Where do America’s big foundations invest their billions? Don’t ask.

Marc Gunther
Sep 23, 2019 · 8 min read
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Most foundation endowments won’t say how or where they invest.

The people who run billion-dollar foundations like to talk about their grants. They pump out press releases, produce slick videos, post on social media, publish annual reports and compile searchable databases, all calling attention to the ways they give away money.

But how do they invest their money? Many won’t say. Fewer than half of 15 of the biggest U.S. foundations, which together own tends of billions of dollars of assets, report on their investments. They decline even to disclose the stocks and bonds they own.

The upshot: It’s all but impossible to know to what degree foundations invest in companies that extract and produce fossil fuels, manufacture assault weapons or operate private prisons — companies, that is, whose operations may well undermine their missions.

This is a problem. It’s makes no sense, for example, for foundations like Hewlett, Packard or Bloomberg — all of which fund organizations seeking to curb climate change — to invest their endowments in companies that seek to increase the supply of fossil fuels.

“What are they hiding?” asks Timothy Wirth, the former U.S. senator from Colorado who has been advocating for fossil-fuel divestment publicly at Harvard, his alma mater, and quietly in the world of philanthropy. “What reason do they have not to disclose, unless they are embarrassed?”

Antony Bugg-Levine, the chief executive of the Nonprofit Finance Fund and co-author of Impact Investing: Transforming How We Make Money While Making a Difference, makes an excellent point:

In a world in which people believed the only purpose of the endowments was to generate surpluses to fund grants, and that the only way to achieve social good was through grant making, it was defensible to limit public scrutiny to grant making activity. But there is a growing recognition that for-profit investments create social impact, both positive and negative. One logical implication of that is that institutions that are set up to promote social good, and given substantial tax breaks to fulfill that purpose, should be accountable to how they invest their money not only how they give it away.

Clara Vondrich, director of DivestInvest, which advocates for fossil-fuel investments, told me by email:

Despite their charitable tax status and legal obligation to serve the public good, foundations are inexplicably private, secretive and anti-transparent. Disclosure of their portfolio holdings should be considered a basic threshold condition for both retaining their tax breaks and maintaining the public trust.

By managing their endowments the old-fashioned way — that is, to make money any way they can —foundations are missing opportunities to invest in businesses that explicitly seek to generate social or environmental along with financial returns. They could take the money they have invested in fossil fuel companies, gunmakers or private prisons and invest it in clean energy or inner-city economic development.

The dollars involved are sizable. America’s foundations, taken together, manage about $950bn in their endowments. They give away much less, roughly $75bn a year, according to Giving USA 2019.

Morgan Simon, an investment advisor and the author of Real Impact: The New Economics of Social Change, has this to say about the big foundations:

Are these investment houses that happen to have a philanthropic arm? Or are they mission-driven institutions?

Writing in Alliance, a UK-based magazine about philanthropy and social investment, Laura Starita and Timothy Ogden ask:

How much good must a foundation do in order to justify investments in companies whose products cause harm?

To get a sense of how big foundations practice disclosure, I looked at the tax returns of the FoundationMark 15 with research assistance from Eve Driver, a Harvard senior who has worked on the fossil-fuel divestment campaign at the university. The FoundationMark 15 is a group of 15 of the largest, best-known private foundations in the U.S., chosen by John Seitz, founder of FoundationIQ, a database that tracks the investment performance of endowments. (Until Seitz and Foundation IQ came along, most foundations declined to make public their investment returns; their returns, we’ve learned thanks to Seitz, are mostly mediocre, as I reported last year in the Chronicle of Philanthropy.)

Of the FoundationMark 15, eight foundations provide little or no information about their investments. They are the Ford Foundation, the William and Flora Hewlett Foundation, the David and Lucile Packard Foundation, Bloomberg Philanthropies, the W.K. Kellogg Foundation, the Gordon and Betty Moore Foundation, the Walton Family Foundation and the Kresge Foundation.

The lack of disclosure at Ford and Kresge is surprising. Both grant-makers have made significant commitments to mission-aligned investing; in that regard, they are leaders. Darren Walker, Ford’s president, has written that unleashing the power of endowments is “the next great challenge for philanthropy.” Kresge has made nearly 100 social investments since 2008, and lists them on its website.

But try to figure out where the rest of Kresge’s endowment is invested. Here is a list of the common stocks owned by Kresge:

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Not very helpful, is it?

By contrast, seven foundations disclosed their holdings. They are the Bill & Melinda Gates Foundation, the Lilly Endowment, the Robert Wood Johnson Foundation, the John D. and Catherine T. MacArthur Foundation, the Andrew W. Mellon Foundation, the Leona M. and Harry Helmsley Foundation and the Rockefeller Foundation.

Across the FoundationMark 15, divestment policies also vary widely.

The Gates and Rockefeller foundations screen out tobacco-related stocks. Bloomberg Philanthropies says it won’t invest in coal.

