The entrepreneur Nathan Cummings often said that “nothing will ever be attempted if all possible objections must be first overcome.” That guidance has always served our foundation well—and especially so when our trustees voted unanimously in 2017 to activate all our resources, not just our grants, in service of our mission. I can now report that the benefits have been even greater than we had hoped.
In the hope of helping other foundations seize this opportunity, we’ve just published Values Proposition: How and Why We Transformed Our Investment Model to Align Our Capital with Our Mission. If your foundation has ever thought about taking a total-enterprise approach to impact, regardless of where you may be in your journey, I encourage you to download this report.
As we explain in greater detail in the report, we began by analyzing what was in the portfolio at the outset – first using ESG screens and later using a stakeholder-centered approach based on the Impact Management Project’s framework. Through this work, we divested from $129 million worth of unaligned assets – investments that were not seeking to avoid harm – and shifted $89 million into new investments, largely in funds that broadly benefit stakeholders or funds that meet our highest bar of helping to solve systemic challenges.
During these initial phases of our transformation, members of the Confluence Philanthropy community were enormously helpful. I am grateful to count many of you as friends and colleagues.
Now, I want to tell you what I wish I had known before we started down this road: It is crucial to have clarity about the outcomes you seek, especially around racial equity. I found out the hard way that racial and economic justice are not yet baked into impact investing the way that environmental and governance factors are.
This became clear to me in August 2018, when our investment committee was visiting the Charlotte offices of our outsourced chief investment officer (OCIO) – the firm that manages our assets. In that meeting, we learned that we were not going to invest in a fund led by a woman of color. The reasons for the decline were all logical. You have heard them before. But I had been deeply impressed by the founder of that fund and saw tremendous potential in that investment. So I spoke up. “How can we expect to solve these problems by following the same playbook that helped create them in the first place?,” I asked.
I was not pointing my question at the OCIO. It was time for our foundation to look in the mirror. And it broke my heart to realize that our process was clearly still a part of the problem. That day, I promised myself that we would do something about it.
Over the next two years, we worked in partnership with our OCIO to expand our networks, which resulted in our increasing the number of diverse-led funds in our pipeline tenfold. We studied best practices, heard from investment professionals of color, and established clear definitions and metrics for accountability. We also became a founding signatory of the Due Diligence 2.0 pledge, which was designed by BIPOC asset managers and provides clear and actionable guidance.
Today, 28 percent of our endowment is invested in funds that are majority owned by women and/or people of color. But only 9 percent of our funds apply an explicit racial equity lens to their investing decisions. We have come a long way, but we know that there is still so much more we can do.
As a part of our journey, we commissioned research on how to shift capital to funds and communities too often bypassed by Wall Street. We partnered with the Black-led firm Frontline Solutions to survey 115 OCIO firms, which often manage the assets of small and mid-sized foundations. Frontline asked them what an inclusive investment portfolio would look like, what barriers impede them from making more investments in funds led by diverse professionals, what types of data they’re collecting on race, how they are measuring impact, and to what effect.
Here are the key findings, all of which we elaborate upon in the Values Proposition report:
- You don’t need to sacrifice financial returns to cultivate impact. We observed no negative correlation between the portion of a firm’s assets dedicated to impact and the firm’s performance relative to peers.
- Traditional measures of capacity are stifling growth and innovation. Many of the most innovative, impact-oriented firms tended to be younger and have fewer assets under management, which may disadvantage them in a traditional search. This trend was particularly evident among Black-owned firms.
- Diverse, inclusive portfolios start with purpose and measurement. Firms with a clear mandate and an intentional approach to measuring fund manager diversity exhibited less racial or gender bias when selecting funds for their clients.
- Advisors are often barriers between investors’ values and their investments. Firms frequently touted their ability to engage with fund managers and leverage professional relationships, but most avoid doing so around matters of diversity and inclusion, ESG performance, or impact.
- Impact measurement and management is still a work in progress. Most firms employ a proprietary approach to ESG and impact measurement, attempting to aggregate dissimilar data from their funds. We found none that subject their impact reporting to external audit or review.
- Even among impact investors, too few focus on social, racial, or economic justice. Many firms offer well-defined strategies for incorporating ESG data into their investing approach, but few have integrated measures for advancing social, racial, or economic justice.
Yes, there is more work to do to build capacity in our field, especially when it comes to integrating a social justice thesis. But there is capacity to support mission-aligned investing at any institution, and that capacity is rapidly growing. This is the future for foundation endowments. The big challenges at the core of our mission statements will not be solved by grantmaking alone.
- Bob Bancroft, Vice President of Finance, Nathan Cummings Foundation
