Established in 2003, the Catherine Donnelly Foundation (CDF) is the financial legacy of a remarkable group of women religious, The Sisters of Service. The Foundation, based in Toronto, Canada, is a living testament to the Sisters’ tradition of response to the greatest needs in communities across Canada. It builds upon the spirit of service and dedication that inspired Catherine Donnelly, the Foundress of the community, and affirms the inherent dignity of every person and the sacredness of creation. CDF seeks to extend the radical commitment to social change and to empowering the marginalized that characterized the Sisters’ every action.
CDF does not see itself as a passive philanthropic actor in the process of social change. It seeks active collaboration and engagement with those groups and institutions it chooses to support. Its strategy is one of partnership, which sees it prepared to make a contribution beyond financial resources to the work of social change groups and organizations. It actively seeks to promote linkages and synergies across and within the groups with which it collaborates.
The same bold spirit of active engagement and collaboration that guides our granting process gradually came to inform our investment strategy. Not only do we provide grants that serve our mission, we also now make investments that support our mission. Our internal management of investments (through SRI screens and impact investment) reflects the external positive impacts we want to see in the world, and is reflective of our philosophy as an organization – we want our work to be a net positive impact, including the use of our invested funds.
For the CDF, our impact investing has materialized as the purposeful advancement of investor-defined social and/or environmental objectives through direct investing. Embracing impact investment as direct investment has been an important aspect of the CDF’s evolution. In a practical sense, this is the major operational shift impact investing requires of foundations or endowments. While traditionally most foundation investments are managed through an investment broker or other intermediary, impact investment often requires “hands-on” deal analysis and decision making. Though daunting at first, developing the capacity for extra analysis and rigour has in the CDF’s case led to better overall performance and portfolio management. Acknowledging our limitations, we carefully built up expertise, processes, policies and networks with other foundations that have made our organization stronger overall. We also worked together with other foundations to share due diligence and brought in new resources to fill the gaps in our capacity. We are proof that a young foundation can rapidly develop expertise in this area and invite other foundations to embrace the challenges, and benefits, of being more “hands-on” with their portfolio.
Impact itself should be simple and not laden down with complexity, vagueness or defined externally by “experts.” Impact must be measurable but more importantly it should be fundamentally linked to an investment’s core revenue generating activities. Specifically, the CDF seeks what we call an “Integrity of Return” from its impact investments wherein the investment’s core business is directly linked to the desired social/environmental impact. For example, if our desired impact is to enable the low-carbon economy, an investment in Solar Energy has a clear integrity of return since every kilowatt hour of revenue is also a kilowatt hour of clean energy that can be used as an impact metric. This is entirely different from, for example, an oil producer seeking an investment into a new facility that is more fuel efficient. Both arguably reduce carbon emissions but in only one case is the core business built on this reduction. As the (solar energy) business grows so too will the impact, so an Integrity of Return also ensures impact reporting is cost-effective and simple. This principle also helps the Foundation avoid impact “greenwashing.” The CDF also expects impact investments to perform well financially, since the Foundation believes businesses which benefit the community and/or the environment have laid the groundwork for their own lasting success.
The CDF’s growing impact investment portfolio is generating steady and predictable returns in the five to seven percent range. More importantly these revenues are emanating from real and purposeful enterprises, delivering demonstrably important socially and environmentally beneficial products and services. The stable returns also offer some inoculation from the seemingly inevitable volatility associated with the traditional investment markets.
The CDF has made considerable progress to date to reaching our own internal goals and has been an active, important contributor to the overall impact investment discourse in Canada. We are proud to have helped co-create new investment instruments with the government of Canada, and to have played a leading role in the Canadian divestment campaign. But we also feel this is just the beginning. Impact investment has the potential to transform capitalism and turn one of our greatest resources into a force for solving problems rather than creating them. We intend to pursue this potential by learning and sharing with other groups (especially foundations) interested in wielding their capital for impact. Ultimately, we would like to see all foundations in Canada set and reach the goal of investing at least 10% of their capital in impact-related investments by 2020, as recommended by the Canadian Task Force on Social Finance.
We are also relentlessly seeking to enhance our impact investment capabilities by bringing on new talent, developing new tools, participating in training and conferences and in general structuring this as an ongoing need rather than a static goal. The future state we are driving towards internally is to have 10% of our assets deployed in impact investments by 2020, and to seamlessly integrate impact investments with our granting and program-related goals. The CDF believes the integration of investment and granting/programming has enormous potential but it is to a large extent unexplored territory. If both granting and investment could be coordinated around a single opportunity or effort, the potential exists to simultaneously strengthen the investment’s performance while also providing projects or programs with additional capital resources. The CDF will be exploring this complex potential over the next several years and hopes to lead by example with substance and sincerity.