Ten years ago the concept of impact investing was born from the 2008 financial crisis and became an inspiration for a new way to invest with values. Over the past decade, the industry has grown in ways beyond our best-held dreams and, in others ways, not quite as much as we’d hoped. The opening session of the 10th Annual Practitioners Gathering brought together some of the institutions and individuals that helped launch Confluence Philanthropy for reflection and provocative discussion about how far we’ve come, and the journey ahead as we seek to protect the original spirit of values based investing at a time when competing forces are battling for control of the economy.

Greg Ratiff, Vice President, Rockefeller Philanthropy Advisors provided opening welcome remarks and later moderated group discussion among peers about where we’ve found ourselves and where we go from here.

The panel included foundation leaders; Stacey Faella, Executive Director, The Woodcock Foundation; Jon Jensen, former Park Foundation Executive Director and founding Confluence Board Chair; Cynthia Muller, Director of Mission Investments, The Kellogg Foundation; and Susan Phinney Silver, Director of Mission Investing, Packard Foundation. Together they discussed the past ten years in impact investing and reflected upon changes in the industry.

According to Susan Phinney Silver, the Packard Foundation’s first impact investments launched in 1980. Over the course of a forty-year journey a lot changed, and a lot stayed the same. The early focus was solely on impact—how to use capital to drive the programmatic agenda.  As the field grew and shifted, the Packard portfolio added market rate mission related investing (MRI). The foundation’s first MRI emerged from an effort to build and develop emergent fund managers in the environment area. Packard chose to work with an existing manager already at scale, and helped to deepen their approach to impact. When the lawyers reviewed the opportunity, they determined it was not a program related investment (PRI) but an MRI.

Kellogg on the other hand quickly migrated toward market rates of return through its mission driven investing (MDI) strategy. Cynthia Muller placed Kellogg’s first investment in 1999 as a PRI into a Community Development Finance Institution (CDFI). Ms. Muller recognized that when the foundation entered impact investing the dialog focused on how to achieve financial returns and social impact. As a result, the portfolio has a strong market rate focus that includes private equity and venture capital investments. Kellogg kept a focus on the below market side and considers it the innovation pool where it can play with different structures and approaches.  Overall the allocation consists of $55 million for below market and a $100 million carve-out for market rate which returned 10-13% in the last few years!

The Woodcock Family Foundation’s first PRI was in 2008 and the foundation began with and kept a focus on developing both a mission-aligned endowment and a strong PRI portfolio. With a total staff of just two, capacity is limited, but the benefit of being small, says Stacey, is that she “gets to see how it all fits together.”  Woodcock has made fourteen investments and the PRI and grant budgets are comparable. This means that the foundation is able to invest double the amount of dollars that are focused on impact. The endowment investing is up from 50% mission aligned to 70% mostly due to ESG exposure.

Jon Jensen pointed out that the Park Foundation is also a smaller foundation at just about $400 million and thus the mission aligned investing strategy has also used ESG strategies for its stock portfolio. These include proxy voting, shareholder resolutions, ESG screening, as well as PRIs and MRIs for clear impact.  Park Foundation is successfully divested of all carbon stocks, and through a commitment to the environment is taking a ‘deep dive’ into sustainable water investments.

In terms of changes over the past decade, all panelists pointed to the shift from simple nonprofit programmatic lending to market rate values-aligned investing that leverages the 95% of foundation assets locked in the endowment. Panelists acknowledged that while most foundations have only succeeded in getting a carve-out for MRI from the entire endowment, interest is growing as the field develops.

As the scope of impact investing broadened, finding the right talent has become more challenging. The good news, according to Susan, is that “nearly all of the soon-to-be-graduating MBAs (she) speaks with are only interested in impact investing!” This is a great trend that benefits us all.

Panelists also shared their unique views as staff and program officers in investment decisions.  Cynthia revealed that at Kellogg, 100% of all PRIs are underwritten in partnership with the relevant program officer(s) and that the foundation has moved to include program staff in the MRI decision making process as well. While staff aren’t always familiar with the language of investing, their ability to assess whether specific outcomes will be achieved, as well as the questions they’ve asked, are enlightening and helpful. The foundation is able to dig deeper in the due diligence process as a result.

Stacey and Jon, as executive directors, highlighted the value add that external advisors bring to their assessment of PRI and especially MRI investments. Whether drafting shareholder resolutions or advancing the portfolio to 100% impact alignment, external expertise is required.  At the same time, Stacey shared that she’s been on a steep learning curve and attending learning events such as the Mission Investor’s Exchange bootcamp has helped. She views participation in Confluence as an opportunity to learn more about the range of approaches to portfolio design and implementation among supportive peers and industry experts.

With all the changes in the breadth of investment opportunities the conversation turned to the proliferation of social issues demanding greater Foundation attention. Kellogg’s approach is to leverage the research and insights of larger portfolio managers and share that across the program teams to gain their reactions and ideas. Program officers understand how a social or environmental issue might fit in the investment portfolio based on community needs. As one example, Kellogg recently considered artificial intelligence and robotics as a growing sector of the economy; program staff saw privacy and data issues as accompanying elements of such investments that will need to be managed. Similarly, at Packard, priorities are set by programs and the investment teams can complement emerging areas of interest. Stacey mentioned that Woodcock seeks to supplement program areas with additional lenses provided by the portfolio, rather than creating new or separate program areas. For instance, the foundation’s work in food systems, which focused on access to healthy food, has added an investment lens on worker equity in food production.

Finally, the future of impact investing in philanthropy is about building collaboration. This takes the form of sharing due diligence, collectively uplifting opportunities for diverse and emerging managers, and creating new investment partnerships. By working together foundations, and their partners, can deploy more resources for greater impact in this next decisive decade.