The McKnight Foundation in Minneapolis and the Northwest Area Foundation in St. Paul have shifted their endowment portfolios in recent years to better align their investments with their missions, becoming in the process leaders in impact investing, the Twin Cities Pioneer Press reports.
In 2013, McKnight began to examine how its investments could better support its grantmaking priorities, studying, among other things, the pioneering impact investing efforts of the W.K. Kellogg Foundation and F.B. Heron Foundation. Then, in 2014, the foundation announced that it would allocate $200 million, or 10 percent of its $2 billion endowment, in impact investing strategies around three goals — accelerating the development of a cleaner, low-carbon economy; contributing to a thriving, sustainable Twin Cities metro area; and restoring water quality in and the resilience of the Mississippi River. Two years later, more than half that money has been committed, the Pioneer Press reports.
The foundation also moved to address the tension inherent in funding efforts to slow climate change while investing in fossil fuel companies, removing coal from its bond portfolio and some of its stock portfolios and reinvesting an additional 5 percent of its endowment, or $100 million, in a custom fund created by Mellon Capital that mimics the Russell 3000 minus coal companies and with a bias toward companies with lower carbon emissions relative to their peers. McKnight also invests in a fund managed by Generation Investment Management, a firm co-founded by former vice president Al Gore, which has yielded returns of more than 10 percent and performed better than other public funds in its endowment over the last year and a half.
"We've talked to every manager in our portfolio and asked, what are your processes to examine environmental and social and governance factors? Do you see those as material to financial risk and reward, and if so how?" McKnight Foundation president Kate Wolford told the Pioneer Press. "That's something not many of our peers do. And we're finding it's incredibly powerful."
With the aim of reducing poverty by creating good jobs in rural and low-income communities, the Northwest Area Foundation pledged in 2014 to dedicate $40 million, or 10 percent of its $400 million endowment, to impact investing — three-quarters of which has been invested. To that end, NWAF, which has allocated millions to low-interest loans for community development financial institutions since 2004, now is looking for market-rate returns on its private equity investments, including funds placed with Granite Equity, which specializes in buying companies in rural Minnesota, often when their founding owners retire, to keep the businesses going and retain the jobs provided by those companies. The foundation also invests in manufacturers that give employees stock options and in construction debt financing.
"In rural communities, if you can keep a hundred jobs going, that's tremendously critical for that economy," said Amy Jensen, NWAF's investment director. "But I do think you can do impact investing around any mission, whether it's around environment, jobs, health care, or something else...[O]ur grants alone are never going to solve the pressing problems we face. This is about using everything we have to do more."