Mission Driven Investing: Philanthropy’s Surprising Returns

“We know that America thrives when every person can find independence and pride in their work; when the wages of honest labor liberate families from the brink of hardship. We are true to our creed when a little girl born into the bleakest poverty knows that she has the same chance to succeed as anybody else, because she is an American; she is free, and she is equal, not just in the eyes of God but also in our own.”

– President Barack Obama, second inaugural address – Jan. 21, 2013

President Obama’s second inaugural address called for a renewed spirit of collaboration and innovation throughout the U.S. to ensure that poverty and hardship won’t continue to stand in the way of our children’s and our nation’s future success. No society can prosper unless all its children have an equal chance to thrive.

We recognize that the challenges facing America’s vulnerable children are deep, systemic, and heartbreaking. Because of the economic crisis, divergent wealth patterns, and fractured systems, addressing the plight of America’s disadvantaged communities requires businesses, governments, philanthropies, and communities to test out new approaches and fresh ways of thinking. At the W.K. Kellogg Foundation, we’re doing just that.

As a long-time funder through grantmaking to not-for-profit initiatives in education, health, anti-poverty, and other areas, the W.K. Kellogg Foundation works alongside communities across the country to help foster educated kids, healthy kids, and secure families. Recently, the foundation recognized that an emerging class of for-profit entities also exhibited the capacity for addressing our core concern of advancing the needs and best interests of vulnerable children. While other foundations, like the F.B. Heron Foundation, have paved the way for this work, we are finding new opportunities with investments that provide families with a range of critical resources such as affordable homes, a living wage job, and access to quality preschool or nutritious meals, daily.

In 2007 the Kellogg Foundation decided to expand its approach to philanthropy by allocating $100 million of endowment dollars to a new program called “Mission Driven Investing,” giving equal weight to both social impact and financial returns. Our investments align with the Foundation’s overall goals, mission, and priorities, and our investments are expected to achieve a market rate return.

However, this is not simply about financial returns. We draw upon our insights and learning from community-focused grantmaking approaches to inform our impact investing strategies. We have the same direct involvement and relationships with our investment partners as we do with our grantee partners.

The field of impact investing is garnering a lot of attention. We seek a grant portfolio diverse in size and scope. Our investments come in all shapes and sizes and in a variety of asset classes—for example cash deposits, fixed income, and private equity—and across all our program areas of interest. By seeking direct equity investments, we have achieved a level of partnership and activity that passive investments through third parties don’t allow.

Insisting that financial success and mission impact are not mutually exclusive has enabled our organization to accomplish a great deal—with more on the horizon. In these first five years, the foundation’s investments have yielded high-impact social and financial returns—ushering in new mobile technologies and innovative tools for educators; providing healthy, affordable school lunches for vulnerable children in New Orleans and other priority places; and expanding access to capital to underserved communities through community banking, to name several.

Yet successful investments such as those above have not only resulted in significant social impact and market returns, they’ve provided a learning return for our entire organization. Much as our grantmaking legacy provided us with guidance for our entrée into impact investing, now we’re using the lessons learned from our investments to inform our ongoing grantmaking efforts.

By expanding our approach, we’ve discovered possibilities to positively alter outcomes for vulnerable children. We are finding that the combined and applied learning lessons shared among a variety of approaches, including grantmaking, advocacy strategies, and impact investing, makes us most effective. At the Kellogg Foundation we believe it is our responsibility to continue to find creative and innovative ways to deliver on our mission to support children, families, and communities.

I look forward to expanding on the particulars of how the Kellogg Foundation has implemented this approach during a session on impact investing at the 2013 CEP conference. Antony Bugg-Levine of the Nonprofit Finance Fund, Patrick McCarthy of The Annie E. Casey Foundation, Kathy Merchant of The Greater Cincinnati Foundation, and Tracy Palandjian of Social Finance. will join me in a debate about the merits and limitations of impact investing for institutional philanthropy.

 

Sterling K. Speirn is President and CEO of the W.K. Kellogg Foundation.

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