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As a consultant focused on participatory grantmaking, I have been thrilled to see growing interest in community-led grantmaking practices. At the same time, I have been disheartened to see common misconceptions spread throughout the sector, such as that participatory grantmaking is new or unproven. I’ve also seen philanthropists dismiss participatory grantmaking as a passing fad.

What we take as ‘normal’ in modern philanthropy is based on the fundamental, and frankly patronizing, assumption that the wealthy are best suited to distribute grants.

Perhaps we should instead call modern philanthropy new and unproven. Modern philanthropy in the US emerged in the early 20th century and was developed primarily by the robber barons of the time. It is difficult to prove that modern philanthropy has done much good. To the contrary, it has siphoned over $1 trillion into private control, the majority of which remains in the market and is never distributed to the benefit of communities.

What we take as “normal” in modern philanthropy is based on the fundamental, and frankly patronizing, assumption that the wealthy are best suited to distribute grants—a notion that turns a blind eye to the fact that this practice gives those who extract (or have even stolen) community wealth the power to choose how to distribute this wealth.

Participatory grantmaking, on the other hand, is based on movement frameworks that have been around for centuries—and has roots in community distribution models that have been practiced for millennia. Even in today’s formal philanthropic sector, it has a considerable track record.

In collaboration with a national foundation, I recently had the opportunity to research some of the most longstanding community-led funds in the nation and to learn from them about what it takes to embed effective participatory grantmaking in philanthropic institutions and create authentic community engagement. Inspired by a recent Groundswell “Open Letter to Philanthropy, from People of Color-led, Movement Accountable, Public Foundations,” the foundation selected 10 community-led organizations that have been engaged in different forms of participatory grantmaking, some for over 40 years.

• Appalachian Community Fund
• Borealis Philanthropy
• Emergent Fund
• Hawai’i People’s Fund
• Haymarket People’s Fund
• Liberated Capital, a fund of the Decolonizing Wealth Project
• Liberty Hill Foundation
• North Star Fund
• Potlatch Fund
• Southern Partners Fund

All the organizations I spoke with received grant funding to honor the time they spent discussing their work. I encourage anyone reaching out to these groups to learn from them to offer appropriate payment as well.

What It Takes

There is no single formula for “how to” do participatory grantmaking. As noted above, the practice is rooted in traditions that go back millennia. Nonetheless, in the interviews, some key values-aligned practices emerged that groups are using to bring those gifting traditions back into philanthropy:

Provide flexible funding: Seven of the 10 organizations interviewed indicated that they provide primarily flexible funding, including general operating grants, rapid response grants, grassroots grantmaking, grants to smaller and newer organizations, grants to individuals, mutual aid funding, and funding to non-501c3s. Many also named other forms of flexibility, such as taking proposals and reports verbally, by Zoom or phone, filling out proposals on behalf of their grantees, making sure the grant process is not extractive to grantees, and not requiring reporting.

Build trust-based relationships: Eight of the 10 organizations interviewed identified having trusted relationships in the communities they serve and utilizing trust-based processes. Many groups highlighted the importance of working with outside facilitators to support their work, hiring staff from the communities they serve, and leveraging existing relationships with grassroots and community-based leaders and organizations to quickly move funds, recruit for boards or committees, and develop trusting relationships. Four groups talked about the importance of dedicating both staff and time to relationship building. While a few groups mentioned the need to heed conflicts of interest given interwoven relationships in the work, this wasn’t a barrier; all 10 groups were able to navigate understanding when someone is allowed to advocate on behalf of a project or needs to recuse themselves.

Ensure feedback and iteration: Every organization identified feedback and iteration as core principles. They shared adaptations they’ve made based on participants’ feedback. Three groups talked about how organizing trends change over time and how critical it is to adapt their processes alongside changing movement needs. A few groups mentioned how the iteration process can inadvertently shift practices back towards traditional philanthropic processes depending on who is being listened to or based on pressure from certain stakeholders. Everyone said that the work entails constantly paying attention to and unpacking power dynamics at play in participatory processes.

