How Much of Foundations’ Money Is in Impact Investments? Just 5% Is Common, Says Report

In the stock market collapse that kicked off the Great Recession, the Jessie Ball duPont Fund lost $90 million in 90 days, or about a quarter of the value of its endowment.

The Jacksonville, Florida-based foundation’s trustees suddenly had a much smaller pile of money to draw from, just as grantees were facing spiraling demands from people who had lost jobs, homes and savings.

“That was really a clarion call for them to rethink: ‘OK, we've got our grant portfolio. What else can we bring to the table? And what else can we do in case of another market drop?’” said Chris Crothers, who joined the foundation in 2013 as a program officer.

Those questions launched duPont’s impact investing journey — and its quest to go beyond merely making grants. In 2011, the trustees set a goal of shifting 5% of assets into program-related investments and updated their investment policy to allow an unlimited share of their funds to move into ESG investments, i.e., those screened for environmental, social and governance factors. These days, duPont is one of a growing group of grantmakers that have 50% or more of their assets in mission-aligned investments, an effort Crothers now leads as the fund’s director of impact investing.

Yet the duPont Fund is an outlier.

A report released late last month by Bridgespan Social Impact, based on a survey of 65 foundations, found that the median institution had allocated just 5% of its investable assets — the portion not going to grantmaking — to impact.

The report, titled “Can Foundation Endowments Achieve Greater Impact?” and produced with Capricorn Investment Group and the Skoll Foundation, examined a group of foundations that are nearly all members of investment networks like Global Impact Investing Network or Mission Investors Exchange. In other words, the respondents are among the foundations most likely to seek out impact investments. Yet even for them, it’s common to put just one-20th of available assets into mission-aligned investments.

Looking at the foundations’ average share of assets in impact investments rather than the median, the figure is 27%, though the report’s authors note that is primarily due to a small subset of foundations that, like duPont, put more than half of their assets into such investments.

“It's a fair indication of where we are as a foundation universe and how much untapped potential there is,” said Mandira Reddy, director of investment analytics on Capricorn’s client solutions team, who noted there has been limited data on this topic until now. “Foundations could increase their impact 20-fold… that is the wave of capital we are looking to unlock.”

Foundation assets recently reached an estimated $1.5 trillion, but the report’s findings suggest most of that sum is in conventional investments. There are exceptions to that pattern, like The California Endowment’s recent decision to go all-in on impact investing, as covered by my colleague Martha Ramirez, but that’s not the norm.

As for why philanthropies steer clear of impact investments, the sector’s lawyers and investment officers often cite their fiduciary duty to maximize returns and ensure perpetuity. Some say they choose conventional investment options they believe will have higher returns because they prioritize growing their grantmaking budgets.

However, studies have found impact investing has similar or better returns than industry benchmarks, and other research suggests firms and banks with strong ESG or corporate social responsibility scores outperformed peers during times of crisis. DuPont’s recent performance, to take a single example, ranks in the top quintile of the FoundationMark’s index — and the fund’s endowment is back to about $360 million, around where it was before the 2008 crash, despite the foundation expanding spending during the downturn.

“Historically, 5% of your assets do 100% of the work,” Crothers said. “I think it's incumbent on us to look deeper into what we're doing beyond just grantmaking.”

The biggest laggards? Those with the biggest endowments

Foundations with assets of $1 billion or more appear to be particularly unlikely to align their endowments with their missions. For such respondents to the report’s survey, the share of assets in impact investments averages just 7.1%, and the median is 2.6%.

Again, these are figures from a group that is more likely than the field as the whole to participate in such investments. Bridgespan contacted 250 foundations, and 65 participated, 92% of which were members of the Global Impact Investing Network, the Mission Investors Exchange or the U.S. Impact Investing Alliance Presidents’ Council.

“Larger institutions need to write larger investment checks,” said Dana Lanza, cofounder and CEO of another mission investing network, Confluence Philanthropy; she was among the experts who spoke with the report’s authors.

“For a long time, there was a sentiment that there was not enough deal flow to ‘absorb’ the needs for market-seeking rates of return on [investments] with values alignment,” she said by email, noting that she was uncertain if that was still the case.

Confluence Philanthropy’s members have an average of 44% of their assets in impact investments, and a median of 49%, according to an in-house survey, also conducted by Bridgespan, that covered a little over a fifth of the network’s membership. Lanza believes those replies may not have included foundations’ ESG investments, a point the network plans to clarify in future internal surveys, which it aims to do annually.

Judging from early responses, the new report may move a few minds. Lanza said it made a big impression at her group’s annual conference last week, and Adam Bendell, CEO of Toniic, an impact investing group that includes foundations but also family offices and individuals, said it has led to “significant conversation” among his members.

