In 2014, the Edwards Mother Earth Foundation (EMEF) decided to invest its entire endowment with the intention of generating measurable environmental benefits and competitive financial returns. Defined as impact investing, the approach enables investors of all kinds – foundations and families, institutions and individuals – to align their assets with their values. Equipped with a $35 million portfolio, EMEF is a true pioneer in this pursuit. Why? Only a small subset of impact investors has dedicated 100% of their investable assets to the emergent discipline; even fewer have maintained their financial return expectations after committing. It’s also worth noting that EMEF’s Board has always been comprised entirely of family members and that the foundation is staffed with just one part-time employee.
What further distinguishes EMEF is their willingness to publish this unvarnished case study about their impact investing efforts. After all, the foundation is “dedicated to enhancing the sustainability and diverse quality of life by addressing global climate disruption.” And yet, like far too many foundations today, EMEF once had investments in its portfolio that contradicted that mission. EMEF divested from those holdings after hiring a new advisor, but then grappled with the illiquidity features of its new investment opportunities. After resolving that tension, EMEF then codified within its Investment Policy Statement the Board’s acceptance of private funds with multiyear lockups. This meant their portfolio would have to maintain elevated exposure to liquid securities at a time when they were marked by historically low yields (Fixed Income) and high valuations (Public Equities).
If that read like a bombardment of financial jargon, rest assured that the volunteers who occupied EMEF’s Board and Finance Committee felt the same way when they started their journey in 2014. Nevertheless, they overcame the inertia that doggedly hinders other foundations’ exploration, acceptance, and execution of impact investing. In time, EMEF developed a firm understanding of arcane portfolio management concepts, financial buzzwords, and impact investing insights.
This case study is a culmination of EMEF’s hard-earned lessons. Their hope in sharing this story is that they can further demystify impact investing, thereby encouraging more families and foundations to implement the practice.
While Heron, Packard, Ford, McKnight, and MacArthur rightfully earn a lot of headlines for their work, EMEF has demonstrated that impact investing is not reserved solely for foundations with several-hundred-million-dollar endowments. And while some other organizations may be comfortable with their impact investments’ concessionary returns, EMEF has shown that impact investors need not resign themselves to below-market performance. Indeed, over the past three years, the publicly traded portion of EMEF’s portfolio has largely kept pace with its constituent benchmarks, delivering an annualized return of 5.0%. Admittedly, this figure falls short – for now – of the foundation’s long-term target return of 8.0%. At the same time, it omits the commendable – though, as-yet, largely unrealized – performance of the portfolio’s illiquid investments. When those returns are included in the analysis, EMEF is quite pleased with their portfolio. Of course, it will take many more years for their asset allocation to reach maturity, which is why this case study is still a work in progress.
Meantime, one should not lose sight of the fact that EMEF’s investments have helped to generate over three million megawatt hours of renewable energy, abate over two million metric tons of greenhouse gases, and conserve 11,000 hectares of forestland. Those statistics may be a bit nebulous, but they represent real impact at a time when it is needed most. To borrow the words of two heralded impact investors from the aforementioned foundations, “Now, more than ever, philanthropy has to step up and go big.”1 EMEF is proud to have already done so – and implores more foundations to do the same.READ FULL CASE STUDY