Impact investing is one of the hottest topics in institutional philanthropy right now. And while private foundations have tended to be on the leading edge of this movement, a growing number of community foundations have been jumping into impact investing or ramping up existing efforts. The latest example is the San Francisco Foundation, which last month announced a $50 million commitment for an investment pool aimed at generating positive social and financial returns. That sum represents 6.3 percent of the foundation’s $800 million endowment.
We’ve written often in recent years about TSFF’s move to put racial and economic equity at the center of its work. It has emerged as an early adopter of a strategy that’s been gaining traction across the foundation world. TSFF Vice President of Programs Judith Bell told us last year that the foundation is “all in” on equity and is looking to expand its civic leadership and elevate the foundation’s voice on key equity issues.
That commitment has been clear in TSFF’s work on housing affordability. The foundation and its president, Fred Blackwell, have been playing a critical role is galvanizing a stronger public-private response. (Which is why IP named Blackwell “Foundation President of the Year” in our 2018 IPPYs).
Given its ambitious equity agenda, it’s not surprising that TSFF is putting aside some serious new cash for impact investing. As we’ve often discussed, the daunting scale of key equity challenges—especially the affordable housing crisis—requires far greater resources than what’s available through traditional grantmaking. The momentum behind impact investing, which has been growing for years, is further fueled by a mounting sense of urgency among funders grappling with entrenched equities in top metro areas like San Francisco. Dipping into the “other 95 percent” of capital that foundations control is one way to step up the fight.
“The scope and complexity of the issues that we are trying to address in the Bay Area require us to use all of the tools in our tool belt,” said Blackwell in announcing TSFF’s new investment fund. “We see investing in a values-aligned manner as part of how we achieve our overall mission, and we don’t think we have to sacrifice returns.”
TSFF is no newcomer to impact investing—in fact, the funder’s first loan program kicked off in 1989, before impact investing was even a thing. Yet recent surveys show that only about 17 percent of foundations are pursuing impact investing strategies today, which means that funders like TSFF are still in the minority. Meanwhile, there remain serious questions about whether it’s really so smart for foundations to use their endowment capital in this way.
The term impact investing can be fuzzy, describing a range of approaches by foundations looking to align their endowments more closely with their missions. That’s clear in the way TSFF describes impact investing on its website, and in its March announcement of the new fund—which it says will be composed “of a diversified portfolio of managers using a variety of impact investment and socially responsible strategies, including social screens and environmental, social and governance (ESG) considerations.” It’s not clear yet how much of the $50 million fund will be available for, say, investing in affordable housing projects.
But the new commitment comes on the heels of TSFF’s move last year to put aside $10 million for the Bay Area Community Impact Fund for loans to local nonprofit organizations and social enterprises. Before that, TSFF approved a $500,000 program-related investment loan to the Greenlining Institute to renovate its downtown Oakland headquarters in 2015 and set aside $5 million to make other loans to nonprofits in the Bay Area in 2009.
Reflecting a growing push among foundations, TSFF also said in its March announcement that it’s looking to work with investment firms owned by people of color and women. And it’s steering clear of controversial investments, such as fossil fuel companies, tobacco companies and private prisons. Donors who have set up donor-advised funds at TSFF also have the opportunity to grow the new impact investing pool. According to foundation estimates, the targeted risk-adjusted return for the investment pool is between 7 and 8 percent.
Together with its donors, TSFF gave $154 million to nonprofits last fiscal year to serve Alameda, Contra Costa, Marin, San Francisco and San Mateo Counties.