Inspirit Foundation’s 100% impact portfolio outperforms benchmark over 10-year period

A ten-year review of Inspirit Foundation’s transition to a 100 per cent impact investment portfolio shows its investments outperformed those of a traditional portfolio, used as a benchmark. 

The Foundation committed to making the shift in 2016, successfully reaching the milestone in 2022. According to their analysis, a $10,000 investment in Inspirit’s portfolio in 2016 would result in a return of $20,876, while a traditional benchmark portfolio would return $20,731. 

Although a marginal difference, the ten-year view suggests there may not need to be a trade-off between impact investments and financial returns, said a report released by the foundation on Jun. 10. 

Jory Cohen, the Inspirit Foundation’s former director of finance and impact investment, led the transition from a traditional to an impact portfolio. What he also found was that the impact portfolio was at times much more volatile than a traditional portfolio would be – “at times 7% more and 5% less than conventional benchmarks in a given year,” he wrote in the report. 

“The swings were big,” Cohen said in a follow-up interview. “The highs were high, and the lows were low. The highs were higher than I anticipated, and the lows were lower than initially expected.” 

One of the largest drops was in 2022, following the pandemic. However, in 2018, when the traditional benchmark portfolio would have returned a loss, Inspirit’s portfolio would have had positive financial performance.

Inspirit therefore found that “success depended on the Board maintaining discipline amid short-term extremes, rather than chasing traditional benchmark stability.”

Inspirit currently holds $33 million in active impact investments, having been the first investor on several projects at various points in the last decade, and incentivizing the creation of new, impact-focused investment products, said Cohen and CEO Sadia Zaman. 

The McConnell Foundation, with an endowment of $655 million, has also committed to becoming 100 per cent impact-invested by 2028. At the end of last year, 45 per cent of McConnell’s endowment by market value was in impact investments.  

Several other Canadian foundations have committed to ensuring a portion of their endowments are invested in impact: nearly a quarter of the Hamilton Community Foundation’s assets are invested in impact; the Catherine Donnelly Foundation and Waterloo Community Foundation have committed 10 per cent of their respective assets to impact; and the Oakville Community Foundation will invest 3 per cent of its endowment into a separate impact investment pool. 

Both Cohen and Zaman said they have seen a huge appetite from Canadian foundations to explore impact investing further. 

However, lack of capacity, lack of expertise, perceptions of risk and returns and other organizational challenges might hamper progress, Cohen said, adding that all of those factors are surmountable.

Why an investment ethos matters 

Both Inspirit’s portfolio and the traditional benchmark it is compared against have reduced their carbon emissions over the last ten years, but the former has done so significantly more. Both portfolios increased their ESG (environmental, social, and governance) scores, with Inspirit’s increase slightly higher than the traditional portfolio’s. 

When Inspirit Foundation first made its commitment to 100 per cent impact in 2016, the organization wrote that “institutional investors don’t always know the specific holdings they’ve invested in or the impact these investments have in the world. However, as foundations with mission-driven mandates, we ought to know.”

Inspirit therefore decided to align its investments with four pillars, they said: increasing livelihoods, supporting climate change solutions, building community infrastructure, and increasing access to arts and culture.

“Our expectation,” they wrote in 2016, “based on historical and simulated data, is that companies focused on industries that provide solutions to our world’s most pressing problems will be better positioned for long-term financial success than companies that have neutral or negative effects.”

Innovative financial instruments 

Inspirit’s portfolio spans both private and public markets, and in many instances, the foundation has been the first investor on a particular fund. In 2021, Inspirit was the first investor in the Raven Indigenous Impact Fund. 

“You have to push the investment sector,” Zaman said. “When products didn’t exist, we had to push for them to be created.”  

In 2022, when the foundation officially reached its 100 per cent impact portfolio goal, it also moved its bank account to a credit union “to leverage deposits for affordable housing, clean energy projects and social enterprises.”

Among Inspirit’s investments were community bonds, loan pools and 0 per cent interest loans. Cohen called community bonds a “wonderful opportunity” to support organizations, adding that they are often comparable from a returns perspective to fixed income public markets. Sometimes, he added, they even outperform traditional investments. 

Windmill Microlending, a national charity providing loans to newcomers, offers a community bond program with a minimum investment of $250,000. Inspirit Foundation was its first investor.

On the other hand, the interest-free loans “intentionally earn less than market-rate returns to support projects closely aligned with our organizational vision.” Thus far, the interest-free loans have supported a fund for early-stage Black-owned businesses, a loan pool for newcomers and refugees based on Islamic Finance principles, a land trust dedicated to arts and culture, and an Indigenous venture fund in the Northwest Territories, the Yukon and Nunavut.   

Board commitment matters

When the commitment to move to a fully impact-invested portfolio was made in 2016, the then Board of Directors of the Inspirit Foundation “did not accept the pre-destined return trade-off myth,” the foundation wrote in its retrospective report. 

“A crucial component of our Investment Policy Statement is the explicit definition of our fiduciary duty. The Board believed that the interpretation of fiduciary duty as maximizing profits at all costs was short-sighted, out of touch and unproductive.”

The success of Inspirit Foundation’s shift to impact investing relies on a shared commitment from the Board of Directors to the mission, especially as boards come and go, Zaman said. 

While Zaman hears of lots of interest from CEOs and leadership at various Canadian foundations in shifting to impact investing, she also said she hears it can get stuck at the board level. 

The tension, she said, is the feeling among boards that “the fiduciary duty is to make as much money as you can with your investments” compared  to how much money needs to be made.