Part of its Social Investing Push, Kresge Flexes Assets to Bring Solar to Low-Income Homes
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Workers installing solar panels in Puerto Rico through a project backed by the Kresge Foundation. photo courtesy Kresge.
The COVID-19 pandemic and the national uprising over systemic racism have brought new attention to the nation’s deep racial inequities that stretch throughout American life, particularly the disproportionate toll of pollution and climate change in communities of color.
As these forces push many philanthropies to make big funding commitments to racial equity and re-examine their own operations and procedures, the Kresge Foundation provides a compelling model, not only of how philanthropy can advance environmental justice, but also how to do so using endowment dollars rather than grant funding.
The latest example of the Troy, Michigan-based funder’s work is a $5 million program-related investment announced last month in PosiGen, a solar and energy efficiency company that serves low- and moderate-income people with a focus on equity. While a typical solar company bases eligibility on credit scores, PosiGen qualifies customers based on cost savings. Customers are approved only if the system will guarantee immediate and ongoing cost savings over the life of the 20-year lease.
“The market is doing a good job of serving communities that are believed to be a good credit risk. They’ve got three different companies trying to sell them systems. Communities of color and low-income communities, no one is going there to sell systems,” said Joe Evans, portfolio manager in Kresge’s Social Investment Practice.
The New Orleans-based company drew Kresge’s interest for several reasons, particularly its focus on working in underserved communities. Half the company’s customers are people of color, and an estimated three-quarters are low- or moderate-income homeowners.
“At Kresge, we’re working to combat environmental racism, and this requires understanding and seeking to reverse the history of residential segregation and disinvestment in communities of color,” said Jessica Boehland, senior program officer for Kresge’s Environment Program, in a blog post on the investment.
PosiGen’s operations also aligned with Kresge’s broader social mission. Full-time employees receive a living wage and are eligible for company-subsidized health insurance. The company hires from the communities where it works. When it enters a new area, it partners with community organizations, such as local churches, and then works with those groups to reach other residents. Moreover, the company is based in one of Kresge’s focus cities.
Bringing New Technologies to Underserved Communities
Climate change’s toll has fallen hardest on the most vulnerable, particularly in cities. Disinvestment, redlining, and other factors have left many communities of color more at risk of heat waves, severe storms, blackouts, and other fallout from climate change. This dynamic is a major focus of Kresge’s environmental grantmaking, and the foundation also seeks to catalyze shifts through its investments.
“A lot of what we try to do with the environment team is help drive new technology in the environmental space into the communities we care about,” Evans said. “We’re not going to make a material impact on America’s energy use if we only put systems in high-income areas.”
The foundation’s two major environmental investment areas are solar energy and battery storage—to reduce energy costs and prevent blackouts during crises—and green stormwater infrastructure to combat flooding. Low-income housing is often built in the most flood-prone areas of cities, and infrastructure is often lacking, Evans noted.
Kresge’s Social Investment Practice team works hand in hand with its environmental grantmaking program, and sometimes touches base with Kresge’s investment team for their expertise, particularly when evaluating for-profit outfits. Sometimes, that works out well on both sides, said Evans. “We’ll say, ‘Gosh, we need some help looking at this investment,’ and they’ll say, ‘Well, how about if we just take it.’ And that’s great.”
In total, Kresge has made 12 commitments totaling $33.5 million for environmental and climate-related projects, including both loans and guarantees. The priority, across the entire investment portfolio, is on social return. They typically default their agreements at a 2% return, which covers the costs, Evan said. When the risk is higher than normal, or more return is available without doing any harm, they will go beyond that level.
A Sizeable Commitment, With More to Come
In September 2015, Kresge’s board of directors pledged $350 million from its endowment—now valued at $3.8 billion—to social investments by 2020. Five years later, the foundation is on track to meet or exceed that mark this year. In fact, Evans said the pledge has been as much a ceiling as a floor.
“It was a sizable commitment to the work, for sure, but it was also a budget you couldn’t go past. And so you had to pace it,” Evans said. Rather than a new dollar pledge, the foundation may switch to an approach based on the opportunities available, which could result in even more commitments, he told me.
In recent years, Kresge has taken further measures to flex the social power of its significant endowment. As Inside Philanthropy reported, the foundation joined with 10 other foundations earlier this year to launch the Community Investment Guarantee Pool, which aims to leverage hundreds of millions of dollars in capital investments through the little-used tool of guaranteeing loans with foundation assets.
On a similar note, last year, the foundation committed to investing 25% of its U.S. assets by 2025 in firms owned by women and people of color. It is the first private foundation to sign on to the challenge issued by ABFE, the philanthropic support group focused on Black communities, to expand gender and racial diversity among investment managers.
“We believe that diversity of thought, background and beliefs leads to better investment decisions and returns, so our efforts to diversify our investment managers is not only the right thing to do, it’s the smart way to work,” said Robert Manilla, Kresge vice president and chief investment officer, in the “25% by ‘25” announcement.
Of course, Kresge also gives out grants, including about $190 million last year. As covered by Inside Philanthropy, the foundation’s Climate Resilience and Urban Opportunity initiative, launched in 2014, prioritizes work led by members of affected communities, intentionally addressing philanthropy’s historic disinvestment in frontline organizations.
Philanthropy’s Investments Are No Match for Goldman Sachs
For all the large numbers, Evans says one of the major lessons of the social investments they’ve made over the past five years is that even Kresge, whose endowment ranks among the 20 largest in the nation, is ultimately a minor player in finance. For a sense of scale, Evans cites Goldman Sachs, which made $2.4 billion in profit last quarter alone.
“Even the largest foundations, the amount of money we can put out there is pretty small,” he said, noting that attracting others is key. “The only way you can do that is use your small amount of money in a real surgical way to influence the people who are bringing real money into the market.”
They’ve actually exceeded their own expectations in that regard. When it made its major commitment five years ago, Kresge hoped to attract $1 billion in additional investment. By their measure, they’ll exceed that mark by more than 50% by the end of 2020, according to Evans.
Evans credits a surprising source for the success: the foundation’s communications capacity, including one person assigned to the Social Investments team. “Without that dedicated communications function, you’re working in a vacuum,” he said. “You’re getting all the way up to the edge of what you want to see happen, but not getting out in the world.”
