Stronger Foundations blog: Total Impact — aligning programmes and investments on purpose

20 November 2019

ACF’s Stronger Foundations initiative aims to open challenging discussions about foundation practice and identify what it means to be a ‘stronger’ foundation. As part of the project, we will be publishing a series of provocations from members offering their personal views on the initiative’s themes.

This contribution comes from Chris Coghlan, a member of the working group looking at intentional investing. Share your thoughts on Twitter using #StrongerFoundations.

Access is a foundation supporting social investment, with a mission to bridge the gap that lies between capital and the charities and enterprises that need it. As well as doing this through our programmes, we pursue the same mission through our endowment. We wanted to share some of the lessons we have been learning in the hope that other foundations and philanthropists might adapt them to their contexts.

Back in 2014, conventional wisdom was to separate the returns from investments and the impact of what these returns where used for. In contrast, the civil servants working on the designs for Access explicitly wanted Access to achieve maximum benefit through its endowment and programmes together — “Total Impact”. They drew on the good practice of other foundations practising impact investing, like Panahpur, in the UK, and KL Felicitas Foundation and F.B. Heron, in the US. The challenge passed to Access was paraphrased by one of the team as: “how do you use capital to achieve social impact, not just the income thrown off by the capital?”

The importance of having people in the room from both social impact and finance backgrounds is hard to overstate. Besides staff, our non-executive board brought unusual experience of working at the intersection of finance and social impact, as well as a lot of enthusiasm and energy to strive for best practice. This working group became an Endowment Investment Committee. The Committee has engaged with the tricky questions of making sure, on the one hand, that money was available for programmes at the right time — a major constraint for Access, given its spend-down model and 10-year fixed life — and on the other how to choose investments for impact. The team represented these dimensions in one place, by drawing a bullseye: 

One member of the Investment Committee observed that, “Lots of people start with ‘I can’t get everything in the middle, so I won’t bother trying.’ [The bullseye means that] You can still have some success even without getting everything in the middle.” At the time of writing, Access has almost 45% of its endowment invested in the centre of the bullseye, tier 1 across sectors from social housing to health, although it has taken time and iteration to get here. Performance so far, at 2.67% time weighted return per year to September 2019, has outperformed our benchmark corporate bond index (IBOXX £ Non-Gilts 1-5 Duration) and enabled us to both have good financial performance and social impact.

To get here, though, we needed an asset manager. The choice proved limited. Amongst a few more progressive organisations, there were many for whom this was not a priority or were even negative to the point of saying it wasn’t possible. It felt – and still largely feels — like impact teams in the asset management world are intrapreneurs themselves who need the backing of their clients. Rathbones won out as the best choice in mid-2016 and the Investment Committee had the skills to work with and manage them from a position of mutual respect.

There have been two main challenges. One was the collapse of Our Power, a not for profit energy supplier offering lower cost energy, which caused us to write-off our £466k investment and reduced financial performance. The second challenge was the increasing pace of programme spending, which has risen from the estimated £6.6m to £8m per annum in this middle phase of Access’s life. Although less income may be generated by the endowment, and less impact through its alignment with the bullseye, this is the kind of scenario that Total Impact can help with. It bridges the binary of impact through investments or programmes, looking at the good that both can do in pursuit of mission.

Adopting a Total Impact approach is of course dependent on whether there is an investable market specific to the activities of an individual charity. Equally, if everyone moved all of their portfolio to the outer ring [of the bullseye], that would have a huge impact on investment managers and therefore on underlying businesses. The mission and investment choices will be different, but the principles can be similar. And the choice of investments might be greater for foundations that are not looking to spend down their endowment. We could see a stronger, hopefully more collaborative, market for impact investments and asset managers. Access is also part of a coalition of organisations currently calling for a change in charity law and guidance about investing for impact.

Our hope it to see a new normal where impact and investment are integrated as a matter of course across the portfolio and programmes. At Access, we recognise we are on a journey ourselves and have much to learn. If you’d like to be a part of it, or just want to ask questions or share thoughts, please feel free to get in touch.

If you'd like to find out more, you can do get in touch at [email protected] or read about Access' Total Impact journey on our blog.

Chris Coghlan
Director of Finance and Operations, Access

Views in this series are the personal views of the author, and do not necessarily reflect the views of the working group, ACF, or its wider membership. More information about Stronger Foundations can be found here.