Pathways to Alignment of Assets with Mission: Three Foundations’ Journeys

Should a private foundation be more than a private investment company that uses some of its excess cash flow for charitable purposes?

Heron Foundation, New Frontiers in Mission-Related Investing, 2004

At the end of 2024, US private foundations held a record $1.64 trillion in assets. According to federal law, annually they must spend 5 percent of that amount, or $82 billion, on grants or other qualifying expenses. In 2024, actual grants reportedly were $105 billion.

So, where does the remaining $1.5 trillion-plus go? As that caustic Heron Foundation question from two decades ago makes clear, mission-aligned investing is not a new idea. Nonetheless, most foundations today still invest for maximum returns, often without regard to mission.

As Geraldine Watson, executive vice president of finance, operations, and the Pocantico Center at Rockefeller Brothers Fund (RBF), indicated, “For many years, most foundations really didn’t know exactly where their 95 percent [of non-grant assets] was.…Their investment people did, but they didn’t know how it correlated with how they were spending their grant dollars.”

It is never the case that a foundation converts overnight from having none of its endowment aligned with its grantmaking to all of it.

Watson is part of a growing group of foundation leaders who wish to end that disconnect. But how can foundations shift billions of dollars toward mission alignment? What does it mean for foundations to align with mission while maintaining equivalent financial returns as standard investments? And if you align your investments but don’t give up any financial return, how much of a difference are you making?

To answer these questions and to get a better understanding of the dynamics and tradeoffs, NPQ spoke with Watson of RBF; Rey Ramsey, CEO of the Nathan Cummings Foundation; and Elizabeth McGeveran, vice president of investments at the McKnight Foundation. All three of their foundations have sizeable endowments—Cummings, with nearly $500 million in assets, is the smallest; McKnight, with $2.6 billion in assets, is the largest. And all have been practicing mission-aligned investing for a while, some for over a decade.

Getting Started

It is never the case that a foundation converts overnight from having none of its endowment aligned with its grantmaking to all of it. There are many steps.

RBF began its efforts in 2005 by adopting a policy to make detailed proxy voting guidelines apply in stockholder votes. Watson said it took two years to develop what she estimated was a 30-page document detailing foundation positions on corporate behavior. Five years later, in 2010, RBF set aside 10 percent of the assets of the whole endowment to “see if we can have our outside investor manager help us find ways to invest in impact investments.”

McKnight made a similar decision in 2013 to set aside 10 percent of the endowment for impact investment. As McGeveran explained, “At the time, 10 percent was a meaningful amount, and you actually would have to invest in people and processes to really deploy that properly,” while also being small enough that if financial returns were lower on the new investments, that would have a limited effect on the overall endowment.

Cummings, like RBF, began with active proxy voting—filing its first shareholder proposal in 2002 and its 100th proposal by 2010. In 2012, the organization made a carve-out from its endowment for mission-aligned investment, although it was for a small pilot program involving $6.5 million in endowment funds.

Aligning Across the Endowment at Cummings

While Cummings started smaller than RBF or McKnight, it went big in 2018, declaring the intent to become 100 percent mission-aligned in its investments. Ramsey noted, “In so in many ways, in deciding, ‘OK, we’re going to do the whole half-a-billion dollars and we’re going to do that 100 percent impact and mission-aligned’…you don’t totally know everything that you are setting in motion.”

Getting approval for the shift required what Ramsey called the “four yeses.” As CEO, he was one of the four yeses, but to make the shift required three other groups to come on board: investment professionals, the members of the foundation’s investment committee, and the trustees of the board. Once all four of those groups were aligned, then the foundation’s investment policy statement, or IPS, could change to commit to mission alignment.

Changing the IPS is just the first step, however. The foundation also had to analyze its portfolio to determine which assets had to be sold to achieve alignment. Ramsey mentioned that at the time, “we probably had 20 to 25 percent of our endowment invested in things that we wanted to get out of,” such as holdings in the oil, gas, and timber industries. Then, investment advisors developed a “glide path” to exit to avoid excessive losses when selling assets. Especially where private equity is involved, there are often severe financial penalties for early exit. “For a typical endowment, it will take a few years to be fully compliant with an investment policy statement,” Ramsey said. As of 2024, six years after starting the process, Jon Zella, the foundation’s communications manager, estimates that 89 percent of assets are presently mission aligned.

Further measures were taken along the way. A key step was developing a strategic plan to identify a positive vision. That vision at Cummings is called REEJ, which stands for racial, economic, and environmental justice. As Ramsey put it, when a foundation pursues mission alignment in its investing over time, “what happens is that your sight becomes sharpened with what you’re doing.” As part of its efforts, the foundation also prioritized working with investment fund managers who are women or people of color. Ramsey noted that the foundation is over the “60 percent mark” in a field where 25 percent is considered a challenging level to reach.

Divesting from Fossil Fuels at RBF

Cummings is not alone in ramping up impact investment over time. At RBF, their big shift occurred in 2014, when the foundation trustees voted to phase out all fossil fuel investments. As Watson pointed out, when the foundation made this move, it was taking a chance. Driving the decision was interest by the Rockefeller family in divesting. Even so, she noted, “We didn’t just one day turn a switch and be fully divested from fossil fuel….It has been a journey.”

