Impact Investing: A Foundation’s 15-Year Journey to Catalytic and Direct Investments

This post is an excerpt from the complimentary resource Essentials of Impact Investing: A Guide for Small-Staffed Foundations, created by Exponent Philanthropy and partners Mission Investors Exchange and Arabella Advisors. Want to align your investments with your mission? Download your copy >>

By Jesse Fink, The Fink Family Foundation

When my wife, Betsy, and I formed the Betsy and Jesse Fink Foundation [now The Fink Family Foundation] 15 years ago to help solve large-scale environmental problems, we were faced with a big question: how could a foundation of our size be impactful when hundreds of billions of dollars are needed to achieve our mission globally?

We started with two core principles. First, as former entrepreneurs, we wanted to be catalytic—to take risks to prove new models, so that larger funders with less risk tolerance would feel able to adopt them, too. We focused most of our funding on seeding new organizations and pilots in the Northeast, where we have strong local relationships and knowledge.

Second, we recognized that the scale of environmental problems dwarfs available philanthropic capital, so we needed to find impact leverage wherever possible. This led us to invest in scalable solutions, such as innovative business models, technology, human capital, and market-based solutions. Once we began supporting market-based solutions programmatically, we recognized that we could also push the field forward through impact investing (which we called “issue-based investing” before there was a common name for it).

We first researched and implemented a half dozen PRIs, including more traditional loans for low-risk land conservation projects, as well as higher risk loans for unsecured food hubs and food recovery projects. We also made a few small investments in third-party funds focused on clean energy. We learned from some of the failures and saw the huge potential of the successes, and decided to make mission-aligned impact investing a core of our work.

Recently, we asked our long-term trusted advisor Mark Cirilli, co-founder and managing director of the impact investing advisory firm MissionPoint Capital Partners, to help draft a comprehensive impact investment strategy and policy for our foundation. The resulting document, built in partnership with our trustees and team, codified a few core values that have driven our work:

• All investments have impact of some kind, be it positive or negative. Our foundation’s long-term objective is to align our investments with our mission in order to maximize the positive impact in our chosen focus areas.
• Our investment policy must follow best-in-class standards of prudent investing and fiduciary duty, including a detailed investment and diligence process to ensure our liquidity requirements are fulfilled and our investments meet certain standards of expected financial return, risk, and impact.
• Our foundation will pursue a full-spectrum investment strategy by evaluating how passive and direct MRIs, PRIs, and grants can collectively support our mission.
• Our mission and team’s expertise provide us with a relatively high risk tolerance, and a focus on direct investments that fit our goal of being catalytic and achieving outsized outcomes.

To achieve these goals, our foundation has built the following structure:

• Our foundation and MissionPoint focus on two to three subsectors at a time for both our investment and strategic programmatic activity. This allows us to focus our resources to conduct research, establish a wide network, and develop a strong impact investment thesis on these topics. Past topics have included green and natural infrastructure, controlled environment agriculture, and food waste.
• We are working closely with MissionPoint Partners to evaluate all direct MRIs and PRIs across both financial and impact metrics. Our foundation is highly engaged in these direct investments. We try to do a limited number of transactions (one to three per year), which allows us to dedicate the time to meet and evaluate the management team, deeply understand the market, and assess both the impact potential and financial opportunity. We will measure impact using a few direct impact metrics, including cost-effectiveness, as well as metrics that track follow-on capital and spillover benefits to the sector.
• For our direct investments, we are working with a small group of aligned families, foundations, and other institutions to take a strong investment position in businesses with the potential to scale transformative new business models to tackle major environmental problems. This has created an investor base that is both investment savvy and impact-aligned, and it allows us to pool our resources and best thinking on each transaction.
• We work with a separate advisor who specializes in mission-related passive investments in diversified funds. Our staff spends less time on these investments since the potential for catalytic impact is smaller, and there is a stronger emphasis on meeting financial, liquidity, and risk goals. When possible, we welcome the opportunity to act as a seed investor into new funds. We have also made a commitment to divest ownership from fossil fuel companies and have a new interest in assessing the risk that climate change brings to the portfolio.

As a small-staffed foundation, we have experienced challenges like many others, but we see the opportunities. As Mark Cirilli has noted, “We can play the role of lowering the cost of capital so traditional capital sources can invest and add real scale and replicability to the solution.”

We recommend that foundations focus on sectors, geographies, or investment areas in which the team has the knowledge and passion. This allows the staff to build sector-leading expertise, to develop relationships with top experts in the field, and to add more value to each part of the investment portfolio. We have done this in the environmental sector, from our early work in land conservation to energy efficiency and now building a road map for food waste. By working together, foundations can also pool their resources on each impact investment.

Our 15-year journey has been one of learning, experimentation, compassion, and fun—but sometimes we feel that we are just beginning. We look forward to working with other family foundations, particularly those with environmental-related missions, to take the next step toward using investments to drive their impact.