In philanthropy, as elsewhere, innovation often appears in smaller, unheralded organizations before it does in large, well known entities. Case in point: In 2018, the Global Impact Investing Network (GIIN) offered a “Roadmap for the Future of Impact Investing,” which outlined a plan to reshape financial markets by integrating social and environmental impact considerations into every investment decision. But in preceding decades—long before the practice gained public recognition—several private foundations and public charities with less than $250 million AUM aligned more than 95% of their endowments with their values, missions, and/or impact goals by integrating impact into the investment process. The 100% Investor Voices plenary at Confluence Philanthropy’s 11th Annual Practitioners Gathering convened some of these trailblazing organizations for reflection and discussion. The session was organized by Cambridge Associates, V. Kann Rasmussen Foundation, and Phillips Foundation.
Rini Banerjee, president of the Jessie Smith Noyes Foundation, moderated the virtual discussion, which included Anders Kristoffersen, Head of Impact Investments, The Velux Foundation, and Member of Investment Committee; V. Kann Rasmussen Foundation; Catherine Burnett, Chief Impact Officer, Phillips Foundation; and Ramón Cruz, President, Sierra Club, and Board Member of the Sierra Club Foundation. Together, they discussed what led each organization to integrate impact into 100% of investment decisions and how the practice has influenced both financial returns and impact.
Some of the questions the group interrogated included:
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Is it difficult to match an entire investment portfolio with values and mission—and is it possible to secure market returns equivalent to traditionally invested endowment portfolios without taking on additional risk?
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Is 100% alignment a single strategy or a spectrum of impact approaches?
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Should Investment Policy Statements be adapted to ensure social and environmental impact is taken into consideration in investment decisions?
Several common themes emerged from the discussion:
Alignment of assets with values and mission has been a logical strategy for philanthropic organizations for decades.
Rini Banerjee noted that in the 1990s, the Jessie Smith Noyes Foundation launched a “Dissonance Reduction Program” to reduce the dissonance between the goals of its grantmaking, which supports grassroots organizations working to bring about a more just, equitable, and sustainable world, and the impact of its investment portfolio.
Ten years ago, Sierra Club Foundation, which promotes climate solutions, conservation, and movement building and is the fiscal sponsor of Sierra Club’s environmental programs, divested from fossil fuels and invested in clean energy, said Ramón Cruz. Recently the Foundation expanded its investment focus to shifting capital from the extractive economy that exploits natural resources and people toward a restorative economy that is just for all.
The panelists reported that, PRIs aside, they do not have different risk-return profile expectations for mission investments than they previously had for traditional investments.
There are more mission-aligned investment opportunities than ever before—and the financial return is often superior to traditional benchmarks.
The V. Kann Rasmussen Foundation, which focuses on combatting climate change and stopping the loss of biodiversity, moved its endowment from 50% mission-alignment in 2017 to 98% this year, in large part due to the tremendous increase in “green” investment opportunities, said Anders Kristoffersen.
The panelists and moderator concurred that their mission-aligned investments often outperform traditional benchmarks and therefore have increased the foundations’ resources. Kristoffersen noted that their endowment return was 40% last year (March 31 2020 to March 31 2021).
One hundred percent mission-aligned strategies use a spectrum of approaches.
Catherine Burnett reported that Phillips Foundation, a private family foundation and catalytic capital platform, employs a variety of tools as part of its mission-aligned strategy. These tools include SRI screens, ESG-focused funds, racial- and gender-equity themed funds, affordable-housing or climate-solution themed funds, gender-equity indices, due diligence processes that preference BIPOC and women fund managers, direct investments in underrepresented entrepreneurs who are progressing systemic change, guarantees to support racially equitable community development, and policy advocacy.
According to Cruz, 70% of the Sierra Club Foundation portfolio is invested in majority BIPOC and woman-owned or -led investment funds and the Foundation engages in shareholder advocacy to influence less diverse funds. The foundation uses a catalytic capital PRI fund to invest in communities, companies, and other entities for carbon-emission reduction and the advancement of economic justice.
It is critical to codify mission alignment in the Investment Policy Statement.
The panelists agreed that since the IPS outlines investment goals and strategies as well as the responsibilities of the board and investment committee, it is critical for mission-alignment to be clearly articulated throughout the IPS.
Obstacles to implementing mission alignment are surmountable.
The panelists cited a range of obstacles a foundation might face while trying to implement mission alignment. These challenges include implicit bias against selecting first-time fund managers of color in the due diligence process, non-aligned legacy investments that must either be held until they distribute capital or sold at a loss, and unrealistic expectations about how long it might take to achieve 100% alignment.
Burnett recommended the Due Diligence 2.0 framework to reduce implicit bias and encouraged foundations to be intentional about the impact of every operational decision they make, in addition to investment decisions.
Kristoffersen recommended that foundations start small and set interim goals to build experience on the road to 100%.
Cruz noted the importance of getting clear on the intended impact and how to track and measure it. He also suggested seeking co-investors to generate a multiplier effect.
Finally, as more foundations seek to amplify their impact through mission-aligned investing, this panel of early innovators and other Confluence members can provide useful guidance about lessons learned on the road to 100% alignment. Since there is only upside to mission-aligned investing and there are more viable options than ever before, now is the time to incorporate values, mission, and impact into all investment decisions.
- Catherine Burnett, Chief Impact Officer, Phillips Foundation
