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Ethical Investment of German Non-Profit Organzations - Conceptual Outline and Empirical Results

Introduction: Non-proﬁt organizations are generally seen as hybrid institutions between the market and the State. The term ‘non-proﬁt’ can be misunderstood, however, as it is frequently interpreted as meaning ‘no-proﬁt’. In contrast, the way in which proﬁts are generated is typical for many non-proﬁt organizations. The so-called ‘non-distribution constraint’ dominates their ﬁnancial behaviour; usually the statutes of non-proﬁt organizations ban the distribution of realized periodical surpluses between members of the institution. Instead they demand that assets be accumulated within the organization and used only for organizational objectives (see Hansmann 1980 and Salamon et al. 1999). These objectives can be generalized as representing and articulating the interests of certain stakeholder groups; for example, they offer services otherwise not supplied by private companies or public institutions, or they promote dialogue with companies and the State on socially important issues. Many non-proﬁt organizations devote their activities to certain values or principles, often very closely related to moral stand-points or ethical views, such as the conservation of nature, social services, catastrophe aid, etc. The funding of those activities often depends on the legal form of the organization. In many cases the organizations are funded by membership fees, donations, and income from invested assets (e.g. foundations whose income is derived from their capital endowment). It is this latter form of funding that is addressed by this paper. Both proﬁt-making organizations and non-proﬁt organizations pursue ﬁnancial objectives with their investments. Non-proﬁt organization are, however, additionally motivated to promote the intangible objectives and values of their organization. In this respect there is also, or can be, a close link between their investment behaviour and the so-called socially responsible investment (SRI) or ethical investment. This form of investment opens up the possibility of non-proﬁt organizations incorporating their organizational principles and values into their investment decisions (see Salamon & Coe 1997). Investing ethically also presents the opportunity to send signals to their target member groups and, related to this, achieve strategically desired external effects that are in line with their organizational mission. The empirical analysis in this paper focuses on the willingness of German non-proﬁt organizations – especially those whose self-conception involves a strong commitment in their mission and values to ethical concerns – to subject their investment decisions to ethical, ecological and/or social parameters.