies that have positive environmental and social impacts.
Over the last decade, the field of sustainable investing has grown dramatically: one in four dollars—$12 trillion of assets under professional management in the U.S.—is invested in sustainable, responsible, or impact investing strategies, according to the US SIF Foundation’s 2018 “Report on U.S. Sustainable, Responsible and Impact Investing Trends.” Shareholder engagement and advocacy are driving companies to adopt more ethical behavior, resulting in reduced emissions in the industrial sector, anti-corruption and anti–money laundering improvements among financial institutions, and contributing to the increase of women and minorities on corporate boards. Sustainable investing does more than police the problematic actions of corporations: it also channels capital to compelling commercial opportunities like renewable energy and education.
Foundations and individuals have been at the forefront of the sustainable investing movement, with some large foundations like the Ford Foundation and the Nathan Cummings Foundation coming out publicly with their intent to align all or part of their capital with their broader missions. However, many museum board members continue to push back against sustainable investing, claiming it is their fiduciary responsibility to protect the potential of doing well over the advantages of doing good.
The notion of a “trade-off” around investment returns is simply outdated. There is substantial evidence that a proactive focus on environmental, social, and governance (ESG) issues has material positive impacts on long-term company performance. Companies that score high in ESG analysis are likely to be more efficient, cost-sensitive, and transparent—factors that contribute to productivity improvement and higher earnings, which are rewarded by the market. A strong focus on governance and independent oversight also mitigates a company’s reputational risk, decreasing the chances of operational errors that could hurt the business, or in some extreme cases cause catastrophic environmental damage or put lives at risk. The proof is in the data: Comparing the returns of the MSCI KLD 400 Social Index of companies that meet best-in-class ESG criteria to the S&P 500 reveals 0.50% of annualized outperformance over the last eight years.
As sustainable investing has become more commercially viable, the barrier to entry has also decreased. Institutions of varying sizes can now select investments across asset classes that are aligned with their values and offer a market rate of return. For example, a museum that serves inner-city communities can invest in bonds that finance affordable housing projects, which offer social services to residents including job training and arts education. Similarly, a sculpture park concerned with land conservation could consider private investments focused on resource and energy efficiency, reducing water usage, retrofitting fossil fuel plants, and driving building upgrades through smart metering.
Institutions that invest according to their values are not only principled—they are prudent. What future value will cultural institutions have if their very existence is imperiled by a changing climate and regressive social dynamics? Museums that seek to better society within their illustrious buildings can do so outside of them, as well. They can start by considering how they manage their endowments.
Anna Raginskaya is a Financial Advisor with the Blue Rider Group at Morgan Stanley.

Anna Raginskaya is a Financial Advisor with Morgan Stanley Global Wealth Management in New York. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Morgan Stanley Smith Barney, LLC, member SIPC.

The views expressed herein are those of the author and do not necessarily reflect the views of Morgan Stanley Wealth Management or its affiliates. All opinions are subject to change without notice.