A New Collaboration?

Foundations must spend at least 5% of their corpus each year, under a federal requirement governing their activities.

Imagine what could be done if all of their corpus–spending and investments-were directed at their missions?

What about their staffs—those substantive and technical experts they hire—could they work cooperatively as truly equal partners with nonprofits and for-profits in the formulation of the very projects they all want to see succeed?

For many years, a handful of foundations have been making program-related low interest loans to further their mission; others have been managing investments away from certain areas, e.g. cigarettes, fossil fuels, gambling etc. More foundations are joining these bandwagons each year.

Some foundation staffs have also been at the service of their missions in helping nonprofits advance and assisting them in their applications processes. Many foundation staff, however, are still behind portals and other artificial barriers, not thinking their job descriptions include deeper involvement and collaborations on some equality basis.

Impact Investing

The newest and most exciting trend among foundations is the idea of impact investing—going beyond grants and loans by putting their endowment investments into stocks, bonds and other instruments that advance their mission. This is leading to very new and exciting concepts of what foundations do.

Led by such foundation giants as Rockefeller, Carnegie, Heron, Kellogg and Ford, the movement is taking hold throughout the country among the largest foundations. McKnight, here in Minnesota, has engaged an employee whose sole job is to recommend such uses of corpus.

A recent article by Steven Godeke and William Burckart, “Impact Investing Can Help Foundations Avoid Obsolescence” sets out the full range of potentials for foundations to embrace an integrated policy of having both the granting function and the endowment investing function in one focused effort to impact society in positive directions and produce social good.

It is apparent in the authors’ eyes, and to many of us in the nonprofit sector, that foundations have to change, that many are fossilizing with each passing day. The old models really don’t do the required job.

Full Tilt

Godeke and Burchart cite a recent article by Clara Miller, president of the F.B. Heron Foundation, and Jean Rogers, chief executive of the Sustainability Accounting Standards Board, “Taking Impact Investing and Accounting Full Tilt”

After an enlightening exposition of the opportunities as well as roadblocks along the way to social impact investment, these author conclude:

“Private foundations that invest on behalf of the public are running out of excuses. It’s time for more of us to join the burgeoning group of investors who are making the financial investment needed to build a diverse data infrastructure, use it as customers, and as a result deploy a full range of financial investment vehicles to yield maximum positive social and financial performance for a world that is urgently in need.”

Miller speaks with authority and authenticity as the head of a foundation that has decided to invest 100%, up from 40%, of its endowment in the societal impacts they wish to promote. Rogers’ group helps inform investors and the public on the material sustainability of the various investments in public companies that they are investigating.

What’s Next?

Given all three sectors—for-profit, nonprofit and government— can participate in various aspects of impact investing, what should come next?

How do we involve the people of all three sectors in these ventures as well?

Government can do much more in lessening the rather rigid regulations that often stand in the way of more efficient impact investing. It could do much more in supporting certain social impact bonding that can be successful in solving limited types of problems. More importantly, the feds can extend the Obama initiative to ask for social impact evaluation in their grants programs and actually fund the development of impact research and metrics that may be commonly employed by grantees.

Government employees should also cross some of the artificial boundaries erected to lend expertise, again on an equal basis, without compromising responsibility to ensure ethical, efficient use of resources. Similar to some of the cross-fertilization between government, university and private research laboratories, other collaborations will yield surprisingly superb results.

Business not only needs to follow the market, but to lead the market in creating sustainable options. As B Corps become more popular, along other with lower bottom line endeavors, there opens up more investment and consumer buying potential for us all, not just foundations. Remember, too, that expectations that all such investments have lower returns are patently false.

And for our sector, those of us sharing various sections of 501 C, we need to learn to work together using resources of all, including foundation grants, loans, investments and people combined with nonprofit expertise, constituency and people to tackle and cure, not just contain, the major societal challenges facing us today.

The artificial boundaries set historically between government, foundations and public charities must lessen and be replaced by a system of openness, receptivity and trust in which we are all engaged in the same pursuits for social good.

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