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Special report: Foundations

More fund execs look at ESG investing as logical extension of their missions

NEPC’s Catherine Konicki

Many foundations are carving out a portion of their portfolios for ESG and impact investing.

"There continues to be, especially with foundations, interest in doing impact investing. Whether that's finding more managers or investing more in line with the mission of the foundation, it has been a growth area," said Catherine Konicki, partner at NEPC LLC.

The consultant is seeing interest from "foundations that never thought of it before, and foundations of all sizes."

Now, when the firm does manager due diligence, "we are always asking them, what are they doing with ESG? A lot more managers are incorporating into their strategies," she said.

For foundations, "the questions are really evolving into how we think about it as a total organization rather than just the portfolio," said Deborah Spalding, Commonfund deputy chief investment officer and managing director.

At the investment committee level, "one of the most difficult steps is to define what is impact investing. There's still a range of opinions. What you are starting to see now is a much broader conversation among trustees," said Ms. Spalding.

Matt Onek, president and CEO of Mission Investors Exchange, a New York-based impact investing network for foundations, said:"Developing the tools to measure impact is now a priority. A lot of people are working on it," said

ESG investing "without a doubt will continue to be a trend," said Lawrence Kochard, chief investment officer and a managing director at Makena Capital Management LLC. "The good news is that (with) the characteristics that underlie ESG in terms of thinking of a long-term owner, there's a lot of alignment."

Mission Investors Exchange's 250 members range from the $39.9 billion Bill & Melinda Gates Foundation in Seattle, to some of the smallest, and "there is no foundation CIO that isn't considering impact investing. All foundations are going to have to consider how to utilize impact investing in their portfolio," said Mr. Onek.

"More and more of the tech billionaires are interested in impact investing from day one," said Mr. Onek. "It is also generational. As millennials become members of the boards, they are more interested. As there is turnover and the new generation prepares, demand will grow. This is a movement that's here to stay," Mr. Onek said.

"What's exciting about impact investing is you can use a range of investments and tools. There is huge diversity in types of investments. You could have a cash position, all the way to public equities, to private equity," he said.

His organization is seeing more positive ESG screening, instead of negative screening for things foundation officials know they don't like or see investment risk from, such as tobacco, guns or private prisons.

His members "are focused on deep impact in communities and markets they care about it." For U.S. foundations, there is a lot of interest in place-based initiatives, with intentional collaborations in places like Detroit and New Orleans, where foundations partner with other anchor investors and large foundations, he said. Mr. Onek pointed to Benefit Chicago, a collaboration among The Chicago Community Trust, the $5.3 billion John D. and Catherine T. MacArthur Foundation and Calvert Foundation aimed at mobilizing $100 million in impact investments for the city's non-profits and social enterprises.

"Foundations continue to look for new opportunities, and many are very active in creating product," such as new funds or partnering with other non-foundation investors. "That's the extra work that foundations are doing," Mr. Onek said.