In November 2017, a unanimous vote by the Nathan Cummings Foundation’s trustees made it one of the largest philanthropies in the country to commit to using 100% of its assets to pursue its mission.
Three and a half years later, the New York City-based grantmaker has released a report sharing the lessons learned in pursuit of that vision—and laying out a case for why other foundations should consider doing the same.
It comes as the impact investing market is growing by leaps and bounds—and primed to accelerate as the financial sector puts new emphasis on the risks of climate change and a new presidential administration pushes all sectors to play a part in aligning the nation’s ambitions with scientific imperatives. That was evidenced most recently by Biden’s Earth Day pledge to halve U.S. emissions by 2030.
The report, titled “Values Proposition: How and Why We Transformed Our Investment Model to Align Our Capital with Our Mission,” offers seven core findings, specific frameworks, many suggestions and even templates for foundations considering taking the same path. Three overriding themes stand out from the rest: mission-aligned investing approaches do not come at a financial cost, financial firms still have a lot of growth to do in this area, and diversity, equity and inclusion considerations lag particularly far behind.
Those conclusions, reviewed in greater detail below, are drawn from nine months of original research the grantmaker conducted to guide its journey, particularly a survey of 115 financial firms offering mission-aligned investing services—of varying sizes, years in operation, and percentages of mission-aligned assets—and an in-depth analysis of 18 top candidates.
As the authors acknowledge, it is by no means a comprehensive overview, but it does provide a fascinating snapshot of a field in a state of change. And while Nathan Cummings focuses on climate change and inequality, the survey is applicable to foundations of all interests.
A quick note on terminology: The report uses the industry term “outsourced chief investment officer,” or OCIO. Definitions and specifics vary, but broadly, the phrase refers to the external firms that many small- and medium-sized foundations like Nathan Cummings, which gave approximately $30 million in annual grants in recent years, rely on to manage their assets and make investment decisions. For simplicity, this article refers to them simply as firms.
Here are the big take-home points from Nathan Cummings’ report.
1. Investing for mission requires no financial sacrifice. None at all.
Discussions of why foundations do not do more mission-aligned investing—a term that encompasses a wide range of activities, such as impact investing—often turn first to concerns about returns. Simply put, the fear is that you will make less money if you consider the impact of your investments.
The report emphatically rejects the idea that there’s a tradeoff. The foundation found no relationship between the percentage of mission-aligned assets at the firms it surveyed and those firms’ 10-year returns.
“There is a persistent myth of tradeoff in impact investing—the notion that a unit of social impact requires more risk or sacrifices potential returns. This has not been our experience, nor do the data or our research support this position. Nevertheless, this misperception remains common among investors,” the authors write.
There is excellent data to back up this finding. As cited by the study, a meta-analysis of more than 2,000 studies of the relationship between financial performance and attention to environmental, social and governance (ESG) data determined roughly 90% did not find a negative correlation between the two.
2. This area of the financial sector is still in its infancy
Mission-aligned investing is increasingly an option in the marketplace, with 63% of the firms the grantmaker surveyed incorporating ESG factors in some form in assessing their managers and investments. Yet on measure after measure evaluated by the report, there appears to be plenty of room for growth.
Most firms present such an investing approach as a special offering for certain clients and rarely apply it more broadly or integrate as an option throughout their operations. Consequently, the teams are often quite small.
Only a few of the 115 firms they examined had 70% or more of their assets in impact-oriented or mission-aligned investments. “Rarely was it the sole focus or integrated across the entirety of a firm’s infrastructure,” wrote the authors.
Evaluation of impact is essentially a black box. Most firms use proprietary systems, and while many use the United Nations Sustainable Development Goals as a framework, few have adopted the existing platforms that offer more uniform measurement, according to the report.
The foundation did not find a single firm that subjects their impact reporting to external audits or reviews. As the report points out, this absence of accountability or transparency, along with the rapid growth of this market, raises the risk of what some have called “impact-washing.”
3. Diversity, equity and inclusion is particularly lagging
Financial firms have a lot of ground to make up in diversity, equity and inclusion (DEI), starting with transparency. Only five of the 115 firms the foundation surveyed addressed the diversity of their fund managers. Of the 707 senior leaders at those firms, only 30 were Black or Latinx. In total, people of color accounted for only about 20% of the firms’ staff. Only 34% were women.
The moral case for addressing those figures is clear, but there’s data to support a business case, as well. McKinsey, as the report points out, has found that greater diversity and inclusivity at companies correlates with higher profitability, growth and job satisfaction.
Nathan Cummings sees, as others have, not only a moral failing, but a potential market inefficiency. More than 98% of the $69 trillion in assets globally is managed by white men, according to one study cited in the report. “These data suggest there are great reservoirs of talent that are not receiving commensurate investment, which presents an opportunity to outperform,” the authors write.
The foundation’s follow-up with firms revealed limited policy efforts to address these gaps. The grantmaker found few groups had robust processes—or any at all—related to recruiting and promoting a diverse workforce, investing in diverse-led funds or selecting investment products that considered gender, ethnic or economic justice.
A steady stream of research on this topic
The report is the latest in a series of papers released over the past year-plus making the case to institutions and wealthy individuals that they have a responsibility to leverage the vast financial resources they control in support of their values.
A Bridgespan Group report released this month argues high-net-worth individuals, i.e., those with more than $1 million in investable assets, are in a unique position to support impact-first investing. Not only are they freer to prioritize impact, but they also control far more assets than foundations.
Another guide, released last December by Upstart Co-Lab and Rockefeller Philanthropy Advisors, lays out a case for impact investing targeted at museums and other cultural institutions, looking both at how to go about it and examples of institutions that have taken the plunge, such as the Massachusetts Museum of Contemporary Art.
A similar argument for college endowments was made in a February 2020 report released by the Intentional Endowments Network. Like Nathan Cummings, it argued that reorienting to consider mission does not have to impact returns.
This could be a particularly opportune time to make the case for values-based investing. As the report points out, heirs of baby boomers are expected to receive more than $30 trillion in wealth by 2030—and possibly more than double that total by 2070. That’s a staggering amount of potential impact in new hands. All foundation assets, by comparison, total around $1 trillion, with roughly another $120 billion in donor-advised funds.
Perhaps it should come as no surprise that one such millennial is the board chair: Jaimie Mayer, great-granddaughter of the foundation’s benefactor, Nathan Cummings, who made his fortune as founder of the food conglomerate Sara Lee. While the decision to align all assets with the foundation mission predates her term as chair, Mayer, who we profiled back in 2019, is the first fourth-generation family member to hold the reins at the grantmaker.
Mayer and the foundation’s interim CEO, Rey Ramsey, open the report with a letter, which leads with an oft-cited quote from the institution’s founder: “nothing will ever be attempted if all possible objections must be first overcome.”
For all the concerns the report raises about the state of the mission investing field, this sentiment seems to be guiding the foundation’s approach these days. With transformation underway in the United States and abroad, any funder considering following their lead might well keep it in mind. After all, they could help shape the future of this evolving field.