Ford Foundation Bets On Impact Investing

Besides giving grants, the foundation now wants to make sure its endowment is being invested in places that will have a positive impact.

Like many major philanthropic funders, the Ford Foundation for social justice spends roughly 5% of its annual endowment on charitable causes, reinvesting the rest to ensure it will be able to recoup those costs and operate in perpetuity.

With a total endowment of about $12 billion, that means there’s about $600 million granted toward charitable programs each year. (That 5% figure is the minimum requirement to maintain nonprofit status under federal tax code.) But it also means that 95% of the foundation’s money is sitting in stocks, private equity, real estate, and venture capital, not leveraged in the same socially responsible manner that the foundation insists on when making its grants.

In recent years, president Darren Walker has grown uncomfortable with that imbalance, which he sees as another “classic disconnect” affecting well-funded but sometimes apathetic institutions, including Ford. “We won’t solve big problems without deploying some part of that 95%,” Walker says. “So what I’m hoping is that we are reaching an inflection point, a tipping point in which the momentum has shifted to normalize a conversation about how foundations use our endowments from the margins to the mainstream. For too long this question has been sidelined. And I think the time has come where we’ve got to take it on and we’ve got to demonstrate the capacity to use our endowment to advance our mission.”

Xavier de Souza Briggs, the Ford Foundation’s vice president for economic opportunity and markets, puts the value of the emerging impact investing market north of a trillion dollars. To that end, Walker announced plans to use up to $1 billion of the foundation’s endowment over the next decade on more mission-related investments, investments in projects that generate the return Ford needs, but also support things like affordable housing or better financial services for the poor. The logic is explained in detail in a post entitled “Unleashing the power of endowments: The next great challenge for philanthropy” on Ford’s Equals Change blog. The commitment makes Ford the largest private foundation playing in this space.

According to the Global Impact Investing Network (GIIN), an industry group that’s tracking market trends, impact investment has grown rapidly. In its network alone, there are over 2,500 different investors contributing to more than 400 funds, which have grown in size from $15 billion in contributions two years ago to more than $77 billion in 2016.

According to GIIN, typical investments include things like an organization that needs capital for their own revolving-loan-based community development program, or to fund wind farms in areas where the demand for power dwarfs the current supply, which in addition to putting clean energy back into the grid would generate revenue through carbon offset agreements. Another group could invest in a traditional company whose business plan, say, the launch of a shea butter company for organic nut farmers in rural Ghana, provides jobs and economic stability in depressed areas. Unlike traditional investments, these opportunities offer both money back and the chance to fix some larger environmental or social cause, often in a way that could draw more investors as the business model proves out.

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