Mind the gap: Another theme was the challenge around creating representative organizations and the need to be on the lookout for areas that grantmaking inadvertently leaves out. At least six organizations talked about the importance of creating a group that is representative of the community being served. Groups with a regional focus emphasized the importance of having a representative from each state or region served, while acknowledging that perfect representation is not possible. They also shared that identifying what issues were not showing up in grant requests helped them identify who was missing from their participatory grantmaking constellation. Other groups named how they might, for example, have great BIPOC representation in their programs but noticed a lack of youth and people with disabilities. By looking at the gaps in their networks, they could engage people from different backgrounds and geographies, increasing inclusion and widening their networks. Additionally, many groups were encouraged to invite staff members other than the executive director or CEO to participate in the grantmaking process, both to expand the variety of people engaged and create more leadership opportunities.

Participatory grantmaking requires an equity lens

Be introspective: Many of the groups interrogated their own role as funders and their responsibility to the communities they serve. For example, one group felt it was their responsibility to return resources to communities that have been historically displaced and oppressed and endured legacies of genocide and slavery. Others spoke about their role in helping to heal and build relationships with communities, especially where the philanthropic community has done harm. Others shared that they have taken on as much administrative work as possible, from collecting data to drafting proposals on behalf of grantees, to make the grant process as non-extractive as possible for those seeking funding.

Embed equity: All the groups interviewed emphasized the need to explicitly embed anti-racism, equity, and lived experience into their entire organization; half had done so from their founding. A handful of groups started by embedding anti-racism and equity in their grant programs and found that the process raised questions about leadership and governance throughout the organization. Realizing this work couldn’t be done only in grantmaking programs, the organizations became more holistically community-led at every level. Unfortunately, at least two groups lost funding after being more explicit about their anti-racist values, demonstrating how deeply embedded racist beliefs remain in philanthropy. Ultimately, the lesson is that participatory grantmaking requires an equity lens. It is not enough to ask for volunteer proposal reviewers and expect to get a diverse set of voices. Practitioners need to ensure that participants have lived experience of the issues the funder is looking to address—and make grantmaking spaces accessible and safe as well.

Invest in education: Six groups said education was needed in their organizations and grant review committees, for funders/donors, and in wider communities to understand anti-racism and equity in the wider political context. Two groups mentioned working with the Giving Project Model, which offers political and donor education across race and class to create locally accountable, community-led democratic grantmaking.

Best Practices  

When it comes to the nuts and bolts of establishing a participatory grantmaking program, some best practices and trends were evident, including:

Ensure accessibility and compensation: Almost every group mentioned making sure that participants’ needs are met. This means not just providing monetary compensation, but removing barriers to participation, such as by offering childcare, improving accessibility related to disabilities, or paying attention to how people take in information—whether by video, text, or other means. It is also important to be clear from the outset about expectations of participants and how much of their time a process will take. Some groups shared that if a process was asking too much of participants’ time and/or energy, they knew they needed to pivot. Ultimately, recognizing that participants’ wisdom is a resource needed by funders, it is best practice to compensate people for their time.

Removing donors from decision-making: From a governance perspective, most groups had moved away from donor “seats” on their committees. This enables committees to avoid problematic power dynamics and ensures that grantmaking decision is in the hands of those with lived experience of the issues being funded. Three groups stated that they use consensus-based decision making. Nearly all the groups placed final grantmaking authority in their grant committees. Those organizations whose boards sign off on grants made it explicit that the board cannot weigh in on final decisions. Worth noting is that most of the groups have community boards, so the power dynamic is not necessarily the same as in a private or family foundation.

Utilize peer nominations: At least four groups utilized peer nominations to identify grantees and committee members. Inviting grantees to nominate their peers can help upend the scarcity mentality that modern philanthropy encourages while building trust and community. In addition, trust-based nomination processes help other funders connect with people left out of standard philanthropic networks.

The Future

Throughout my conversations, two themes emerged again and again that offer context for how participatory grantmaking is evolving and where the learning edges are. One is further deconstruction of modern grantmaking practices. The other is participatory grantmaking as a tool for healing.

