Foundation Approaches to Endowments and Equity

As a concept, endowments — defined as funds to be kept permanently and invested to provide sustained support — have existed for more than a thousand years. Supporters of endowments note that they can present an opportunity to shift power and promote nonprofit organizations’ sustainability. Critics of endowments argue these funds typically go to larger, more established institutions, and that the resources used to fund endowments could instead be directed to more near-term opportunities.

With support from the Robert Wood Johnson Foundation (RWJF), the Center for Effective Philanthropy (CEP) and The Bridgespan Group both released reports today that examine different approaches foundations take to funding nonprofit endowments. CEP’s research findings, which are based on surveys of 283 foundations in the fall of 2023, help shed light on foundation perspectives, practices, and challenges associated with endowment giving, while Bridgespan’s report provides an overview of RWJF’s approach to nonprofit endowment grantmaking.

Endowments: A Small Slice of Foundation Giving

CEP’s research reveals that endowment giving does not represent a significant proportion of foundation grantmaking resources. Just under a third of foundations fund nonprofit endowments, and those foundations dedicate only a small proportion of their grantmaking resources to endowments.

Among foundations that do fund endowments, the majority fund museums and performing arts organizations or direct services organizations, followed by educational organizations and then colleges or universities. The majority of foundations that fund nonprofit endowments indicate that existing relationships between foundations and nonprofits is a criterion in the decision-making process for nonprofit endowment funding.

CEP’s findings also indicate that for foundations not currently funding nonprofit endowments, few plan to do so in the future. The reasons behind this vary, ranging from misalignment with mission and funding strategy to a preference for other methods or approaches to funding nonprofits.

Advancing Equity: Not a Primary Consideration

While endowment giving has the potential to foster equity and sustainability in the nonprofit sector, CEP’s research found that advancing equity is not the primary consideration for the majority of foundations engaged in endowment funding. In their case study on RWJF’s endowment giving, Bridgespan explores how philanthropy can use endowment funding for equitable social change.

In 2022, RWJF launched its renewed endowment grantmaking strategy by giving endowment grants of $5 million each to three racial justice organizations: UnidosUS, NAACP, and Faith in Action. The case study includes potential impacts of the endowment grantmaking strategy. For instance, one organization reinvests their endowment in Latino-led businesses. Others may make socially responsible investments that consider environmental, social, and governance (ESG) factors. The case study notes that endowments can be especially critical to organizations led by leaders of color because these organizations often experience chronic underinvestment from philanthropy.

Bridgespan’s case study also highlights that while endowment funding can be transformational for grantees, it may not be appropriate for every situation. Instead, endowment funding should be seen as an additional tool in the grantmaking toolkit to complement other grant types, each of which is used for a different strategic need.

This research by CEP and Bridgespan offers new insights into endowment giving and explores how endowments can be used to advance equity. Through this work, we hope to further build understanding of endowment grantmaking in the field of philanthropy and spark conversations about using this longstanding funding mechanism in new ways.

Emily Yang is an analyst on the Research team at CEP. Elisha Smith Arrillaga, Ph.D. is vice president, Research at CEP. Darren Isom is a partner at The Bridgespan Group.

Editor’s Note: CEP publishes a range of perspectives. The views expressed here are those of the authors, not necessarily those of CEP.