In profile: Philanthropic investing

Alliance magazine

Foundations are actively using a greater range of their assets to pursue their underlying aims. These investments span a wide variety of form, purpose and recipient, a sample of which is featured here

Sharon Alpert.

Foundations going all in
In 2012, the F B Heron Foundation decided to extend the 40 per cent of its assets devoted to mission investing across its entire portfolio. In pursuit of its mission, it makes investments along a spectrum which runs from below-market to market returns, with grants at one end and private equity at the other. In 2018, another foundation, the Nathan Cummings Foundation decided to do likewise, when its endowment stood at just under $500 million. ‘The problems we are working on – like the climate crisis and growing inequality – will not be solved by grantmaking alone,’ said foundation president, Sharon Alpert in an open letter to the field. ‘Capital markets have to change to drive sustainable and inclusive growth that will create long-term value for people, the planet, and the economy.’ The Nathan Cummings Foundation describes itself as ‘a multigenerational family foundation rooted in the Jewish tradition of social justice’.

Innovative financing to keep non-profits afloat
The Ford Foundation is one of five major US foundations to borrow in order to help non-profits survive the Covid-19 crisis. Ford has launched a $1 billion social bond with 30-year and 50-year maturities, the net proceeds of the sale of which will enable it to pay out over 10 per cent of the value of its total endowment in 2020 and 2021 primarily to ‘key organisations that are advancing the fight against inequality when communities that are most vulnerable have been hit hardest by the pandemic’, according to the foundation. Other foundations to follow suit include MacArthur, Doris Duke, W K Kellogg and Andrew Mellon.

The use of such a stratagem, justified by Ford president Darren Walker on the grounds of ‘unprecedented challenges’, is rare in the non-profit world and is certain to enliven the debate about increasing the mandatory payout rate of US foundations from 5 to 10 per cent. On the other side, the move ‘creates an obligation for the foundation for the next 30 years’, Ed Henry, president of the Doris Duke Charitable Foundation, told the New York Times. ‘Basically, we’re taking out a mortgage.’ On a deeper level, it raises in a new form the conundrum faced by foundations which claim they are committed to social justice. A recent NPQ article argues that the move shows that ‘foundations are committed to maximizing their investment portfolios – and will even borrow to do so. In other words, foundations through their investments help prop up a capitalist economy that often harms their grantees.’

The divestment movement for climate change
Probably the best known of the cause-related investment movements is the DivestInvest movement. By no means exclusively associated with foundations (its 1,246 member organisations embrace a wide range from municipal authorities to faith-based organisations and it also has 58,000 individual members), philanthropy is prominent in the movement. Its advisers and ambassadors include Ellen Dorsey of the Wallace Global Fund and Sarah Butler-Sloss of the Ashden Trust. Members believe that by divesting from fossil fuels and encouraging others to do so, and by investing in climate solutions, they can accelerate the transition to a zero-carbon economy. Critics, who have included William MacAskill of the Centre for Effective Altruism, argue that divestment fails to achieve its effect because it does not hurt the companies in question, it simply means that others buy their stock. He argues that it is boycotts, not divestment, that would hurt fossil fuel companies.

ESG investing Olympics: investment managers in the spotlight
Colin Baines, Investment Engagement manager at Friends Provident Foundation writes: We have seen rapid growth in funds labelled as impact, sustainable, responsible, green or environmental, social and governance (ESG) over the last couple of years. However, the quality of these funds varies greatly with marketing claims not always aligned with practice and standards of transparency are nowhere near what they should be. In response, three foundations – Friends Provident Foundation, Joffe Trust and Blagrave Trust – came together to hold an ‘ESG investing Olympics’: a first of its kind, an open competition which simply asked investment managers to ‘impress us’ on ESG integration and impact. The prize was £33.5 million to invest on our behalf.

The response saw dozens of proposals, from small boutique impact managers to global multi-trillion-pound investment banks. Five were invited to present in public in London, to an auditorium of like-minded asset owners, including charities, churches, universities, and pensions. It is fair to say they were put through their paces. The competition winner has yet to be announced but it helped bring investment management out of the shadows as intended, shared learning on emerging best practice, and sent a clear market signal for higher investment standards and purpose. We intend to continue engaging with the winner publicly to continually raise standards, and to help other asset owners compare against their own investment managers. It is time for the power dynamic to change between asset owners and asset managers. To do that, radical transparency will be key.

Global Steering Group for Impact Investment
Set up in 2015 as a successor to the Social Impact Investment Taskforce, established under the UK’s presidency of the G8, the Global Steering Group for Impact Investment (GSG) aims to catalyse impact investment and entrepreneurship. The GSG has 32 countries as members in addition to those of the EU. Chaired by businessman Sir Ronald Cohen, it brings together leaders from the worlds of finance, business, and philanthropy and has recently appointed Cliff Prior, former head of the UK’s Big Society Capital as its CEO. It aims to ensure that measurable impact informs every investment and business decision that affects ‘people and the planet’ and to stimulate the development of impact investment into a recognisable, articulated movement.