Funders looking to be more participatory will often invite community members and movement leaders to review proposals and make decisions about grants, either with or without the donors. This practice changes who decides, but often fails to change      how decisions are made. As a result, many assumptions that exist in modern philanthropy, such as the need for objectivity, due diligence, and the notion of scarce resources, are perpetuated. Many groups spoke out about how these practices replicate white supremacy culture and entrenched power structures. Participatory grantmaking advocates desire to change more than just who reviews proposals.

[Community] leaders are saying, quite simply, that if you want us to be involved, you need to be open to changing the processes as well as the people.

A common criticism of participatory grantmaking is the time it requires of participants, especially when participants are asked to work without compensation. Many people who are asked to sit on committees are doing movement work and don’t have time for long, involved processes created by funders. Four groups I spoke to changed their process to avoid making participants sit in judgment of their peers in an already fragile space. They said that such processes risked reinforcing the scarcity and competitive mindset brought by funders and don’t represent the participants’ world views.

In the past few years, I’ve heard funders reiterate criticisms like those mentioned above out of context, using such critiques to suggest that participatory grantmaking doesn’t work and to argue for maintaining the status quo. But this misstates the critiques that community leaders are making. These leaders are saying, quite simply, that if you want us to be involved, you need to be open to changing the processes as well as the people.

What are the alternatives? One group chose to fund all grant recipients at the same amount. A second offered two tiers; applicants received a larger or a smaller grant. A third group used a first-come-first-served model with pots of money for each region and focus area. This group found that operating from a trust-based approach, with limited due diligence, best reflected their Indigenous worldview of how gifts flow in an interwoven community. This approach also helped them build stronger relationships with a wider group of people in their community and hence better meet community needs.

The last theme worth emphasizing—and perhaps one of the most striking themes to emerge—was the notion of the need to heal money trauma. This includes both trauma experienced by individuals who are asked to participate in grantmaking, as well as trauma experienced by organizations that have been subjected to the vicissitudes of philanthropic fad and fashion. The community-led intermediaries interviewed noted the common nature of this problem for the groups that they support. Seven of the 10 organizations interviewed specifically noted the harm philanthropy has done to communities, impeding the building of trusting, authentic relationships.

Many groups shared that when moving down the participatory path, they were told that community organizers did not have the knowledge to make decisions about large sums of money. Others described the distrust they experience from the philanthropic sector—being required to provide extensive paperwork, including audit letters, financials, long narratives, and lists of board members to prove trustworthiness. Most indicated that they felt depleted by such grant processes.

As practitioners of participatory processes, many groups emphasized that a central aspect of the work is to create safe spaces for participants and facilitate conversations about money through a liberation lens. A few groups also named the importance of bringing a decolonizing mindset to how we think about raising and giving away money.

A few spoke specifically about how the community partners they support often navigate collective trauma—and need space to care for each other. When they asked how they could be of most service to their communities, these intermediaries were asked to use their influence to bring issues of trauma that community groups face to funders and the larger field of philanthropy. One response to such requests was the creation of Liberated Capital, a fund of the Decolonizing Wealth Project, which offers healing programs grounded in an Indigenous worldview. Ultimately, participatory grantmaking can, if structured well, be a space for healing, both for communities and for donors seeking to support a culture of repair.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Click here to download accompanying slides.

What does the struggle for Black food sovereignty look like at the local level? In this webinar conversation, five Black food justice leaders share their experiences—highlighting the many interconnections between food sovereignty, racial and economic justice, health justice, climate justice, and community building.

All five panelists were all article authors of NPQ’s fall 2022 series on Black Food Sovereignty: Stories from the Field. On this panel, the authors expand on their arguments and engage with each other.

The five webinar panelists are:

• Pastor Keith Davis, President and CEO of the Camden Dream Center Technology Training School in Camden, New Jersey.
• Demetrius Hunter, founder, owner, and operator of Black Farmers Hub operating in Raleigh, North Carolina, and also in nearby Warren County.
• Julian Miller, founding Executive Director of the Reuben V. Anderson Center for Justice at Tougaloo College in Mississippi.
• LeeAnn Morrissette, Communications and Culture Director of the National Black Food & Justice Alliance.
• Brielle Wright, board member of Black Farmers Market, which operates in the cities of Raleigh and Durham in North Carolina.

