Nuts and Bolts: Re-imagining an Investment Policy Statement

Heron updated its investment policy statement to articulate how we plan to align social and financial performance into a single investment strategy.

This year, we spent months revising our investment policy statement so that it aligned more closely with the foundation’s strategy to put 100 percent of its assets toward mission. Before approval this summer, the statement went through extensive revisions in response to feedback from both internal and external reviewers and editors.

Below is an excerpt from the preface of Heron’s IPS:

The F.B. Heron Foundation (“Heron”) exists solely to serve a public purpose—in our case, making investments that further the ability of people and communities to move out of poverty and thrive. This purpose guides not only our grantmaking, but the use of all of our resources, including investment capital, so that we use them fully to contribute to the reduction of poverty, the widening of opportunity, and the improvement in material and social well-being for disadvantaged people and communities. The Heron investment policy thus reflects our intent to balance the social and financial return on all assets, and to select opportunities for deploying capital, whether as grants or as investments, so as to maximize the combination of both kinds of return within each.

You can read the latest IPS here.

In some respects, this investment policy document is similar to those of other foundations. It sets forth guidelines agreed to by staff and board to be followed in our investing activities, and it describes the philosophy, risk appetite, performance objectives, metrics, benchmarks, and similar guidelines typically covered in other such statements. It notes the typical asset classes a foundation of our size invests in, such as debt, private equity, and public equity, and it sets financial performance expectations, to be measured against industry benchmarks.

However, unlike most other investment policies, this document makes extensive use of such concepts as “mission return,” “social performance,” and “mission” or “social” risk. In this respect, our approach entails a broader reckoning of risk and return than a traditional investment policy. For Heron, return is measured both in financial terms and by the degree to which any given use of capital leads to outcomes that are consistent with our philanthropic mission and public purpose. In this policy statement, “risk” refers to the probability of non-performance on both social and financial dimensions, and on the interaction between the two. Our view is that poor financial performance impairs an enterprise’s ability to provide mission returns—in Heron’s case, via reliable employment, income, and opportunity for people we serve. Similarly, poor performance on broad societal dimensions translates into impaired enterprise value and higher risk over time, including impairment of Heron’s expected return as an investor. Both are material to Heron’s investment management and to our public purpose.

We intend, for the purpose of managing our investments, that these concepts of social risk, performance and return acquire simpler and more reliable definitions and metrics over time—measuring the degree to which a given investment contributes to Heron priorities and quantifying the risk that a given investment may fail to reach its social targets or, worse, do unintended harm. The resulting measures will be applied to calculations of risk and return in the same way, and with comparable emphasis, as financial data. We acknowledge, at the time this policy takes effect, that this process of social metrics definition is at a stage of rapid and uneven development and will require further expansion and refinement. To improve the precision and usefulness of these measurements, we expect to invest in their continued development, and to benefit from both our own experience in implementing this policy and from the expertise of advisers and partners who help us carry it out. Read the rest here.

Learn along with us as we build a new practice around investment in social impact.

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