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The Power of Endowments Unleashed

Writer's picture: Sir Ronald CohenSir Ronald Cohen

Updated: Jun 17, 2021


Over the past few weeks, we’ve explored the new trend of Impact Philanthropy and its role in the Impact Revolution. Today, we will examine endowments and how impact investment offers innovative foundations a way to achieve greater impact.

There are two parts to the traditional philanthropic model of large foundations. The first is grant-making. The second is the endowment of a foundation, whose total investable assets are much larger compared to grants. A typical foundation might only give away 5 percent each year in grants, and invest about 95 percent of its endowment money in the investment market. Their ultimate goal is to spend less money on grants than the endowment’s investments are making, so that the foundation can continue to financially support worthy causes.

What Does This Model Mean for Philanthropists?

Imagine you’re the executive director of a charitable foundation, and you’re meeting with the foundation’s investment advisors. You will talk about maximizing the return on the foundation’s endowment, which might mean investing in some major polluters or maybe even a couple of fossil fuel companies. You’ll also be meeting with one of your grantees, a small non-profit that’s working hard to help indigenous people preserve their habitat, protect wildlife and fight climate change.

The irony might not be lost on you: your investments are helping to create the very problems you are trying to solve with your grants, but you feel obliged to maximize the returns on your investments. You wish you could be sure that you have a net positive impact on the environment through your grants and endowment, but you do not know how to calculate that.

At the same time, your grantees will report on their activity, rather than on their impact – on how many new spokespeople they have trained and how many protests they have organized rather than on how many tons of carbon dioxide are being captured by the land they are protecting. Without any way to measure the impact on either side of this equation, all you can do is hope that your grants are doing more to help the environment than your investments are doing to harm it.

The Philanthropic Paradox

This contradiction is not imaginary – it is the way philanthropy has operated for a century – and the problem is not confined to environmental charities. There are foundations devoted to alleviating poverty invest in companies that pay poverty wages, and foundations dedicated to refugee rights in conflict situations invest in arms companies.

There are good reasons for this duality. Firstly, regulations generally require directors and trustees of foundations to generate investment returns and limit their ability to use their endowments’ investment portfolios to advance their mission. The traditional model of foundations separates the endowment from their mission – by making as much money as possible, they can give away as much as possible. And since there is no standardized way to measure the impact of different companies’ activities on society and the environment, it is difficult to make a case for avoiding certain investments and seeking others.

Impact investment shatters this contradiction and unleashes the power of endowments to help foundations achieve the maximum net positive impact. Through impact investment, the endowment of a foundation contributes to fulfilling its mission, rather than working against it.

Impact investing represents a totally different way of thinking about the purpose and practice of philanthropy, but it’s far from a hostile takeover of philanthropy by private sector investors. Impact investment offers foundations a way to achieve greater impact with their money while still achieving market rates of return.

Some foundations have been reluctant to move their endowments into impact investing because of a perceived obligation for trustees to maximize endowment returns. Yet as impact thinking spreads, some of these limitations are being redefined. For example, the US Department of the Treasury issued new guidelines in 2016 designed to promote impact investing.

In the UK, a new Charities Act was passed in 2016 to clarify that the obligation of foundation trustees is not just to make money but to achieve a reasonable financial, social and environmental return. This act both defines “social investments” and gives charities the power to make them.

According to the act:

Social investment is made when a relevant act of a charity is carried out with a view to both:

(a) directly furthering the charity’s purposes; and (b) achieving a financial return for the charity ... An incorporated charity has, and the charity trustees of an unincorporated charity have, power to make social investments.’

Foundations Move to Impact Investing

These changes have encouraged foundations to enter the world of impact investing, and it has already had far-reaching significance. For example, Guy’s and St Thomas’ Charity, an independent London-based health foundation, now invests at least 5 percent of its endowment of nearly $1.1 billion in supporting better health in society. In doing so, it has backed a specialist healthcare investor, Apposite Capital, which invests in businesses that deliver high-quality, affordable care. The foundation has also used its $505.4 million property portfolio to host healthcare facilities, aiming to maximize its positive impact by channeling all its assets towards achieving its charitable mission.

The Ford Foundation is leading the way in using endowments to achieve a blend of financial, social and environmental returns. In April 2017, the foundation’s board approved a $1 billion allocation to mission-related investment (MRI) from its $12 billion endowment – the largest endowment commitment to date.

How Did Ford Spend Its $1 Billion Endowment Allocation?

Well, for example, $30 million of the Ford Foundation’s endowment has been invested in MRIs tackling the affordable housing crisis in the USA – including investing in a community-improvement development bond from Capital Impact Partners and funding housing developers that create affordable and green housing. This approach was so successful that Ford is now doing the same but for financial services for the poor.

Ford is just one organization paving the way, and although it has already inspired other foundations to follow suit, it is going to take more than Ford’s $1 billion allocations to solve our systemic social and environmental problems. With US-based private foundations holding over $850 billion in endowments, and non-US foundations holding approximately $650 billion, the potential for foundations to deliver a significantly greater impact is vast.

Exaples of other US foundations following Ford’s lead:


The Kresge Foundation has set an objective to invest 10 percent of its endowment (or $350 million) in social investments by 2020.

The David and Lucile Packard Foundation, which has a $6.9 billion endowment, has instituted a $180 million mandate for impact investment.

In Canada, the J.W. McConnell Family Foundation is set to exceed its impact investment allocation of 10 percent.



In Portugal, the Calouste Gulbenkian Foundation is among those leading the way in Europe. It recently invested from its endowment in the $ 44.4 million MAZE Mustard Seed Social Entrepreneurship Fund, which aims to scale early-stage technology to solve meaningful global problems. The fund invests in start-ups tackling issues ranging from food waste to education and the social integration of migrants and refugees.

These are just a few foundations that recognize the power of using endowments to maximize positive impact. When foundations have trillions in assets but don’t recognize or activate the full extent of their resources, they fall short. By harnessing the full potential of their assets, they can activate the power of their investments to achieve the future we all want and deserve. Join me next time when we take a look at a new crop of foundations that are doing just that. Until then, pick up a copy of IMPACT: Reshaping Capitalism to Drive Real Change, and stake your claim in the Impact Revolution!

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