Impact investing may just be gaining ground elsewhere, but everything old is new again for one community foundation. The Cleveland Foundation has employed the strategy for almost 40 years. That puts the 105-year-old institution at the vanguard of what it calls “aligning social good with financial return to bring about social change.”
Its investing goals are also among the largest reported by a community foundation. The foundation recently announced the expansion of its social impact investing, allocating $150 million in capital by the end of 2022. To put that in context, CF granted roughly $100 million to nonprofits last year on assets of $2.5 billion.
The escalation comes alongside other large-scale, place-based community foundation initiatives across the country, like the Chicago Community Trust’s Benefit Chicago, a $100 million effort to mobilize local nonprofit impact investments, and the San Francisco Foundation’s recent $50 million commitment to an investment pool aimed at generating positive social and financial returns. Further south, the Community Foundation of Greater Atlanta recently launched the $10 million GoATL Fund to bring new capital to key market-based challenges.
The Cleveland Foundation is expanding its investments in four ways: MRIs, recoverable grants, PRIs and the creation of a socially responsible investment (SRI) pool that screens public equities for social and environmental responsibility, gender diversity and a place-based emphasis on Cleveland.
Place is the operative word. The Cleveland Foundation intends its investments to draw partners that share its commitment to the city. On that, senior vice president and CFO Rosanne Potter is clear: "We want partners that will invest hard dollars in Cleveland. That's our tagline: Hard dollars in Cleveland."
Potter says that means investing in “early-stage capital funds, biotech funds, sustainable energy funds and even Opportunity Zone funds that are focused on developing businesses and projects in the Cleveland area.”
Impact investing isn’t right for every foundation, and raises legitimate questions about the risks and rewards of deploying endowments. The estimated 17 percent of foundations that currently employ the strategy typically use it to tackle large-scale challenges like housing and climate change—issues that aren’t easily solved by grantmaking alone, and that require significant dollar investments in areas like renewable energy.
Impact investing describes a number of approaches to align missions with endowments, and can mean different things to different institutions. The Cleveland Foundation’s website leaves its overall definition broad: "Typically, our social impact investments focus on green energy, healthcare, job creation, neighborhood revitalization, social services, technology and workforce development.” Time will tell how much capital is deployed in each area.
The Cleveland Foundation’s expanded commitment also reinforces the larger trend of community foundations aligning investments with their values, and gender and diversity objectives. For example, the stated goal of the San Francisco Foundation’s recent $50 million investment is to “deepen its commitment to racial equity and inclusion.” It also committed to working with investment firms owned by people of color and women.
Community foundation-led leadership in such areas can have real pay-offs. In 2017, the Cleveland Foundation seeded a $500,000 investment pool that focuses exclusively on companies with female and minority representation, and actively identifies investment managers that are at least half-owned by women and/or minorities. Today, the fund has grown to $44 million.