My great grandfather Nathan Cummings often said that “nothing will ever be attempted if all possible objections must be first overcome.” He developed that entrepreneurial mantra as he worked his way from struggling (failing, actually) door-to-door shoe salesman to CEO of the global food conglomerate Sara Lee.
At the Nathan Cummings Foundation, all of our family and independent trustees try to honor that mantra in every decision we make, big and small. In late 2017, we faced a momentous decision when we took a vote on moving the foundation’s endowment into investments that advance our charitable mission.
Going into that vote, I had high hopes that the board might agree to move as much as 50 percent of our portfolio into financial investments that not only earned financial returns but also advanced positive social and environmental outcomes. We wound up voting, unanimously, to move 100 percent, becoming the largest foundation to go all in on impact investing. With several years of results behind us, it’s time to share what we learned to help others who are considering taking the plunge into impact investing.
In retrospect, it’s clear that we had not overcome all qualms and concerns before we took the vote. But we were motivated to move forward for three compelling reasons.
First, we felt that we had to do so to live up to our foundation’s commitment to “disrupt hierarchical systems that are neither sustainable nor fair” — given that capital markets have so much impact on the issues we care about and the communities we serve. We had spent a year as a board conducting research and learning from others. That persuaded us that we should go beyond shareholder activism and use all of our investment decisions to advance equity and combat climate change.
Second, we felt that impact investing was a critical step toward taking an all-enterprise approach to impact. We could see no good reason to continue using just 5 percent of our assets — the federally required minimum for spending on grants — to spark impact when we could use 100 percent.
Third, we were concerned that some of our financial investments were subverting the goals of some of our foundation’s grant-making work. We wanted to stop giving with one hand while taking away with the other.
Today, we can see with 20-20 hindsight that the board made the right call — for both moral and financial reasons. Transitioning to this approach to investing was not easy. But it was even more successful and valuable than we had hoped. We explain all the major challenges and benefits in our new report “Values Proposition: How and Why We Transformed Our Investment Model to Align Our Capital With Our Mission.” The report offers detailed insights into what we learned, a tool kit for those who are thinking about moving into impact investing, and a data-rich analysis of who is doing what in mission-related investing.
Here is a summary of what we learned:
Impact investing has been a boon for our bottom line. Three years of impact investing has enhanced our financial returns, while helping to mitigate financial risk in our portfolio. These positive returns are not outliers. Our research partner, Frontline Solutions, conducted a comprehensive survey of firms that manage investments for small- and medium-sized foundations. This survey showed “no negative correlation between the portion of a firm’s assets dedicated to impact and its financial performance.” Frontline writes, “On the contrary, we found that institutions … are not required to sacrifice financial returns to apply a mission-aligned approach to their investing.”
Impact investing is the future for foundation endowment management, but there are some big gaps in the field’s capacity today. Few investment firms are equipped to take a fully integrated, impact-first approach. Those that can do so are newer firms, with a relatively short track record. We encourage foundations to do what they can to give the newer impact-first firms the benefit of the doubt.
Impact-investment managers have not yet gone deep on racial equity. Frontline found that only 30 of the 707 senior leaders across the 115 firms it surveyed were Black or Latinx. That’s clearly one of the reasons Frontline also found a lack of effort to measure diversity, equity, and inclusion in investment portfolios. For example, only five of the 115 firms we initially surveyed even addressed the topic of manager diversity in their marketing and communications. Bottom line: If you represent a foundation that aims to focus impact investment on racial justice, you have to be selective about the firm you hire. Some firms without this expertise may try to sell you on their environmental, social, and governance measures, but we learned the hard way that those measures and screens don’t focus on racial equity and justice.
Philanthropic institutions like ours are products of, and active participants in, capital markets. We believe it’s our duty to own our power and privilege and use it as a way to change these systems from within. If we are all genuinely serious about the change we want to see in the world, grant makers can no longer afford to turn a blind eye to our investment portfolios. If foundations and other wealthy investors band together to help shift the way these capital markets work — from who makes the decisions to who benefits — we have a much greater chance of bending the arc of the moral universe toward justice.