MI Philanthropy Continues to Share Insights on Opportunity Zones
The federal government recently released further guidance on Opportunity Zones (OZ). Now we are getting more insights from Michigan philanthropy on how funders can support inclusive and equitable growth in OZs.
The John S. and James L. Knight Foundation recently released a policy brief: How Philanthropies Leverage Opportunity Zones.
“The Opportunity Zone initiative represents one of the most novel federal tax incentives enacted around community revitalization,” the brief states. “But unlike other programs that allocate appropriated dollars, investment into Opportunity Zones is not guaranteed. Philanthropies can and should play multiple roles to help their communities realize the full economic and social potential of this unique incentive.”
The report provides seven actionable steps and roles for foundations.
Highlights from the brief include:
Serve as a stakeholder convener by helping cities organize for success by coordinating efforts within government and across key institutions and sectors. Example: A foundation in Atlanta convened stakeholders to drive a unified narrative around OZs.
Serve as a community builder by helping residents who live in or near an OZ express their preferences, obtain skills, start businesses and help improve the quality of life in their neighborhood. Example: Many foundations support skill-building, entrepreneurship and housing initiatives.
Support institution building by enhancing the capacity of existing public, private and civic organizations and by creating or supporting new institutions or intermediaries that can help cities design, finance and deliver transformative investments and initiatives. Example: A foundation issued a grant to hire an OZ coordinator to connect investors with projects.
Catalyze innovation by using challenge grants and other mechanisms to source pathbreaking ideas among urban stakeholders or push key players to coalesce around coordinated neighborhood investment strategies. Example: The report identifies the Bloomberg Philanthropies Mayor Challenge as a format that focuses on rapid intervention that could be replicated.
Help share information by speeding the process by which innovative strategies, practices and instruments are captured, codified and communicated. Example: Philanthropy can support intermediaries that share knowledge and expertise around the topic.
Another CMF member, The Kresge Foundation, is also a leader in this work as they focus on ensuring that equity and responsible community development are guiding OZ investments.
As CMF reported in March, the foundation announced that it partnered with two impact fund managers, providing $22 million in investments for their emerging OZ funds in an effort to establish equitable best practices for OZ funds.
Kresge shared that the two fund managers “have agreed to a level of transparency, accountability, and disclosure thus far unheard of in the Opportunity Zones space.”
This Wednesday, The Kresge Foundation is sharing insights about this work and the partnerships with the field in a webinar.
Read the full report.
A Foundation’s Journey to Mission-Aligned Investing
It has been 10 years since The Max M. & Marjorie S. Fisher Foundation began exploring impact investing in order to deepen its community support and complement traditional grantmaking. By 2012, the Fisher Foundation had committed 3.6 percent of its assets to impact investing. Now, the foundation shares that those investments are supporting partners’ growth while opening a new giving path for the foundation to lead alongside others advancing the impact investing field.
Across its impact areas, the foundation employs two types of impact investment tools—program-related investments (PRIs) and mission-related investments (MRIs). PRIs are investments made from the foundation’s grantmaking budget, while MRIs are made from the foundation’s corpus. Investments are generally multi-year, patient capital loans or equity investments that help to build its partners’ financial sustainability while supporting crucial day-to-day work.
As for the rest of its investments, the Fisher Foundation is beginning a learning journey after executing its first values aligned asset investment scan.
The Fisher Foundation shares that it is following in the footsteps of a growing number of organizations looking to align more investments in companies and strategies that advance its mission. This work explores what may be possible for foundations that want to apply the rest of their assets (those beyond the 5 percent legally required for grantmaking) toward their impact areas.
Jennifer Oertel, CMF’s impact investing expert in residence, explains how asset investments differ from impact investing.
“The Fisher Foundation began its impact investing journey by carving out a percentage of its investment portfolio for impact investing, both PRIs and MRIs. PRIs are investments that, if structured properly under the tax code, ‘count’ as grants toward a foundation’s 5 percent distribution and do not count as net investment assets subject to tax, despite the fact that the assets are expected to be returned and often with a small return on investment. To date, PRIs represent the bulk of the foundation’s initial investments,” Oertel said. “Now, the foundation is taking a much deeper look at its investment portfolio – the ‘other 95 percent’ – with the intent to more actively evaluate the types of businesses the foundation supports through its investment portfolio.”
Nationally, Heron Foundation, McKnight Foundation, The Nathan Cummings Foundation and many others, are among the growing list of foundations that are beginning to move their endowment assets to align to their missions.
“As the universe of investable impact investing product grows and diversifies across asset classes, it is a natural progression for the asset allocation of a foundation’s endowment to reflect its core values,” Meredith Freeman, director of alignment and impact investing at the Fisher Foundation said.
At a CMF Impact Investing Committee meeting earlier this year, the Fisher Foundation with help from one of their advisors, Avivar Capital, shared what various values aligned investing approaches can look like for a foundation, including a negative or exclusionary screening, which screens investments based on specific environmental, social and governance (ESG) criteria.
The Fisher Foundation began by directing its fund manager to execute a specific screen on its investments.
“We screened a portion of the foundation’s assets to start to get a sense of the potential negative impacts via how those funds are invested,” Freeman said. “There are a variety of negative screens available for important social issues such as human trafficking, child and slave labor, predatory lending, tobacco and weapons manufacturing. These types of screens are available but often need to be requested.”
Freeman said the scan is an important learning and knowledge gathering opportunity for the Fisher Foundation.
“It is important to work with asset managers who are willing to use socially responsible investment products to meet your needs, and to be very direct about what you’d like to screen your investments for,” Freeman said.