Among the many topics covered in a wide-ranging, 90-minute conversation among the panelists, are the following:

• How has the movement for Black food sovereignty developed over time? What are some leading movement priorities in the current moment?
• How can a network of farmer co-ops develop to support Black food sovereignty in the Deep South?
• How is today’s movement connected to previous generations of Black farmers?
• How do Black farmers markets not only provide markets for Black farmers to sell food, but change mindsets and contribute to liberation?
• How can urban agriculture not only promote healthy food but further community agency and economic self-sufficiency?
• How does Black food sovereignty advance sustainability?
• How can partnerships expand the reach of Black food sovereignty work?
• What is the role of education and policy advocacy in Black food sovereignty work?
• What steps can nonprofits and philanthropy take to support the movement for Black food sovereignty?

Resources 

Akeem Cheek and Brielle Wright, “A Growing Movement for Black Food Sovereignty,” NPQ, December 7, 2022.

Pastor Keith Davis, “From Food Pantry to Urban Farming: Food Justice Lessons from Camden,” NPQ, December 8, 2022.

Steve Dubb, Malik Yakini, Darnell Adams, and Dr. Jasmine Ratliff, Remaking the Economy: Organizing for Black Food Sovereignty, February 14, 2022.

Demetrius Hunter, “Honoring Our Ancestors and Restoring Black Land: A Black Farmers Hub Story,” NPQ, December 14, 2022.

Julian D. Miller and LeBroderick A. Woods, “Black Co-op Farms: Building a Worker Strategy in Mississippi,” NPQ, December 15, 2022.

LeeAnn C. Morrissette, “Towards Thriving: Building a Movement for Black Food Sovereignty,” NPQ, November 30, 2022.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

The cultural sector is seeking alternatives to business-as-usual. This article is the second in the series, “Remember the Future: Culture and Systems Change,” co-produced by Art.coop and NPQ. In this series, queer, trans, and BIPOC artists and cultural bearers reflect upon the unique role that culture has played and can play in activating and enacting structural change—and in building a solidarity economy.

March 13, 2020. As the pandemic spreads, the world is poised on the brink of unforeseeable transformations. Hope is nested in fear, like a Russian tea doll. Facing this new unknown, we ask ourselves: How do we keep going?

In the Zoomiverse, we struggle. We cry. We make joy. We innovate and experiment in hopes of birthing a vision of the world that we know we need, now.

A Speculative Fiction Vision of a Solidarity Economy: Other Orbits

Founded in West Philadelphia in 2009, Applied Mechanics is a multiracial, multinational collective of queer and genderqueer (nonbinary) theater artists. All collective members share in the labor of running a company with space for open and vulnerable communication. Members operate by consensus and healthy debate. We practice participatory budgeting. Each play that we create endeavors to use different tools to build a new house and question what a house even is.

The values of radical participatory democracy have informed our sprawling sci-fi art project, Other Orbits. Our collective was in the midst of creating this project when COVID hit our shores. In response, we adapted Other Orbits into a multimodal serial performance piece to overcome new barriers of lockdowns and social distancing. The play is about a world of wildly different beings, gods, and mutants—trying to live together in harmony on a foreign planet amidst great change and turmoil.

Other Orbits unfolded over the course of eight episodes, each in a different medium—ranging from radio to a tabletop role-playing game to a short film. Together, the episodes tell an epic story of ecological reckoning, radical systems of self-governance, and conflict resolution. The project released its first episode in spring 2021 and will culminate in a live performance in the spring of 2023.

At the heart of Other Orbits is each creator’s belief in a world after capitalist colonial apocalypse. Each of us has written a beyond-human character to excavate our personal journey toward that next world. The characters are placed on an imaginary planet, where they play-test the systems that might be birthed from creators’ values and beliefs. The world that emerges is governed by a fully representative democratic council, where every being, no matter how great or small, has a voice and the power to enact change. In Other Orbits, the very planet itself is a person, has a voice, and is represented on the council, which to us seems a no-brainer. On Earth, parallel actions would look like centering global Indigenous leadership and giving land back—to start.

