STEP SIX

Invest

When people learn that the same company that is selling a cure is simultaneously contributing to the cause of the disease, they get mad, and understandably so. There was a huge uproar around 2002 when activists revealed this was exactly what was happening with the pink ribbon breast cancer fundraising campaign. Cosmetics companies that were simultaneously using breast-cancer-linked chemicals in their products were “pinkwashing”—enticing consumers with the assurance that they were contributing a portion of their proceeds to fight the disease. I’m sorry to say that this dynamic is taking place in the very heart of philanthropy and ethical investing. And it needs to stop.

Since 1969, U.S. tax law has mandated that foundations pay out a minimum of 5 percent of their total assets each year in the form of grants or eligible administration expenses. The “payout rule” was created to prevent foundations from receiving assets but never actually making charitable distributions with them. The other 95 percent of the assets are invested with the goal of earning financial returns that sustain the grantmaking power of the foundation over time. It makes zero sense that a foundation that aims to stop global warming with the 5 percent it pays out would simultaneously invest its assets in fossil fuel industries, right? Yet this kind of contradiction occurs all the time. This is unconscionable.

What about the 95 percent?! is a question all of us need to be asking, and almost no one is. It’s only just in recent years, after a decade in the field, that I’ve awakened to the 95 percent. What is going on with that money? For those of us in the field, it’s as if there’s a firewall. We’re kept in the dark about what’s happening on the other side. We’re not privy to conversations about the corpus, yet that’s where the real power is, because it’s where the vast, vast majority of the money is working. The 5 percent we’re in charge of allocating is just a drop in the bucket.

At one of the foundations I worked at, we would have a quarterly ice cream party to celebrate when our investments paid off, increasing our corpus. This puzzled me—weren’t higher levels of giving what we were supposed to be celebrating? During my interview with Dana Arviso, executive director of the Potlatch Fund, we spoke about the backwardness of the priorities. I began, “In philanthropy we ask how big you are, which foundation has the largest amount of assets in the bank—”

Dana jumped in, finishing my thought: “That’s where your prestige and your status comes from, rather than how much you give away.”

The Potlatch Fund is named for the potlatch ceremonies common among the tribes of the Pacific Northwest, who had such an abundance of natural resources that they began a practice of ceremonially giving it all away—redistributing wealth. “The status of certain chiefs here in the Northwest was measured by how many potlatches they had in their lifetime,” Dana told me. “Some of the most esteemed chiefs in the Northwest had six or seven potlatches in their lifetime. We’re talking about gathering up everything that they had and giving it all away, for the purpose of creating strong relationships with neighboring tribal communities.”¹

Most foundations don’t even disclose information about their investments. Of the 10 largest foundations in the United States, only two—the MacArthur Foundation and the W. K. Kellogg Foundation—publish investment returns on their websites.

Meanwhile investors who tout the “doing well by doing good” mantra—whether they call it ethical investing, socially responsible investing, impact investing, even micro-lending—are all too often playing the same game. A portion of their investments may be going to fund solar-powered lamps and clean cookstoves for poor Africans, but meanwhile the majority of their money is “safely” invested in traditional places where a solid return is expected, and that might well mean in mining companies that are destroying the soil and groundwater of those same poor Africans.

It’s true that divestment campaigns have been fairly effective at shining the light on these kinds of hypocrisies and inconsistencies with specific issues, most famously with the apartheid regime in South Africa in the 1980s, over the past decade with fossil fuels, and most recently with divestment from banks that supported the Dakota Access Pipeline. The opposite of investment, divestment campaigns put pressure on investors to get rid of stocks, bonds, or investment funds that are supporting that unhealthy, unethical, or downright evil activity. Divestment activists have successfully demanded that municipalities, universities and colleges, religious organizations, retirement funds, and other institutions stop funding the bad stuff. As we saw with the South African divestment campaign, it can really work. By the mid-1980s, 22 countries, 90 cities, and 155 campuses had pulled their funding from companies that did business in South Africa, which contributed to the end of the apartheid government.²

But why should philanthropy and ethical investment have to rely on whistleblowers and independent activists to keep the bulk of their assets from causing harm? Not only should those assets be transparent, they should be 100 percent aligned with the mission of the foundation. This is known as mission-related investing. The concept has already found support among many of the big players in philanthropy, including the Kellogg Foundation, the John D. and Catherine T. MacArthur Foundation, the Bill and Melinda Gates Foundation, and Open Society Foundations. In April 2017, the president of the Ford Foundation, Darren Walker, announced that Ford was embracing it as well:

