At AJL Foundation, we believe our investments should support our mission just as much as our grantmaking. We’ve spent the past decade working to align our endowment with values. That journey has included integrating environmental, social, and governance considerations into our investment process and exploring ways our capital can support a more equitable and sustainable future.
Recently, we took an important step in that effort by transitioning our public equity investments from Vanguard’s direct indexing platform to the Ethic direct indexing platform. This change allows us to be more active shareholders, aligning our proxy voting with Ethic’s sustainability guidelines and enabling us to file and co-file shareholder resolutions that encourage companies to improve their environmental, social, and governance practices.
Why Shareholder Voice Matters
When foundations invest in public companies, we are not just passive investors; we are shareholders with rights and responsibilities. Shareholders can influence corporate behavior through proxy voting and through shareholder resolutions that ask companies to address issues such as climate risk, governance practices, workforce policies, and transparency.
For AJL, exercising that voice is an important way to ensure our investments reinforce the mission-driven social and environmental outcomes we also seek through our grantmaking. Through Ethic, we can align our voting with a sustainability-focused framework designed to promote stronger corporate accountability and long-term value creation. Ethic also enables AJL to file or co-file shareholder proposals alongside other investors, helping push companies to address emerging risks and opportunities.
Together, these tools allow us to support: responsible corporate governance, stronger climate and environmental practices, improved transparency and accountability and policies that protect workers, communities, and long-term shareholders. We are moving from being passive investors to active owners.
How Vanguard Was Limiting Our Impact
For many years, AJL held domestic and international equities through Vanguard index funds. These funds provide low-cost exposure to global markets and have played an important role in building diversified portfolios. However, index funds limit investors’ ability to customize holdings or control how their shares are voted. When assets are held in pooled funds, the asset manager, not the underlying investor, generally controls proxy voting decisions.
That means large fund managers such as Vanguard cast votes on behalf of millions of investors using a centralized voting policy. While these firms have made strides in stewardship, their policies must balance the perspectives of a very broad client base. As a result, investors like AJL have limited ability to align proxy voting, or pursue shareholder engagement strategies such as filing resolutions, with our own mission and priorities. For a foundation committed to mission-aligned investing, that constraint increasingly mattered.
How the Proxy Landscape Is Changing
The broader proxy voting environment is also evolving. Institutional investors have long relied on proxy advisory firms such as Institutional Shareholder Services (ISS) and Glass Lewis, which publish voting guidelines and recommendations on corporate governance issues. These guidelines evolve as expectations change, from executive compensation and board oversight to emerging issues such as climate risk, workforce practices, and artificial intelligence governance.
The proxy ecosystem is also becoming more complex, with growing scrutiny and debate around environmental and social shareholder proposals. These shifts reinforce the importance of investors having clearer control over how their shares are voted and the ability to actively participate in shareholder engagement. For AJL, this environment underscored that if we want our shareholder voice to reflect our values, mission and vision that all Colorado youth and families have opportunities to thrive, we need a structure that allows us to directly exercise those rights.
Why Ethic
Ethic’s direct indexing platform provides that flexibility. Instead of investing through pooled funds, Ethic builds customized portfolios that track major market indexes while allowing investors to tailor holdings, proxy voting policies, and shareholder engagement strategies.
Through Ethic, AJL gains:
- Proxy voting aligned with Ethic’s sustainability guidelines.
- The ability to file and co-file shareholder resolutions
- Greater transparency into the companies we own
- Flexibility to exclude companies or sectors inconsistent with our values
- Potential tax-management benefits and portfolio efficiency
Ethic allows us to retain the benefits of index investing while giving us far greater control over how our capital is invested and how we engage with the companies we own.
Aligning With Our Investment Policy and Strategic Plan
This transition directly supports the principles outlined in AJL’s Investment Policy Statement, which calls for investment decisions that generate long-term returns while avoiding harm, supporting stakeholders, and contributing to solutions for social and environmental challenges.
It also aligns with our strategic plan, which emphasizes using all of AJL’s resources, not just grantmaking, to advance a more equitable and sustainable future. By aligning our investments with our mission, we strengthen the impact of our work across every part of the foundation.
What This Means for the Companies We Own
Owning shares in a company means having a voice in how that company is governed. Through proxy voting and shareholder proposals, AJL can support corporate practices that prioritize long-term value creation, environmental sustainability, responsible governance, and accountability to the communities we serve.
While a single foundation’s vote or proposal may seem small, collective shareholder action has historically played a powerful role in shaping corporate behavior, from improving climate disclosures to strengthening governance standards. Our goal is not simply to avoid harm in our investments, but to use our position as shareholders to encourage companies to operate in ways that support a more just and sustainable economy.
What This Means for Other Foundations
AJL is part of a growing movement of foundations that are aligning their investments with their mission. Historically, many foundations separated grantmaking from investment strategy but, today, more institutions are recognizing that their endowments represent one of their most powerful tools for change.
Direct indexing and customizable proxy voting platforms now make it easier for foundations to maintain diversified portfolios while aligning shareholder voice with their values. We hope that sharing AJL’s experience encourages broader conversations within philanthropy about how foundations can use all of their assets, not just their grants, to advance their missions.
Looking Ahead
Transitioning our public equities to Ethic is one step in AJL’s broader effort to ensure that 100% of our endowment is working toward our mission. Our grants support organizations creating change in communities and our investments can reinforce that work by encouraging companies to operate responsibly and sustainably.
When philanthropy aligns its investments with its mission, the impact of every dollar grows.
