A New Approach to Impact Investing

Our Chief Investment Officer Leena Bhutta is up with a powerful piece in Institutional Investor outlining our new approach to mobilizing our endowment for impact—which we call “integrated impact investing.”

I encourage you to check the piece out for yourself. It takes on some of the timely issues around values-based investing of all kinds, including “ESG” frameworks.

Here, I want to talk a bit about what integrated impact investing is. Then, in a subsequent post, I’ll try to take on some of the thornier issues around the impact investing discussion generally.

(By the way, you can hear more on this topic at this year’s Mission Investor’s Exchange conference in Los Angeles—this Thursday I’ll be on stage with a great group of leaders, including Nicole Taylor , Bruce McNamer , and Flozell Daniels, Jr. .)

Historically, foundation endowments serve a single purpose: as the principal—if not exclusive—source of revenue for grantmaking activities. In the first quarter of the 21st century, this has been expanded to so-called “impact investing,” which describes a range of activities that put endowment assets to work in different ways.

Impact investing includes everything from return-seeking investments that align with a foundation’s values to investments that provide capital to opportunities that might not earn an adequate financial return and are therefore unable to benefit from mainstream capital markets.

At Doris Duke Foundation, we try to avoid any kind of orthodoxy about how a foundation works (or what a foundation does) and instead devote ourselves as creatively and tenaciously as possible to focusing on the impact we want to have. In other words, we try to adopt an open mind about the tools available to us—including grants.

For us, integrated impact investing means simply: using the tools of finance for impact.

This may seem elementary, but to us underlines a powerful truth about our endowment, which is that it’s not just a basket of securities but a team with specialized knowledge about how to access and use diverse financial tools.

In practice, we expect this approach to manifest in two ways.

First, our investment professionals will work closely with their programmatic counterparts to figure out where the tools of finance—whether in the form of debt or equity (or something else)—might be a better way to advance our mission than a grant.

Second, we will focus a significant portion of our endowment on investing activities that promise the same economic returns we expect from the rest of our portfolio but that target the power of capital markets to distinctly advance areas related to our mission.

The basic idea here is that we want to fit the tool to the problem, not the problem to the tool.

We’re not pursuing integrated impact investing to apologize for capitalism. We’re doing it to put capitalism to work. Sometimes that means harnessing capitalism to address problems beyond the reach of markets—often through grants. But sometimes it means unleashing markets on problems that lend themselves to the velocity of financial capital.

If you work in this space, you’re already reaching for some important questions this approach raises. Stay tuned next week I’ll take some of these on.