How Robert Wood Johnson and McKnight are reimagining ESG for foundations

For some foundations, making ESG investments is not enough. At least two organizations have gone further and set up separate pools of capital that can only be invested in accordance with their missions.

In 2021, the Robert Wood Johnson Foundation created a $200 million impact investing pool that has actively allocated capital to projects ranging from funding small businesses impacted by Covid-19 to research on emissions. social obligations. RWJ’s program is reminiscent of a similarly sized impact pool set up by the McKnight Foundation in 2014. Today, 40% of McKnight’s $3 billion in assets are invested in mission-related investments.

In an environment dominated by the desire to find the right way to do ESG investing, these foundations have taken a unique approach to doing good, linking their grantmaking focus to their investing prowess.

Kimberlee Cornett joined the Robert Wood Johnson Foundation in early 2020 to lead this effort, having spent nine years at the Kresge Foundation in a similar role.

“Prior to my arrival, the board made $200 million available as a first foray into impact investing,” Cornett said. “It’s not out of the endowment — it’s a pool of capital separate from the charitable giving side of the ledger.”

Over the past year, the impact pool has provided a $2 million guarantee to New Jersey Community Capital, a nonprofit community development finance institution. The investment will support local businesses impacted by Covid-19, with a focus on people of colour.

The team also recently announced that through a $4 million grant, the foundation is funding work to bring transparency to municipal social bond issuance. “Every pension fund is exposed,” Cornett said of social bonds. “One of the things that the market doesn’t make easily visible is who benefits from a show and how that is paid back.”

According to Cornett, there was a 40% increase in social bond issues, and they were oversubscribed five times. “But it’s like what we saw when green bonds started coming out,” Cornett explained. “Whether it was a light green, a lime green or a forest green, everything was just green. There was no difference. »

Some social bond issues are reimbursed by fines imposed on offenders. However, these laws are often applied disproportionately to communities of color, rendering the social benefits of these ties unnecessary. Cornett said Robert Wood Johnson made the grant to help build a framework that will allow institutions to assess these obligations.

“One of the benefits of building a cabinet like this is that you become a bridge between the other two arms of the house,” Cornett said. “Nirvana for us is about finding the areas where we can activate the grantmaking side, and then maybe we’ll find a market-rate investment opportunity.”

In 2014, the McKnight Foundation set aside 10% of its portfolio – at the time, $200 million – for an impact investment pool. The foundation hired Elizabeth McGeveran, who has since become its chief investment officer, to lead the effort.

By 2018, the foundation had fully committed the capital pool — $75 million in public equity, $75 million in private investments, and $50 million in program-related investments that were considered concessional. Returns from the program have been strong, so the board has decided to treat this 10% of its portfolio as a floor rather than a ceiling for impact investing.

The result? Today, 40% of McKnight’s staffing is mission-aligned. The fixed income portfolio — worth $200 million — has no exposure to coal and oil sands. The fund has also invested with ESG managers and continuously monitors and makes suggestions for its existing investment managers.

“We periodically assess our existing portfolio and fund managers to understand the level of ESG risk they are introducing,” she said. “We’re looking at the products we’re already using and thinking about ways to further align.”

McKnight has also made its own direct impact investments. One example is McKnight’s investment in Arcadia, a utility company that helps tenants and homeowners in any state buy renewable energy for their homes. Because investing has a strong overlap between impact and return, McGeveran called it a “bull’s eye” for McKnight.

“We like that it creates an option for tenants, who are often left out of renewables,” McGeveran said of Arcadia. “And in some markets, Arcadia can save you money on your utility bill, [while] in other markets it is much the same. They are building community solar power to power the grid.

Today, the endowment continues to seek investments like these, having benefited from the growth of this initial impact pool created in 2014.

“When we built this program, it was separate,” McGeveran said. “It was very circumscribed. Now our investments are much more integrated, and the way we manage them is much more integrated. The distinction is no longer a clear line.

Comments are closed.