The Ford Foundation announced today that over the next 10 years it will allocate up to $1 billion of its $12 billion endowment to financial investments that complement its grant-making goal of reducing inequality.
The amount being committed is significant: No other foundation has publicly pledged to tie such a large sum to mission-related investing. The move comes two years after Ford shook up the nonprofit world by announcing that virtually all of its grant making would go to address financial, racial, gender, and other forms of inequity.
“We’re not going to have the substantial impact we want to in reducing inequality by grant making alone,” said Darren Walker, Ford’s president.
The foundation, which spends more than $500 million a year on grants, can magnify its effect by moving money out of companies that don’t promote equality and into businesses that, for example, promote low-cost housing and access to financial services in emerging markets, he said. “We are at a point where we need to use every tool in our toolbox.”
Ford will determine annually how much money to place in such investments, depending on its broader financial position and the potential social impact a given level of investment could generate, Mr. Walker said.
He said he worked assiduously over the past year to encourage the foundation’s trustees to make the billion-dollar commitment, which he predicted would generate “attractive” returns.
“There were trustees who were concerned we could be opening ourselves up to risk,” Mr. Walker said. “This is not a drain on the endowment. This will ultimately, over time and as the efficacy of this model is proven, contribute to our grant payout.”
‘Full-Frontal’ Philanthropy
While the size of Ford’s commitment to mission-related investing is unprecedented, the strategy is not new. The F.B. Heron Foundation began changing its fiscal approach in 2011 and now has all of its nearly $300 million endowment in impact funds. Heron has merged its grant-making and investment staff into one unit.
In her 2017 annual letter, published last week, Heron President Clara Miller described her “full-frontal” approach to philanthropy: “Money and mission, roughly corresponding to the investment and program sides of the foundation, do not exit in separate universes and were never meant to be apart.”
Others have followed suit. The Kresge Foundation committed $350 million to impact investing, including some mission-related investments, in September 2015. Earlier this year the Surdna Foundation announced plans for a $100 million impact-investing fund, much of it geared to program-related investments. The Nathan Cummings Foundation is assessing the practice and plans to announce a strategy by the end of the year.
These prominent examples notwithstanding, only a small slice of foundation endowments is invested in companies as part of a specific plan to advance social or environmental goals.
According to a 2015 survey by the Center for Effective Philanthropy, 41 percent of foundations have pursued impact investing. Among those that do so from their endowments, only a median of 2 percent of those assets were dedicated to the practice.
Investment Influence
Among U.S. grant makers Ford’s endowment is second only to the Bill & Melinda Gates Foundation’s nearly $44 billion in assets. Mr. Walker said that with its size, his organization could serve as an example to peers.
“I hope that I’m able to help create opportunities for other foundation presidents to raise these issues with their investment committees and with their boards,” he said.
Major foundations’ moves can make a big difference to other grant makers, said Matt Onek, chief executive officer of the Mission Investors Exchange, a network of foundations active in impact investing.
“When you see some of the pioneers of program-related investing now moving into mission-related investing, it’s a very strong signal to the rest of the foundation community, as well as the broader institutional-investor community, that this is a viable and exciting place to be,” he said.
Bob Goldstein, chief executive of Sonen Capital, a firm that manages social and environmental investments for foundations, agreed that big players’ involvement can help the practice gain momentum. Speaking before the Ford announcement, he said large foundations are developing “proof statements” showing that impact investing can provide both financial and social returns.
A Nudge From the IRS
The Internal Revenue Service has also helped make foundation leaders more comfortable with mission-related investing.
Foundation trustees and money managers pay close attention to their investments to ensure their organizations can continue distributing money well into the future. Historically, they’ve worried about getting dinged by regulators for not being prudent. Those concerns were lessened by a September 2015 IRS guidance that said social and environmental investments would not be considered “jeopardizing” investments that put a grant maker’s financial future at risk.
Getting the IRS’s blessing hasn’t resulted in a deluge of calls to make impact investments, said Mr. Goldstein, but he has detected a noticeable increase in interest.
“Not all board members are completely enthusiastic,” he said. “It takes a while for the cultural shift to happen. The fact that the IRS explicitly said it’s OK goes a long way to propel that shift.”
Unusual Approach
Ford is taking a somewhat unusual approach to deciding where to place its mission-related investments. A leader of its grant-making programs — Xavier de Souza Briggs, vice president for economic opportunity and markets — will oversee the team making such calls, not the foundation’s chief investment officer, Eric Doppstadt.
Both executives report directly to Mr. Walker and “operationally, they are synched,” the president said. Additional oversight will come from a newly created committee of Ford trustees, chaired by the leader of the board’s investment committee.
Mr. Walker said Ford would determine how to gauge social returns on its new investments on a case-by-case basis. For instance, the foundation might measure the extent to which money invested in a fund for development of low-income housing reduces the number of homeless people in a target area. That return would be assessed along with the growth or loss of the investment.
The Ford announcement did not say whether the foundation would screen stock purchases of publicly traded companies for compatibility with its social goals. At the end of 2014, Ford’s holdings included nearly $7 million in stock in PepsiCo — the board of which Mr. Walker has since joined — and $3.1 million in Walmart shares.
Those companies have been criticized on social grounds, with nutrition and health organizations contending that Pepsi’s sugary drinks contribute to obesity and other health problems and labor groups accusing Walmart of treating workers poorly.
