The F.B. Heron Foundation is not your typical foundation. For starters, there is (or was) evidently no F.B. Heron. An anonymous benefactor, which is something of a rarity in the ego-driven world of philanthropy, started the foundation in 1992 with a $150* million donation. When I got Clara Miller, the foundation’s president, on the phone, I asked if she knows the identity of the founding donor. “I can’t say,” she said. This felt like chatting with the CIA.
Fortunately, Miller was more forthcoming on the topic at hand: The Heron foundation’s decision to commit 100 percent of its endowment to investments that align with its mission. In this regard, too, Heron is an outlier. “Like it or not, all investing is impact investing,” Miller says, rightly. So every foundation–indeed, every asset owner–ought to pay attention to the social or environmental impact of their investments. Most don’t. (See, for example, Why won’t foundations divest fossil fuels?)
What really sets F.B. Heron apart, though, is the way it is organized. A half dozen or so staff members do “capital deployment,” whether that takes the form of equity, debt or grants. “We’ve taken away the traditional wall between the granting side and the investing side,” Miller told me. “Everyone does a little of everything.”
This underscores the idea that Heron will devote all of its resources — money in the form of investment, money in the form of grants, its people’s time and their ideas — to its mission, which is to “help people & communities help themselves prosper, especially those that are economically disadvantaged.”
So how’s it going at F.B. Heron? Does this approach make sense for other foundations and nonprofits?
Heron’s 100 percent, all-in strategy for capital deployment dates back to 2012, the year after Miller joined as president. But the foundation has been “in the vanguard of a small but growing number of philanthropies that are beginning to question the traditional wall of separation between investments and programs” since 2008, the Chronicle of Philanthropy reported back then. I wanted to know more about its impact.
First things first: Miller told me that the financial performance of the fund’s endowment has not suffered from its mission-focused approach. “We haven’t seen any evidence that ethics and financial returns are opposites,” she said. On the FAQs on its website, Heron asks and answers the question:
Do you believe that there is a trade-off between financial return and social impact?
No, for us, the conventional view that managers and investors must choose between financial return or impact return is erroneous and rewards practices that undermine economic value in the long term.
That’s a strong claim. It would be more persuasive if Heron prominently reported on its actual financial returns on its website (which, in fairness, is going to be updated this week, so take another look then). Heron is conducting a fascinating experiment in mission investment, albeit with a sample size of one, so it should let everyone know how it’s working out.
For what it’s worth, Cambridge Associates and the Global Impact Investing Network last summer launched an Impact Investing Benchmark, consisting of 51 private investment funds, and compared their performance to conventional private equity funds. The results were inconclusive, although impact funds launched for the full period studied (1998-2010) slightly underperformed market returns.
Miller told me that Heron’s “enterprise grants” focus on organization building, rather than specific programs. “For-profits have access to capital, which is essentially to build the factory, to build infrastructure,” she said. “Nonprofits need the same kind of capital as they grow.” The foundation wants to support strong, growing nonprofits that have the ability to “rebalance the economy so that it ensures opportunity for all.”
The Council for Adult and Experiential Learning (CAEL), which got a $2 million grant from Heron, aims to make it easier for adults to get the education and training by connecting workers, business, colleges, universities and governments. “It’s a way to help people upgrade their skills, and move up the ladder,” Miller says. For example, CAEL provides career advice to McDonald’s workers who want to learn English or obtain a high school or college degree.
Heron gave $1.5 million to the Sustainability Accountability Standards Board, or the SASB, which is creating sustainability accounting standards that will require public companies to report on their social and environmental impact. This is a big idea. (See my 2013 Guardian story, Will sustainability reporting standards change the way business does business?) SASB wants to “change the DNA of the system so that at the very least companies that are doing the right things can have an advantage when they are raising capital in the public markets,” Miller said. “We made a big bet on SASB because we think it can be so important.” Since Heron backed SASB, the nonprofit has gained momentum. It has a great board — Miller is a member – chaired by Michael Bloomberg whose members include former SEC chair Mary Schapiro.
These (and others, listed here) seems like shrewd bets. My only question: Why focus on domestic poverty? Billions of people around the world live on a few dollars a day or less, and an American earning $11,000 a year, below the poverty line, is richer than 85 percent of the people in the world, according to Wiliam MacAskill’s Doing Good Better. “We don’t really have the reach or the ability to do global work,” Miller told me, when I asked about this. Perhaps the mysterious Mr. or Ms. Heron limits what the foundation can do.
Impact investing is in its infancy. Defining “impact” is hard. Would Walmart or Facebook, in their days as private companies, have been deemed impact investments? Measuring the social and financial effects of investments or individual companies is even harder. Is Uber good for the world? Hard to know.
That said, Heron’s impact investments could over time drive its mission as much or more than its grants.
Consider Heron’s investment in DBL Investors, a venture capital firm led by the widely-admired and aptly-named Nancy Pfund. (DBL stands for double bottom line.) DBL’s portfolio companies include Tesla, Solar City, Farmers Business Network, Revolution Foods and Yerdle, all companies with strong social and environmental missions. Think of the impact if Tesla manages to make electric cars mainstream, or Solar City puts rooftop solar on millions of homes, or Revolution Foods transforms school lunches. Heron invested alongside DBL in Ecologic, a sustainable packaging startup based in Oakland, CA.
Interesting, too, is Heron’s investment in Huntington Capital, now known as HCAP Partners, which I wrote about in May for the Guardia). Huntington invests in small and medium-sized companies in and around California, many serving disadvantaged communities, that provide jobs with decent wages and opportunities for advancement. Other investments by Heron support economic development in inner cities and in Appalachia.
Can Heron’s model be duplicated?
Sure. It has been, already. In fact, Heron wasn’t the first to promise to devote 100 percent of its assets to mission. The KL Felicitas Foundation, created in 2000 by Charly and Lisa Kleissner, made an earlier pledge, and Charly Kleissner went on to organization a group of “100 percenters,” foundations and high net-worth individuals who commit 100 percent of their investments to impact. Several dozen foundations, most of them small family foundations, have pledged to devote 100 percent of their assets to mission, according to Confluence Philanthropy (“Own what you own”), a network of mission-driven investors.
Impact investing poses challenges to larger endowments because of the limited number of impact investment opportunities. “They have an issue around deal flow,” said Dana Lanza, the CEO and co-founder of Confluence Philanthropy. “It’s easier for a $50 million endowment to say, we’re 100 percent.” Heron says it’s about 70 percent of the way towards its goal.
What’s clear is that there’s an enormous untapped opportunity in impact investment awaiting most foundations. A 2015 report from the Center for Effective Philanthropy found that “at large private foundations, the proportion of dollars allocated to impact investing is small” and that “the median percentage of endowments going toward this practice is only two percent.”
What’s more, the study found, few foundations use negative screening to exclude particular companies or industries — like fossil fuels, tobacco, or private prisons, for example — from their investment portfolios.
This reflects not just the conservatism of much of the foundation world, the disconnect between programs and assets.
As Morgan Simon, a co-founder of Toniic, a network of impact investors, told me: “You can’t fight poverty–or anything else–with one hand behind your back. You should be using 100 percent of your resources—your time and your money—to pursue your mission.”
* I originally reported that the initial donation was $300 million. It was in fact $150 million.