A willingness to collaborate with others and an ability to take calculated risks are essential to successful impact investing, a report from the Russell Family Foundation finds.
The report, The Impact Investing Journey: Aligning Portfolio With Purpose (42 pages, PDF), details the Washington-based foundation's experiments with impact investing, starting with a pilot project in 2004 designed as a hands-on, interactive, and engaged learning process, followed by a series of additional mission-related investments. After testing various approaches, the foundation created a Mission Related Investment Committee (MRIC) that brought together program staff and investment advisors, and in 2014 developed a "tug of war" exercise designed to identify the best investment strategies in terms of financial gain compared with the best strategies for return on mission. In just four years, the resulting menu of investment approaches enabled the foundation to boost the share of mission-aligned investments in its portfolio to nearly 75 percent. In the years since, the portfolio has outperformed its blended benchmark by nearly 3 percent.
According to the case study, the foundation's appetite for experimentation opened up a range of field-building opportunities. The foundation also learned from the DivestInvest movement, which has called on private endowments to divest from fossil fuels and re-invest that capital in more climate-friendly solutions. As one of the original signatories of the 2014 DivestInvest Philanthropy Pledge, TRFF fully divested itself of its holdings in the fifteen U.S. coal companies identified by the Energy Action Coalition to be the most harmful to public health and the environment, but at the same time had to reconsider its entire portfolio management strategy, given that some of its coal stocks were held in mutual fund and commingled structures.
Among other things, the report outlines the foundation's efforts to build a comprehensive and diversified impact portfolio across all asset classes, using a framework that encompasses a broad spectrum of impact approaches — from the lowest level of negative ESG (environmental, social, and governance) screening, to positive ESG screening and shareholder engagement, to thematic place-based investing, to the highest level of capacity building and program-related investments.
In addition, the case study highlights nine processes and activities TRFF found to be of benefit, including rethinking its investment policy statement; choosing between total portfolio activation and a carve-out approach; committing to shareholder engagement; making incremental (as opposed to dramatic) changes; engaging in peer-to-peer collaboration; conducting an audit of its portfolio; and finding the right partner.
"Impact investing is a unique journey for any foundation, and I believe it is one that is necessary as stewards seeking a socially just and environmentally conscious world," said the foundation's CEO, Richard Woo. "This report is an evolving story, metaphorically, with more chapters to come about emerging lessons and greater impact."