MacArthur rules out divestment….mostly. “Divestment is never to be entertained to assert policy preferences, censure, or political leverage,” the foundation says, except in those cases where a company engages in “morally abhorrent activity such as genocide, apartheid, slavery, or systematic cruelty to humans in helpless situations.” Presumably, that’s intended to be reassuring.

Peculiar, too, is the stance of the Robert Wood Johnson Foundation. It says it won’t invest in companies “whose products may conflict with our vision to build a Culture of Health,” citing businesses whose primary business is tobacco, alcohol or firearms. But it owns companies that develop new sources of fossil fuels, notably a private equity fund run by ENCAP Investments, which calls itself as “the leading provider of venture capital to the independent sector of the U.S. oil and gas industry.” The health effects of climate change include “increased respiratory and cardiovascular disease, injuries and premature deaths related to extreme weather events, changes in the prevalence and geographical distribution of food- and water-borne illnesses and other infectious diseases, and threats to mental health,” according to the Centers for Disease Control. But financing fossil fuels evidently does not conflict with RWJF’s Culture of Health.

This kind of thinking helps explain why the divestment movement has, for all intents and purposes, stalled in philanthropy. Five years ago this month, during the UN’s annual climate week confab, the Rockefeller Brothers Fund boldly announced a plan to divest from fossil fuels. The story made headlines globally, in part because the Rockefeller fortune was built on oil. But, since then, not much of import has transpired among foundations.

According to Divest Invest, which tracks the growing global divestment movement, about $14.6bn of assets held by foundations or charitable trusts had been committed to divestment at the end of 2015. As of now, the figure is $15.7bn. Pension funds, private investment managers, banks and governments are all divesting more and faster.

To put it simply: Foundations are laggards on an issue where they could be leading.

It’s hard to know exactly why, and there are likely many reasons. The biggest issue may be culture: Investment committees of foundation boards are usually composed of Wall Streeters who made their money the old-fashioned way — frequently, by pursing active investing strategies at the expense of their clients. This is infuriating because they are not only resisting divestment; they are needlessly dissipating foundation assets. [See Warren Buffett has some excellent advice for foundations that they probably won’t take.]

James Engell, a Harvard professor who has been active in the divestment campaign, argues in a statement on divestment that trustees “dare not leave the circle of those other fiduciaries and institutions with whom they are standing.” He writes:

In the case of divestment, that means the trustees of all the Ivies, of all major US philanthropies, and of course the board members of many businesses, with which there is often great overlap with academic and philanthropic boards. Almost all these individuals are rich, in the top 5% and often the top 1% or higher. It easily becomes personally unacceptable for one of them to step outside the chosen group of fiduciaries. They themselves were often chosen in the first place because it was safely perceived that they would never take such a step. These facts do not, of course, make these individuals bad or immoral. They are generally honorable and try to do the right thing; but on certain issues these facts constrain their thinking and action by an inhibition very hard to overcome, and especially hard to overcome as the first person or first institution in a peer group to break ranks.

The power of status quo bias cannot be overstated. In a Medium post titled Five Simple Actions to Break Through Your Impact Investing Logjam, Antony Bugg-Levine writes:

Opposition to impact investing is often rooted in opposition to change. We always hold new ideas to a higher level of scrutiny than business as usual. So to create a more level playing field, propose a thought experiment: “Imagine that all your investments and those of your peers were held in a diverse portfolio focused on the social impacts you care about. Then imagine that someone proposed to reinvest these assets without regard for the impact the investments have. And that the research about whether this new approach would generate more financial return or lower risk was inconclusive. Would you agree to the proposal?”

A very few foundation presidents, notably Larry Kramer of Hewlett, have been willing to publicly explain why they oppose divestment. But most have been silent, unwilling to explain how they reconcile their rhetoric about the climate crisis with the business-as-usual approach they take to their endowments.

As Tim Wirth asks: “If this is, in fact, an existential crisis, why won’t they deploy more of their assets to respond?” It’s a good question, and one that should trouble anyone working at a foundation that continues to finance companies that are exploring and developing the new sources of fossil fuels whose burning threatens most everything they do.

Nonprofit Chronicles

Journalism about philanthropy and accountability

Marc Gunther

Written by

Reporting on philanthropy, psychedelics, animal welfare, global poverty, etc. Ex-Fortune. Baseball fan. Runner. Seen in Gen, Marker, Elemental, OneZero.

Nonprofit Chronicles

My writing about foundations and nonprofits. I’m interested in the accountability of foundations, how they invest their endowments, the impact of nonprofits, effective altruism and the animal rights movement.

Marc Gunther

Written by

Reporting on philanthropy, psychedelics, animal welfare, global poverty, etc. Ex-Fortune. Baseball fan. Runner. Seen in Gen, Marker, Elemental, OneZero.

Nonprofit Chronicles

My writing about foundations and nonprofits. I’m interested in the accountability of foundations, how they invest their endowments, the impact of nonprofits, effective altruism and the animal rights movement.

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