None of these ideas are new. Consciously and unconsciously, we have absorbed, reencountered, and practiced democratic systems of self-determination that are traditional to, and still alive in, many global Indigenous, Black, Brown, and queer spaces today. Our collective cannot help but reflect them in our art.

Our collective is by no means perfect. We acknowledge our failures—and resolve to learn from them, eager to rebuild and unlearn old habits. For us, the answers to addressing these imperfections lie not just in belief, but in how belief is enacted, or the process of enacting. In that, we develop a microcosm of the world in which we wish to live.

Other Orbits is an offering of the vision of that world—a place to practice radical participatory democracy through art while envisioning survival in and beyond the pandemic, climate change, and colonial capitalist apocalypse. In Other Orbits, debates and decisions are celebrated with song. Characters engage in communal dance to heal from ancestral trauma and toxic legacies. They sink their teeth/tusks/hyphae/codes into the principled struggle of moving through conflict in the name of co-evolution and mutual aid, and they become something new, together.

As humans running a theater company, Applied Mechanics endeavors to do similar work, albeit with less dancing and teeth sinking and more Zoom meetings and heartfelt gatherings where we connect over food and play. Nonetheless, perhaps the next world will not be so different from the one our collective and collaborators have imagined through Other Orbits.

Building a Solidarity Economy through Art

Another term for the systems we practice as a company and have represented through our art is solidarity economy. We at Applied Mechanics didn’t know we were moving and dreaming into solidarity economy until recent connections reflected this back to us.

The idea of a solidarity economy resonates with our vision of liberation. Like many artists, our collective members face tensions between our dreams and economic pressures. To pay the bills, we are fiscally sponsored by Headlong Dance Theater, a Philadelphia nonprofit with an aligned mission, and Fractured Atlas, a New York City nonprofit that supports artists nationally. In Practicing Cooperation: Mutual Aid Beyond Capitalism, published last year, Andrew Zitcer of Drexel University documents the tensions between ideals and monetary pressures at Headlong, but emphasizes too the “urban possibility of creative democracy” (203) that is core to Headlong—and to us.

Writing two years ago in NPQ, Natalia Linares and Caroline Woolard noted that artists, by owning common resources, such as community land trust housing that employs solidarity economy principles, can radically reduce housing costs—freeing up time for creative pursuits. As Linares and Woolard observed, “It’s clear that artists need a solidarity economy if we are to overcome our status as exploited workers. Likewise, the solidarity economy movement needs artists if it is to prevail.”

Our collective welcomes this opportunity to deepen intention. Our work is never finished. We celebrate that. We are always learning, using our hearts as our compass, our truth as swords. (Thank you, Assata Shakur). To center our value of mutual thriving for all, we must believe that “No one is free until we are all free” (Thank you, Fannie Lou Hamer). Our group’s intention, while remaining flexible and humble, is to keep moving the needle of change towards collective liberation in the imaginations of our audiences. However small that movement may be, its ripples are cosmic; it is enough, and it never stops.

This struggle towards the next world is a work of art, one in which it is important to remain brave and vulnerable. At every step on the journey to creating this new world, there is compost—critical to building soil. Every offering—kindness, presence, art, patience—is valuable. There is no such thing as wrong or unfinished.

Each mistake—erasure, self-criticism, tension—is an opportunity to grow closer to each other and our highest selves. Every creation is a seed. The process is the soil. The sun and rain are our joy and conflict. They are inextricable from each other and equally indispensable.

Artists—and we are all artists—are microorganisms that nurture seeds. Whatever is harvested will be honored, and every hand that was a part of it thanked, including the Earth from which the harvest was born. This is how we find our way, together.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

Have you reviewed your balance sheet lately?

Many in the nonprofit sector look at their income statements (also known as the “profit and loss” report), but unless you’re a chief financial officer or perform a similar role, you may spend far less time looking at your organization’s overall financial position.

