Overheard at Amplifying Impact: 3 Articles by ImpactAlpha
This post summarizes three articles about the MIE 2020 National Conference written by Impact Alpha, a subscription-based independent publication specializing in impact investing news. Links to each article are provided below.
The call for “systems change” in the foundation community and beyond did not begin with the coronavirus pandemic, but the crisis has brought a renewed focus on structural inequalities in the economy, and with it a heightened sense of urgency.
At the Mission Investors Exchange 2020 National Conference, foundations shared their plans for structural change within their own organizations and intensified the call for action toward a larger societal transformation.
“Now is the time for a real structural change agenda… not just a pilot program,” said Dr. Robert Ross of The California Endowment, adding that impact investors have the experience and knowledge to advocate for a “national agenda for reorienting capitalism with an equity lens.”
Rockefeller Foundation’s Dr. Rajiv Shah noted that even record inflows to environmental, social and governance (ESG) funds were not enough to tackle the scale of the challenges on their own.
“I just don’t think $10.5 billion a quarter in ESG funds is going to do anything to change the nature of our society, and we deserve a discussion of a more bold set of actions,” Shah said on a panel kicking off the three-day virtual event. He called for a doubling or tripling of the Earned Income Tax Credit, green infrastructure investments and progressive tax policies “that are far more consequential in terms of achieving the equity and sustainability goals that we are setting for ourselves.”
At the same time, change must also come from within, Heron Foundation’s Dana Bezerra said. “I have a growing sense of frustration that as philanthropy, as institutional investors and private foundations, when do we turn that finger back around and ask when we are willing to take on systemic change inside our own shops?”
The $300 million Heron Foundation plans to move capital and deployment decision-making – that is, power – into the hands of community leaders in five to 10 geographies over time. So far, it has helped build one such local investment committee to which it will soon turn over investment authority to commit Heron’s assets without further approval or ratification. The idea is to go from “listening” to communities to empowering them.
“We’re just the asset owner,” Bezerra said. The key is to find places that have “agency” and notions – even wild and scattered ones – of what they are trying to become. “Our role is to speed that agency and accelerate it and not put our fingerprints all over it,” she said.
Heron joins smaller nonprofit funds that are going even farther in putting investment decision-making power into the hands of community members. The Boston Ujima Fund is democratically controlled by community members in Boston’s working class neighborhoods, who vote on impact objectives and investment decisions. In California, the REAL People’s Fund was created by five community organizing groups, including Restore Oakland and Communities for a Better Environment, to finance entrepreneurs of color. A community development financial institution, Community Vision, along with the Runway Project, administers the fund, but decision-making stays with the community groups.
The trend is part of an emerging shift in philanthropic strategies, which comes as a number of foundations report progress in moving at least some of their endowment assets to impact.
The Rockefeller Brothers Fund, for example, says its portfolio has outperformed the market, five years after it began divesting its endowment of fossil fuels. The foundation released data showing average annual returns of 7.76%, compared to 6.71% for an index portfolio that included coal, oil, and gas holdings. About 15%, or $178 million, of the Rockefeller Brothers Fund portfolio includes proactive impact investments funds including Generation Climate Solutions, Turner Multifamily Impact Fund and Elevar Equity III.
Not owning fossil fuel investments proved advantageous in the first-quarter of 2020, according to RBF’s data. The value of the fund’s endowment declined by about 11%, less than the benchmark, which fell by more than 15%.
The Nathan Cummings Foundation said it has moved more than $180 million to new impact investments and divested from another $100 million in unaligned funds in the two years since it announced that it would align its $450 million portfolio with its mission.
And the Ford Foundation is building one of the largest mission-related investment portfolios as part of a commitment to deploy $1 billion over 10 years from its $13 billion endowment. In a post-COVID world, “those of us who lead foundations will be called to think more creatively about how we use all of our tools beyond the 5% grant making,” the foundation’s Darren Walker said.
The COVID crisis has further exposed the racial and economic disparities that existed before the pandemic, and foundations must employ their decades of experience battling inequality as they look to alleviate virus-related impacts and finance a just recovery, various panelists said.
“We do have a lot of lessons on what needs to happen in this moment,” said Kellogg Foundation’s La June Montgomery Tabron. Communities of color must participate in the recovery and reimagining of what the economy can be, she said. “As this work expands, we can be a part of that expansion.”
Kellogg will look to its mission investments in fund managers like Kesha Cash of Impact America Fund, which backs entrepreneurs of color, and companies like Revolution Foods, which is delivering food to students who are no longer getting lunch at school, to help drive an inclusive recovery.
MacArthur Foundation is helping set up city-focused COVID response funds, drawing on lessons from its $625 million in catalytic loans, equity investments and guarantees. MacArthur’s John Palfrey said the foundation is deferring or forgiving as much as $25 million in loans from its program-related investment portfolio, much like it did in the wake of the Gulf Coast hurricanes and the subprime foreclosure crisis.
“We need a forklift, cranes and other stuff,” to break through systemic problems in health, education and inequality, said Rey Ramsey of The Nathan Cummings Foundation. “It takes this all-of-the-above approach.”
While the COVID crisis has intensified the challenges foundations face, at the end of the virtual event, 88-year-old civil rights leader Andrew Young was on hand to offer some perspective. “I’m an impact investor from the civil rights movement,” he said, noting that today’s impact investors are fortunate to have capital to invest. “We had only our lives.” The former mayor and confidant to Martin Luther King Jr. reminded attendees at the conference’s closing plenary about what’s at stake, not only in COVID crisis, but in its aftermath and in crises to come.
“This is a time of massive social change,” Young said.