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Mary Mazzoni headshot

This Family Foundation Wants to Inspire Philanthropists to Consider Impact Investing

By Mary Mazzoni

The Russell Family Foundation has focused on protecting the environment and empowering communities in the Pacific Northwest and Puget Sound regions since its inception in 1999. Maximizing positive impact has always been a top priority for the Foundation’s work—following the ethos of its co-founders, George and Jane Russell, and their experience pioneering innovative strategies and industry-wide financial benchmarks through the global asset management firm Russell Investments.

In pursuit of its mission, the Foundation supported more than 675 individuals and community groups with around $130 million in grants, but its leadership team began to wonder if there was more they could do to drive measurable impact. In 2004, they began to explore impact investing and launched a $1 million pilot effort, which was followed by a series of additional mission-aligned investments.

Fast forward 10 years, and the Foundation challenged its team with a “tug of war” exercise to analyze the best investment strategies for financial gain compared to the best strategies with a return on mission. The result was a menu of approaches that increased mission-aligned investments in the Foundation’s portfolio from 7 percent to 75 percent in only four years.

This morning, the Foundation released a 41-page report detailing its impact investment journey, in an attempt to share lessons learned and inspire other philanthropic groups to activate their capital for impact. “Impact investing is a unique journey for any foundation, and I believe it is one that is necessary as stewards seeking a socially just and environmentally conscious world,” Richard Woo, CEO of the Russell Family Foundation (TRFF), said in a statement. “This report is an evolving story, metaphorically, with more chapters to come about emerging lessons and greater impact.”

TriplePundit took a look inside the report to find out what other foundations, philanthropists and purpose-driven investors can learn from the Foundation’s impressive move toward impact investing. Read on for the details.

An impact investing journey, recounted

The Foundation’s initial pilot explored socially-responsible vehicles such as environmental mutual funds, community bank deposits and program-related investments. “Back then, as now, we were drawn to the idea that a foundation may be better able to reach its philanthropic goals if it looked beyond traditional grantmaking strategies,” the report reads. “Investing in companies that conduct business in ways consistent with the Foundation’s mission seemed like a favorable option.”

The Foundation continued to make periodic impact investments over the following nine years, but the board wasn’t looking to make systemic changes to its investing strategy. That all changed when TRFF got involved in the DivestInvest movement. Launched on college campuses across the U.S. in 2010, DivestInvest calls on financial decision-makers to divest from fossil fuels and reinvest that capital into climate solutions. TRFF jumped in board in 2013 and began to divest its coal holdings.

A few months later, it came together with the Wallace Global Fund and foundations from across the country to formulate the DivestInvest Philanthropy Pledge. Seventeen foundations with $1.8 billion in assets under management pledged to divest from fossils within five years and invest at least 5 percent of their portfolio assets into climate solutions, such as renewable energy and energy efficiency. Since then, the number of foundations taking the pledge has grown nearly tenfold, with combined assets of close to $13 billion.

“It was a pivotal moment for TRFF because it set wheels in motion for a full divestment from fossil fuels and a focus on sustainable alternatives,” the report reads. “At the same time, it forced us to reconsider our entire portfolio management strategy.” The resulting “tug of war” exercise challenged TRFF’s investment advisors to find the best of both worlds—investments that supported its social and environmental mission, while also generating solid financial returns.

The process illuminated opportunities to restructure the portfolio for greater impact over time through means such as divestment and integrating new investment managers that address environmental, social and governance (ESG) issues. “We confirmed our belief that we can utilize the entire portfolio to further our mission, rather than simply maximizing performance in order to bankroll grant-making,” the Foundation concluded in its report.

Best practices for foundations

As part of the report, TRFF outlined the nine processes it found most helpful when transitioning its portfolio to mission-aligned investments—which offer poignant lessons for other foundations and philanthropists.

1. Rethink your investment policy statement (IPS): Make sure your IPS is explicit when it comes to mission-related investing. In other words, merge your investment and impact goals within one document, TRFF suggests, and review it at least once a year to determine whether your objectives are still relevant. “Revisiting your IPS will also help you consider where new investment vehicles and strategies might be implemented in an ever-evolving landscape,” the report reads.

2. Choose between total portfolio activation or create a carve-out: Decide to either pursue impact investments in all asset classes across the portfolio or only in select portions.

3. Commit to shareholder engagement: Exercise your rights as a shareholder. “Take advantage of voting proxies and co-filing corporate resolutions on topics aligned with your mission,” such as environmental reporting, corporate governance and transparency, the Foundation suggests.

4. Examine your portfolio: Look into how your existing portfolio aligns with your mission. For TRFF, this meant a carbon audit with the scientific research group Trucost to ensure the Foundation wasn’t reinvesting in sectors outside fossil-based energy that were still carbon intensive. As You Sow’s Fossil Free Funds database may also be of help here.

5. Make incremental changes: Instead of rushing into things, embrace a phased approach. “First, develop a strategic divestment plan to eliminate holdings that are counter to the mission,” then move toward making new mission-aligned investments, TRFF advises.

6. Engage in peer-to-peer collaboration: Create a space for your staff and your investment advisors to learn from one another. “Greater dialogue will most likely lead to better decision-making and stronger mission alignment across your portfolio,” the Foundation wrote in its report.

7. Explore catalytic opportunities: TRFF established a new category within its portfolio to incubate its most mission-aligned investments. Its team and advisors then conduct due diligence to highlight catalytic opportunities within the portfolio. Likewise, think of how you can create a structure to identify high-impact investment opportunities.

8. Learn from the field: Reach out to experts and peer organizations that can guide you on your journey. TRFF suggests DivestInvest Philanthropy, Confluence Philanthropy, Croatan Institute and Mission Investors Exchange. “Sharing knowledge and perspectives regarding impact investing will provide valuable insights that may help fine-tune your strategy,” the report reads.

9. Find the right partners: “Working with our investment advisor, local partners and leaders in the field was critical,” TRFF says. Expertise gaps are bound to emerge—and forming relationships with specialists you trust can help to fill them.

The bottom line

In 2016, sustainable, responsible and impact investing in the United States was worth an estimated $8.72 trillion, or one-fifth of all investment under professional management, but the market is still maturing. As more impact investing products come on offer and performance measures are standardized, even more investors will be drawn to the space—facilitating more growth and more impact. "It’s a virtuous cycle we can all look forward to," TRFF wrote in its report. “In the meantime, however, private foundations that seek to initiate or expand impact investing strategies should reflect on how far they are willing to go to invest in their impact goals."

The Foundation’s own journey shows what’s possible when philanthropists take a strategic eye to the power of their capital and channel it into avenues that match their values while generating return to support their missions. “The Russell Family Foundation’s reported achievement of reaching almost 75 percent mission-aligned investments in a relatively short period is a great example of how applying a rigorous approach to investment due diligence can result in making the most of an organization’s financial and social impact,” Brad Harrison, managing director of the independent investment and wealth advisory firm Tiedemann Advisors, said in a statement. Will your foundation be next?

Image credit: Rawpixel via Unsplash

Mary Mazzoni headshot

Mary has reported on sustainability and social impact for over a decade and now serves as executive editor of TriplePundit. She is also the general manager of TriplePundit's Brand Studio, which has worked with dozens of organizations on sustainability storytelling, and VP of content for TriplePundit's parent company 3BL. 

Read more stories by Mary Mazzoni