Yet, hidden in those balance sheets, more often than you may think, are cash and other investable assets. These assets help nonprofits deliver on their missions by generating income. Developing a sound approach to managing these assets is part of the fiduciary responsibility of nonprofit boards. Often, investments are viewed separately from the programmatic work a nonprofit does. But should they be?

Often, investments are viewed separately from the programmatic work a nonprofit does. But should they be?

Traditionalists have argued that if an investment portfolio is aligned with mission, poor performance follows, sacrificing income that could be spent on operations and programs. However, along with academic and industry research to the contrary, this line of thinking ignores the fact that you may be undermining your mission through your investments.

A salient example is of organizations that are focused on community development but invest in mass incarceration. Thanks to prison privatization, corporations, many of whom, like CoreCivic, are publicly listed companies, have a perverse incentive to boost their stock prices and keep prisons full by lobbying for policies like harsher policing, longer sentencing, and incarceration for non-violent crimes. If organizations that, say, are campaigning for cash bail invest in corporations (perhaps through a major institutional investment intermediary like BlackRock) that profit from incarceration, how does that benefit their work, even if the financial returns are good?

To date, discussion on mission-aligned investing has largely focused on wealthy foundations and endowed institutions, but over half of all charitable organizations have total assets of less than $1 million. Together, these smaller nonprofits have an estimated $22.1 billion in cash and cash equivalents (that is, assets that can be easily sold and converted into cash) and other investments. As asset owners, all nonprofits—along with institutional investors and foundations—need to address social and environmental issues through balance sheet activism—doing so is critical to meeting both business and mission objectives.

Getting Started

Every nonprofit board should understand the importance of liquid assets like cash in carrying out their mission—no amount of investment will serve an organization if investments are tied up in a way that prevents the organization from having cash at the ready when needed. Liquidity policies help organizations understand the resources needed to carry out ongoing operating activities, but even liquid assets can be managed with an eye towards mission. Is your checking account at a local credit union or a bank that may invest in corporations you are campaigning against?

For example, the Oregon State University’s Liquidity Management Policy recognizes that “optimal liquidity management will align financial decisions with the university’s mission.” It asks questions like “does the action align with the university’s mission?” and “are resources sufficient and flexible enough to support the mission?” Establishing a liquidity policy lets nonprofits know when there is excess cash that can be used to support shifting a portion of their assets into long-term investments that are more strongly aligned with their missions, while generating additional income that can be reinvested into operating activities.

Setting A Policy

The same rigor nonprofits use to fulfill their missions can be applied to investments through an investment policy statement. Creating an IPS may sound like a heavy lift, but an IPS is simply a board-approved document that outlines policies to determine how assets are invested and who is accountable for investment-related activities, while ensuring compliance with fiduciary duty.

Key IPS components may include scope and purpose, governance, investment asset classes, return and risk objectives, investment benchmarking, and risk management. Creating an IPS may be as simple as codifying existing investment policies and procedures or engaging investment professionals and legal counsel to assist with development. Many templates and guidelines are publicly available.

Perhaps the easiest first step is to know what you own and why you own it.

To integrate mission into an investment policy, some organizations create a separate Impact Investment Policy that broadly defines impact investment values and strategies. Other organizations integrate impact goals directly into their IPS. This impact investing handbook, developed by Rockefeller Philanthropy Advisors, is one helpful guide.

From Policy to Action

There are countless opportunities for nonprofits to bank with a mission-oriented financial institution.

Developing a policy statement that integrates impact with financial goals is the first step to turning intentions into action. Once a nonprofit understands their investment policy statement, the fun part begins—finding opportunities to invest. Investment solutions exist regardless of an organization’s size or investment policy constraints. Perhaps the easiest first step is to know what you own and why you own it. Understanding existing assets can help to formulate a plan for how to optimize both return and impact, and potentially find easy opportunities to do both.

Below are examples of nonprofit institutions of all sizes leveraging the four most common asset classes—cash, fixed income, public equities, and private investments—to be mission aligned.