The foundation has learned there are many options to consider in determining next steps with investments, particularly those that are not values-aligned.
“Just because you do a screen doesn’t necessarily mean that you have to divest if you find something that doesn’t align,” Freeman said. “We have several options, including partnering with other investors to press for increased transparency and changes to corporate behavior.”
“Even though we are 10 years into our journey with impact investing, we are still only just getting started. We value learning, we value being on this journey, and we’re always looking to learn from and share with others,” she said.
Philanthropy Perspectives is a platform to lift up thought leadership from the field. In select editions of the Weekly Download, guest contributors will share their insights on philanthropic issues, innovative ideas and best practices from the sector.
Impact Investing in our Great State: What's in a Name, and an Investment?
Jennifer Oertel, CMF's impact investing expert in residence, is the guest author of this edition in which she shares insights from the field of impact investing in Michigan.
"What’s in a name? That which we call a rose by any other name would smell as sweet.” –William Shakespeare
“Impact investing” is also called “mission investing,” “social investing” and a myriad of other things. The name inspires excitement in some and fear or disdain in others.
Whichever name is used, at the core is this concept: deploying at least a portion of investment assets intentionally to support positive social impact with the expectation of a financial return. It’s seeing a need in the community and finding a unique way of solving it. It’s another tool available to philanthropy that can be used in addition to, or in conjunction with, grants (which hopefully generate social impact but a negative 100 percent return of capital).
It is that point which begs the question: Is it enough, with the knowledge that we possess today, for those of us in philanthropy who dedicate ourselves to the social good, to be content dedicating roughly 5 percent of our assets to our respective charitable missions while “the other 95 percent” is invested in the traditional manner? What if our investments are supporting activities and producing social results that go directly against our mission, that perpetuate the social problems our charitable dollars are aiming to solve? For example, consider an environmentally focused funder that unknowingly invested in fracking and fossil fuels because the investment was buried within funds of funds of funds.
Instead, can we manage our investment portfolios with the same care and thoughtfulness we apply in grantmaking decisions? Imagine if we actively engaged a portion of investable assets to bridge the gap between the amount of available charitable dollars and the resolution of seemingly insurmountable issues we aim to solve.
Our investment assets have an impact, whether intentional or not, whether that impact is in line with our values or mission or not. It’s possible for the impact of our investments to in fact go directly against our mission and vision, to perhaps even undo the work of our grantmaking.
We are at a critical point in Michigan’s impact investing ecosystem. Through the efforts of CMF and many of its members, Michigan was an early adopter of the notion and lifted up as a national leader. The momentum continues as not only private foundations but also community foundations, corporations and individuals are taking steps to more intentionally invest their assets with an eye toward creating positive social impact. We are also seeing more stakeholders at every level desiring to learn more and do more.
But we are also facing challenges. Lack of resources. Lack of coordination of efforts causing various stakeholder groups to work in silos. Misconception, misunderstanding – or fear – causing some in the field to reject the notion of more intentional deployment of investment assets altogether. Incorrect assumptions that financial returns must be sacrificed. In some cases, even when people have seen the results and been pleased with the social and financial returns, they recoil at the thought that they were involved with an “impact investment.”
In the coming weeks, I will be presenting a blog series hosted through CMF: “The A to Z of Impact Investing.” We’ll take our readers on a journey from the basics of impact investing and how to get started, to overcoming barriers and finding deals.
So, let’s not get caught up in names. Let’s focus upon our shared mission of doing good. We hope you’ll join us in the journey to a realization that one can do well and do good at the same time.
As CMF’s impact investing expert in residence, Oertel works closely with the impact investing committee. She provides impact investing assistance and resources to CMF members, as well as anyone located in Michigan and those seeking to make impact investments in our state. She is helping to develop the emerging practice throughout Michigan through her leadership in continued implementation of the HUB model and connect with the national and international field of impact investing.
Connect with CMF’s impact investing resources.
W.K. Kellogg Foundation is sharing its work in racial equity and mission investment
Content excerpted and adapted from a Stanford Social Innovation Review article authored by La June Montgomery Tabron, president and CEO of the W.K. Kellogg Foundation. Read the full article.
The W.K. Kellogg Foundation was recently highlighted in the Stanford Social Innovation Review (SSIR) for its work in “Expanding Opportunity in the Capital Markets through Racial Equity.”
About 11 years ago the foundation allocated $100 million of the foundation’s endowment for mission-related investments (MRIs).
“We have been investing, learning, and honing our strategy to align our mission investment work against the foundation’s deep commitment to racial equity ever since,” La June Montgomery Tabron, president and CEO of WKKF wrote.
Montgomery Tabron shared examples of WKKF’s work, which includes building diversity within the investment community, addressing the lack of business financing for people of color and an MRI to an education finance marketplace that helps students bridge financial gaps for college, to name a few.
“For the Kellogg Foundation, investing with a racial equity lens requires that we identify opportunities with people and in places traditional capital markets often overlook,” she said. “We don’t have all the answers, but we’ve been at this a long time. For me, advancing racial equity is not simply my job; it’s my life’s work.”
Montgomery Tabron shared the following pathways to action for funders:
Reflecting on your own biases and learning together.
Challenging structural racism and supporting healing.
Yielding power and fostering humility.
Amplifying community voice and wisdom.
Embracing change and exploring creative possibilities.
“We need leaders with the courage to keep this issue front and center. We need creative thinkers who will help us tackle this complex problem,” Montgomery Tabron said. “We need resources—grant capital and investment capital. And we need more voices added to the burgeoning choir that says: We need to do better. When we stand together, we are closer to creating the society that all of our children deserve.”