Toniic describes itself as ‘a global community of asset owners,’ made up of over 400 wealthy individuals, family offices and foundations whose aim is to deploy all forms of capital in impact investments. Its website defines these as ‘investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return’. This does not necessarily mean that all Toniic’s members intend to make impact investments with all of their assets, though a sub-group of members, the 100% Network, set up in 2013, has committed to align all of their assets with their values. These investments range from grants at one end of a spectrum to private equity investments at the other. It produces a T100 Directory of impact investments, a global platform of direct deals and funds across the SDGs, access to co-investment opportunities and member events such as curated Impact Funds Circles.

Latimpacto is a new platform of Latin American philanthropists and social investors which aims to connect all forms of capital (including human and intellectual) in the service of positive and enduring change. Supported by the International Venture Philanthropy Center (IVPC), Latimpacto is independent but connected to the regional venture philanthropy networks, AVPN and EVPA. Like these sister organisations, it will provide training and capacity building for practitioners, promote the establishment of new venture philanthropy and social investment funds, help identify opportunities for co-investment and engage policymakers in the creation of more conducive conditions for social investment.

Investing for racial justice
Guest editor Danielle Walker Palmer writes: end itals At the moment this is still a niche and predominantly US conversation. The approaches that reach beyond general social justice objectives are a bit limited (investing in Black-led SMEs) but there is growing awareness in the philanthropic sector that more can be done. At the forefront of current discussions should be one about who manages our money and the diversity of thought required for that to be done well. This is action all foundations can consider taking now.

Gender investing
Alliance associate editor, Andrew Milner, comments: Gender lens investing (GLI) in Asia is still small but it’s growing, according to Ayaka Matsuno of the Sasakawa Peace Foundation. In 2017, when Sasakawa set up the Asia Impact Women Fund, GLI opportunities were few and far between. That’s changing quickly as gender lens investing is growing across a wide range of investors, asset classes and fields. The focus is no longer almost exclusively on women-owned businesses but on areas which have an impact on the livelihood and well-being of women in sectors as diverse as health, agriculture, education, ageing and even ocean conservation. Despite the progress some have warned that the sector needs sustained championing especially as women are likely to bear the brunt of the economic downturn – what Julia Newton-Howes of Investing in Women called a ‘she-cession’ – triggered by Covid-19.

Asia Women Impact Fund
In 2017, Japan’s Sasakawa Peace Foundation announced that it was setting aside a part of its endowment – up to $100 million – to set up the Asia Women Impact Fund to support women’s economic empowerment and gender equality. The fund uses the fruits of its investment to provide early-stage women entrepreneurs in South East Asia with access to resources such as initial financing, technical assistance and mentoring and to develop an ecosystem in the region for gender-lens investing.

Equileap was launched in 2016 by Diana van Maasdijk and Jo Andrews with the aim of increasing gender equality in the workplace, using data to illustrate the current state of affairs and to campaign for improvement. Funded largely by grants, Equileap has developed a scorecard which ranks some 3,500 companies globally on gender equality and is based on 19 criteria in the areas of balance of numbers in leadership and the workforce, compensation and work-life balance, possession of policies promoting equality, and commitment, transparency and accountability. It publishes an annual gender equality report and ranking. The 2019 edition finds that 99 per cent of surveyed companies have a gender pay gap and 58 per cent of surveyed companies have no sexual harassment policy.

Taking a queer lens
Alongside support for feminist movements and women and girls, the German charitable fund Dreilinden uses grants, social investments and networks to help people whose sexual orientation, gender identity and expression and sex characteristics do not conform with social norms.

The initial focus of Dreilinden’s investments was on gender issues because there were no investible funds at the time with a specific queer-focus. In 2015, however, concerned that queer-lens investing was not attracting sufficient attention and that gender-lens investing was developing a binary view of gender, Dreilinden decided to embark on a queer-lens investment strategy in which LGBTQIA issues would be central. It pursues this strategy by investing in public securities, in impact funds and through its own direct impact investments. Most recently, it has partnered with the Criterion Institute on new strategies to invest with an LGBTQIA lens as a tool to address the inequalities which face these groups. Dreilinden sees itself as something of a pathfinder in this field and hopes that over time, its approach can ‘demonstrate that investments should be assessed with a broader (i.e. ‘queerer’) perspective. This will lead to a more holistic assessment of opportunities and risks while also leading to better, more impactful investments.’

Our feminist philanthropy special feature (Alliance, December 2019), was guest edited by Dreilinden’s Ise Bosch.

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