• Cash: There are countless opportunities for nonprofits to bank with a mission-oriented financial institution. Comparison sites like Mighty Deposits and BankforGood make it easy to find banks or credit unions that match institutional values. For example, when GirlVentures, an outdoor girl and gender non-conforming education adventure program, moved to Oakland, CA, they looked for a local bank with social responsibility as part of its mission. GirlVentures chose Beneficial State Bank, a state-chartered, federally insured, for-profit bank whose economic rights are majority-owned by the nonprofit, Beneficial State Foundation, which is permanently governed in the public interest. That ownership allows the bank to maintain an innovative banking model that generates benefits for people and the planet while being financially safe and sound.There are many reasons an organization may not be able to move their banking—including relationships with their banker; an existing suite of products and services that work for the organization; or the costs associated with vetting, opening, and transferring accounts. As an alternative to a new banking relationship, some nonprofits with more than $250,000 in cash deposits opt to use cash management platforms. These platforms maximize federal deposit insurance protection across the banking system through a single point of entry by placing cash deposits in multiple CDFIs (community development financial institutions) and MDIs (minority depositary institutions). For example, the Russell Family Foundation uses StoneCastle’s FICA Impact fund for these purposes.
• Fixed Income: Fixed income is an often-overlooked instrument in mission-aligned investing. The most common form of fixed income investments are bonds. These are debt instruments (effectively, large low-interest loans) used by governments, corporations, financial institutions, nonprofits, and other entities to fund programs or operations. In 2021, Enterprise Community Loan Fund revised our Investment Policy Statement, allowing us to invest in bonds of CDFIs, historically Black colleges and universities, and other institutions that meet our investment parameters. The addition of these asset classes to ECLF’s investment policy optimizes the impact of our balance sheet assets to be mission-aligned while still earning market-rate returns.
• Public Equities: Public equities include investments in public companies through shares or stocks. While numerous funds focus on ESG (environmental, social, and governance) factors or thematic equity funds, some mission-aligned investors will use proxy voting to push corporate policy changes. Nonprofits can support these efforts, even if they hold only one share. For example, the Sisters of the Holy Names of Jesus and Mary won a proxy vote in 2018 to require Smith & Wesson to make safer guns and report on gun-related violence and financial and reputational risks.
• Private Investments: Private investments can range across asset classes from private credit, real estate, and natural resources to private equity, infrastructure, or hedge funds. This generally is the purview of larger nonprofits, so it is not for everyone, but used properly it can be a powerful tool. For example, taking advantage of its growing size and liquidity, Local Initiatives Support Corporation carved out a portion of its investable assets towards impact investments, like a $1 million placement in the SustainVC Impact Fund II, a $25 million fund supporting early-stage companies focused on social and environmental impact, and a $500,000 investment in the Fearless Fund, which invests in businesses owned by women of color. Enterprise Community Partners, the parent company of Enterprise Community Loan Fund, made a direct investment in Stake’s Series A, a startup which provides banking services and cash-back rewards for on-time rent payments, a housing strategy that helps families who rent to build wealth.

Selecting an Outside Adviser

Some nonprofits work with investment advisers or an outsourced chief investment officer to bring additional capacity, know-how, and credibility to their mission-aligned investment journey. An investment adviser typically provides analysis or advice, whereas an OCIO refers to the full or partial outsourcing of the investment function to a third party. An OCIO may have discretionary authority to execute investments on a nonprofit’s behalf, using the IPS set by the board as a guide.

For example, when Good Shepherd Food Bank, the largest hunger relief organization in Maine, had investable assets growing in excess of their required liquidity, they hired an investment adviser to align their assets with their mission. To choose an adviser, they convened a committee of staff and board members to issue a request for proposals and interview advisers who would uphold their organizational priorities to fight food insecurity. “In doing so, [they] were able to put [their] donors’ dollars to work through investments that directly supported [their] mission, rather than working against it.”

Alternatively, the Nathan Cumming’s Foundation launched a search for an outsourced chief investment officer to manage its endowment and co-create a mission-aligned investment strategy to enhance its impact, integrate program and investing functions, and meet financial goals. The search was held in two phases and included a public request for proposals.