For example, as part of their due diligence, the trustees asked investment advisors to assess the previous 20 years and inform them what their financial returns would have looked like if their energy investments were solely in renewables. The answer, she noted, was “not favorable,” and the gap was large. Watson noted that one reason was because in the early days, “there were some successes, but there were also some failures with solar panel and other companies that dragged down the overall cumulative performance.”

Nonetheless, the foundation went ahead and divested. Why? One reason was that data from a grantee, Carbon Tracker, indicated that in the next 20 years, renewables were likely to outperform fossil fuels, as carbon reduction commitments would lead fossil fuel companies to have “stranded assets [that] would start to impair the profitability.” By the end of 2024, the foundation was 99.8 percent divested from fossil fuels, and investment returns have been greater than if the foundation had held on to its previous fossil fuel investments.

RBF’s investment focus has been decarbonization, but its approach is broader. In 2016, the foundation increased the amount of assets positively invested for impact from 10 percent to 20 percent. By 2021, the foundation had also adopted racial and gender lenses to its investment and set a goal for at least 25 percent of fund managers to be women or people of color.

Steady Alignment Growth at McKnight

At McKnight, unlike Cummings’s move to 100 percent impact investment or RBF’s decision to fully divest from fossil fuels, there was no single dramatic decision to expand mission-aligned investment. But there was steady growth over time. McGeveran estimated that at this point half of the endowment “has some form of mission alignment.”

For example, by 2018, the foundation had met its 10 percent mission-aligned target set five years before. Rather than set a new higher target, the foundation board decided to instead free managers to make mission-aligned investments with any of the foundation’s investments. So, there wasn’t a set target but rather an opening up to opportunities, as McGeveran put it.

“In 2022,” McGeveran added, “the board passed a resolution that articulated that climate sustainability and equity would be integrated into all of our investment processes in a manner that was consistent with our duty as prudent fiduciaries.” In the spring of 2024, the fund committed to seeking to have more funds managed by women and people of color.

Embedding the Model

Different foundations have taken distinct paths to embed mission-related investments in their organization. At Cummings, Ramsey indicated that there are “solutions teams that are built around racial, economics, and environmental justice.” These teams are cross-functional and include everybody—from accountants to program officers to investment officers. The idea, noted Ramsey, is to “take the wall down” that typically separates investment and grantmaking.

At McKnight, McGeveran emphasized the value of switching from a “fund of funds” model—where the foundation essentially interacted with just three firms—to direct fund investing, which means the foundation now interacts with 70 fund managers. The latter allows for a lot more drilling down on mission impact.

Both McGeveran and Watson emphasized the importance of establishing a standard of protecting the purchasing power of the endowment rather than maximizing returns. As Watson explained, “Spending and inflation—you need to earn more than that. You don’t necessarily need the very highest return. You can use that flexibility to select investments that preserve the endowment but also support mission-aligned investing.”

What Is the Impact?

Can market-rate, mission-aligned investments make a difference? Yes and no. Except for McKnight, which has a $100 million concessionary investment carve-out for program-related investments, foundation impact investment leaders have largely sought to align with mission without sacrificing return. In terms of demonstrating their ability to generate market-rate returns, they have succeeded.

Of course, as NPQ often notes, impact investing has many different definitions. What Cummings, RBF, and McKnight are doing is a far cry from impact-first investing.

So, what can mission-aligned market rate investing do? One observation: Concessionary investment is especially critical when challenging economic power relations.

Mission-aligned investing can make a difference…by influencing other investors, “so that we have a cumulative, more aggregated impact.”

If the goal is more to shift the sector of investment—say, from fossil fuels to renewable energy—a market-rate strategy can be more viable. Even so, it’s worth reiterating Watson’s observation that in the early days of renewables, the industry did not enjoy market rates of return.

McGeveran, for her part, was cleared-eyed about mission-aligned investing’s limits. “McKnight’s grants are the purest expression of McKnight’s mission,” she said, adding that mission-aligned investing, “because it requires a market-rate return is one step further away from the purest expression of our mission or values.”

Why Mission-Aligned Investing Matters

While the impact is indeed less due to the commitment to maintaining market-rate financial returns, mission alignment is still valuable to foundations for two main primary reasons: 1) not unimportantly, it avoids what is otherwise the likelihood of a foundation investing its dollars against its own grant priorities; 2) it can help give important shoves in the right direction.

McGeveran explained that she sees four ways foundations like McKnight can use their assets to advance impact. In addition to the investments themselves, there is the possibility of using their consumer power to influence the field, vote at corporate shareholder meetings, and advocate at regulatory bodies like the Security and Exchange Commission.

Watson noted that another way mission-aligned investing can make a difference is by influencing other investors “so that we have a cumulative, more aggregated impact, influencing others that have more dollars.” McGeveran remarked that “we have a lot of influence [on] our fund managers, probably more than you would expect with our $3 billion size,” with their investments encouraging funds to create specialty funds like “fossil-free exclusion funds.”

The field is constantly evolving. As Ramsey noted, “You’re always in pursuit of authentic impact. That journey to authenticity matters.”

Watson encouraged her foundation counterparts to become mission-aligned investors themselves. “Talk to your peers. Find out what they are doing. Have education sessions for your board, investment committee, if you have an outsourced investment manager like we do, with your staff. It is worth learning and going on the journey.”

The idea for this article came out of a conversation I had with Aaron Dorfman of the National Committee for Responsive Philanthropy last fall in Washington, DC. Dorfman also helped connect me with two of the people interviewed for this article. I gratefully acknowledge his assistance.