“For those who have been impact investing for years, it is disappointing to see how far most foundations lag leading practitioners,” Bendell said by email. “Especially as charitable foundations have privileged tax status in our societies because they are supposed to be mission-first, not to grow their endowments at all costs to society.”

For her part, Reddy at Capricorn Investment Group was not surprised by the numbers. While she cautioned that the survey was “not scientific” and had its “imperfections,” she said the figures reflected what she and her colleagues expected.

Why don’t foundations invest for impact?

Like any type of institution, philanthropies often struggle to change longstanding practices. The way they invest is no exception. The report authors say the most common reasons they see for foundations sticking with a standard investment portfolio are a beginner’s sense of being overwhelmed, lack of staff or time, an excess of options and industry noise, and concerns about financial performance.

In the face of these challenges, Bridgespan offers up a handful of recommendations. The first is counterintuitive: “Instead of starting small and experimenting, set ambitious goals,” the authors write. A trial may fail due to its narrow approach and limited scope, and create unwarranted pessimism about impact investing. Leading with a larger, more long-term goal allows a foundation to start with a broader range of investments and not get distracted by the fate of individual choices.

Another suggestion is taking a “portfolio approach” that allows for impact investments throughout a foundation’s endowment, rather than treating them as a special asset segment with different rules.

“The ‘carve-out’ approach can do a disservice to impact alignment,” Lanza said, adding that the qualities impact investments seek are “proven indicators of long-term company success and should be approached as a lens across an entire portfolio,” and given as much value as short-term performance.

Other tips from the report include collaborating extensively with peers, or even “copying” each other’s investments; going beyond mission-related investments, such as a health foundation broadening its aperture to include health- and climate-related opportunities; and playing that classic philanthropic role of catalyzer by making early-stage bets on long-term propositions, such as seeding emerging managers.

The 50%-or-More Club

Not all billion-dollar foundations are impact investing laggards. The Skoll Foundation, which backed the report, is unsurprisingly another outlier — and one of the members of that small club of grantmakers with 50% or more of their assets in impact investments.

Founded by Jeff Skoll, the billionaire former eBay president, the foundation and an associated fund have combined assets of about $1.6 billion. For its first seven years, Skoll’s endowment was almost entirely composed of conventional investments. But in 2006, it began divesting from nonaligned areas and then experimenting with impact investing. The process has gone well. As of 2022, 70% of the foundation’s investment was in impact investments — and all those dollars are targeted toward four areas that align with its priorities.

William Orum, a partner at Capricorn (which serves as Skoll’s outsourced chief investment officer, known as an OCIO) said the Skoll Foundation’s experience mirrors a lesson he’s learned in working with philanthropic institutions: Every foundation should consider their own strengths and strategy in their impact investing journeys.

“Obviously, the portfolio at the Skoll Foundation doesn’t look like other foundations,” he said. “It’s unique to them — and it reflects some of the core principles they’ve applied across their institution.”

Granted, the case study on Skoll adds a self-promotional aspect to the report, given that Capricorn is both co-author and Skoll’s OCIO, plus it could benefit if more foundations adopt this approach. The team was aware of the perception of a conflict of interest, said Reddy, which led to them taking a “hands-off” approach with the report’s research and letting Bridgespan take the lead in production.

“There's a big opportunity to move billions, if not trillions of dollars”

Another funder with more than the average share of impact investments is the Lora and Martin Kelley Family Foundation. Based in Wilsonville, Oregon, it’s at the small end of the foundations that participated in the survey, with an endowment of roughly $22 million. It’s also one of the rare foundations with virtually all of its assets — close to 100% — in impact investments.

According to Craig Kelley, whose late parents started the foundation, its impact investing journey began back in 2002, but accelerated in 2013 when the family committed to reaching 100% by 2020. They hit that goal two years early.

These days, the foundation puts roughly 50% of its investments in ESG, with the rest in a mix of what it calls values-aligned, thematic and catalytic investments. While comparisons are difficult due to differing terminology, the Jessie Ball duPont Fund has 80% of its impact investments in ESG investments and 20% in program-related investments. In short, there are many paths to building a sizable, mission-aligned portfolio.

Kelley noted the foundation’s investment performance has remained close to market benchmarks — FoundationIQ puts the foundation’s five-year performance at 3.9%, compared to 4.6% for the FoundationMark Index. But that’s not the only measure for Kelley and his family. He said they see their fiduciary duty to further the foundation’s mission while incorporating attention to risks like climate change — not focusing solely on returns. He’d like to see others take a similar approach.

“There's a big opportunity to move billions, if not trillions of dollars,” he said. “I hope people will see this data and other data that's out there and start making progress.”

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