In either case, the nonprofit’s board should clearly articulate their plan and process for monitoring investments and the work done by third parties on their behalf, which may include producing investment performance reports, benchmarking efforts, or other ongoing analysis. Ongoing monitoring is especially critical when integrating mission into a policy to ensure board members are continuously educated about the financial, social, and environmental impacts of their investment policies and the trade-offs, or lack thereof, entailed in such alignment.

Concluding Thoughts

As you begin engaging your board and stakeholders on ways to align money with mission, here are some initial actions to consider:

1. Start with your why: Articulate why mission-aligned investing matters for your organization. If your mission is based on climate, your “why” could be to mitigate climate risk in your portfolio. If your mission is based in arts and culture, your “why” could be to support new makers or artists. Your why comes from and is in support of your mission. Building out your business case and implementation plan is a key step to getting organizational decisionmakers on board and excited about your investment strategy.
2. Educate your board and investment committee: Your board may manage investments at the board level, or, if you’re at a larger nonprofit, the board may have a separate investment committee structured as a board sub-committee. Investment committee members may come from traditional finance backgrounds and may not understand how or why to integrate impact into portfolio management. Many nonprofits may outsource decision making to an investment adviser or OCIO. Provided financial performance thresholds are met, there is little incentive for advisers or OCIOs to find and propose mission-aligned investments, unless the board’s IPS states that this is a priority or the board’s investment committee actively reviews performance reports.
3. Leverage your peers: Organizations like Confluence Philanthropy, the UN Principles for Responsible Investment, Mission Investors Exchange, and the Intentional Endowments Network, among many others, serve as forums to learn and exchange ideas about beginning a mission-aligned investing journey. Although many are geared towards larger foundation or endowed institutions, their examples and templates can be applied to organizations of all sizes.

In short, maximizing balance sheets for impact creates opportunities for nonprofits to engage with a spectrum of stakeholders—from donors to board members to beneficiaries—and offers new ways to integrate mission work across the organization. As a baseline, nonprofits can ensure that their investments are not counteracting their programmatic work. After that, the potential for further alignment—so that your money works for, rather than against, your mission, even as you earn a financial return—can be an important force multiplier for your work.

This information is for educational purposes only and is not intended to be investment advice. Please consult a financial professional for more information.

This article originally appeared in the Nonprofit Quarterly. See the original article here.

The following is a transcript of the video above, from our November 16, 2022, roundtable, “Building a Movement for the Common Good.”

Ramón Cruz: For Sierra Club, it was very transformative, if you will, when we adopted some years ago, what is called the Jemez principles for democratic organizing as our methodology for organizing. There was often criticism on how environmental organizations would parachute into a place whenever there was any issue and sort of take over the stage and call the shots.

And communities, especially environmental justice organizations, resented that for many years, because of course an organization with the relative size or power within the movement of Sierra Club coming into a community and [to] start calling the shots where these communities may have been working for a long time, there’s not that spiritual experience of mutuality or collaboration or partnership.

So, the Jemez principles for democratic organizing is something that came up at a meeting by the Southwest Network for Environmental and Economic Justice in the 90s—it basically developed this. It has very simple principles of being inclusive, an emphasis on bottom-up organizing, and letting people speak for themselves—working together in solidarity, and mutuality, and true partnership.

And then, in order to do that, you have to build just relationships. And there’s a commitment also on self-transformation. So, as we change society, we’re changing, transforming everything. And so, this is very important because, again, communities resent it when you come up, and it’s a top-to-bottom approach. And the labor movement has often done that as well in the past.

And so that’s why it’s important to have these methodologies as a guideline when you go into a community and establish those relationships—and have them be long lasting. So that when these issues come up, you already have a presence, and you already have a basis of respect….then you’re also more credible, and then you have a true partnership; you’re trusted. The fight against what is the common enemy, if you will, it’s easier. Because from our side, there’s already trust, and that’s very important.

This article originally appeared in the Nonprofit Quarterly. See the original article here.