I am pleased that after many months of analysis and planning, the Ford Foundation’s Board of Trustees has authorized the allocation of up to $1 billion of our endowment, to be phased in over 10 years, for mission-related investments. Since the 1980s, divestment movements around the world have asked institutional investors, in particular, to consider how their investments are related to the wider world. Whether they were demanding divestment from tobacco, fossil fuels, or apartheid South Africa, these movements reminded us that our investments are part of a broad ecosystem of consequences, intended and unintended—consequences that we realized we could not ignore. Today, we have an opportunity to build on this proud, powerful legacy. Previous divestment movements tried to prevent investors from harming society; now, institutional investors can begin to move from “do no harm” to exploring how to “do more good.”³

The move received a lot of positive attention and will likely inspire other foundations to follow suit, which is definitely positive, but here’s the thing: Ford’s total endowment is more than $12 billion. So this move doesn’t even impact 10 percent of their assets. Darren Walker acknowledged it’s just the start; it’s not enough to move the dial.

We need to move the dial, people. The F. B. Heron Foundation provides an excellent model to follow. Founded in 1992 with the mission of helping people and communities to move out of poverty and thrive, by 1996 the board began considering what could be done with the 95 percent, realizing that a “foundation should be more than a private investment company that uses its excess cash flow for charitable purposes.”⁴ Within a decade, Heron’s mission-related activity had grown to comprise approximately 40 percent of its overall endowment and included everything from taxable municipal bonds to private equity. In 2012, they decided to go from 40 percent to 100 percent mission-related investments. However, they quickly discovered that there were relatively few truly mission-aligned, poverty-oriented investment managers out there in the market. Instead there were a growing number of impact-screened vehicles. By December 21, 2016, Heron moved the last unscreened piece of its corpus to impact-screened exchange-traded funds (ETFs); up next, they’ll be pushing their portfolio from screened-for-impact to invested-for-mission.⁵

And what about risks and returns? Ford’s relatively cautious $1 billion over 10 years reflects a fear of “under-performance,” as they say in finance language, meaning there’s a lower rate of profit. This is sacrilege to many investment committees of foundations, who insist on protecting the endowment for perpetuity. Heron’s investment policy statement makes their stance clear:

For Heron, return is measured both in financial terms and by the degree to which any given use of capital leads to outcomes that are consistent with our philanthropic mission and public purpose. In this policy statement, “risk” refers to the probability of non-performance on both social and financial dimensions, and on the interaction between the two. . . . We believe that investments in targeted enterprises with positive net contribution will perpetuate a cycle of favorable social performance, financial performance, and ultimately financial return.⁶

There are also those who say that the widespread fear of diminished financial returns is bogus. Kristin Hull, an impact investor and advisor based in the San Francisco Bay Area, decided to go 100 percent mission-invested back in 2007, when she moved all the assets of her family foundation out of the market and into seven local community banks. By 2008, when the recession hit, foundation endowments nationwide were down by 28 percent, but her family’s was up by 2 percent.⁷ Since then her investment philosophy has gotten even sharper: “I just can’t invest in any more white men unless they’re part of a diverse team. They’re already getting the money. Knowing that women receive less that 4 percent of venture capital and people of color just 1 percent, that is the most meaningful and impactful place for me to invest.”⁸

Kristin’s women-and-people-of-color-only screen for investments is the necessary next step for all of us. It’s not enough to just not allow the bulk of our assets to fund the bad stuff, we have to take those assets and invest in the more beautiful world our hearts know is possible. If you believe, as I do, that the best solutions to the current economic and social problems are coming from the very people who were disempowered by the colonial command-and-control, dominate-and-exploit system, then those are the people in whom we need to invest.

My colleague Vanessa Daniel, executive director of the Groundswell Fund, has written that philanthropy’s efforts will have gone far enough in this direction “when the majority of foundations acknowledge the fact that white supremacy is in fact blocking progress on everything their trustees care about, and that they have little hope of advancing their missions, whether finding cures for cancer, ending malaria, improving STEM education, promoting the arts, or protecting fragile ecosystems, if they don’t fund work that recognizes and dismantles white supremacy.”⁹

So, to repeat: there needs to be total transparency around where our assets are invested and those assets must be 100 percent mission-aligned, meaning not just do-no-harm but invested in decolonization, in order to heal divides and restore balance.