ESG may be a dirty acronym to some institutions these days, but one endowment is going all-in on it.
The California Endowment, a private non-profit focused on expanding access to affordable and quality healthcare in the state, is expected to announce that it is planning to move its entire $4 billion in assets under management into mission-aligned investments. The endowment is one of the largest to do so, following in the footsteps of the Heron Foundation and the Nathan Cummings Foundation.
The decision comes at a time in the institutional investing industry where allocators and managers alike are nervous about the implications of investing in ESG, DEI, and mission-focused assets. Red state lawmakers have enacted legislation that either prevents or limits asset owners’ ability to do so. Most endowments and foundations do not come under the jurisdiction of the laws but asset owners have become sensitive to the optics of these investment choices.
Not the California Endowment. The organization’s board of directors voted on the decision in November 2023, after years of impact-related investment practices. Since its inception in 1996, the California Endowment has had screens in place to avoid investments in companies that produce tobacco products, operate private prisons, and manufacture firearms.
“As time passed, we pushed further by asking how we could intentionally invest our capital in the things we believe in?” according to the announcement letter, sent by the endowment’s leaders Wednesday. “Access to capital is unevenly available to many communities in California and across the country, so why shouldn’t we make ours available to support our communities’ power and resilience?”
In response, the endowment issued a $300 million bond to expand its grantmaking capacity. The endowment also carved out $350 million for program-related and mission-related investments.
But the work of bringing an entire pool of $4 billion into alignment with its mission will take the California Endowment some time. The first steps, according to the endowment’s announcement, will be to develop a new investment framework that will be unveiled later this year.
The announcement, penned by leaders at the endowment, pushed back on conventional endowment grantmaking and investment practices.
“A foundation colleague once jokingly described foundations as investment companies who do a little grantmaking on the side,” the announcement said. “He asked, ‘If your foundation is using five percent of its $3 billion under management to make grants, what is the other 95 percent doing?’ The remark was an eye-opening moment, a potential game changer for the field and the work.”
The endowment joins a growing group of institutions moving all — or some — of their assets into mission-related programs. The aforementioned Nathan Cummings Foundation and the Heron Foundation have moved all of their investments into mission-related assets.
The Ford Foundation announced in 2017 that it would plow $1 billion into impact investments. The McKnight Foundation and Robert Wood Johnson Foundation also have large impact pools.
“Imagine if every private foundation and every endowment were mission investors, then that capital would show up in the kind of communities that are suffering at the point of economic injustice,” said Robert Ross, president and CEO at the endowment, in a statement. “That constitutes both a strategic and moral reason to make this transition. It is both the smart and right thing to do for philanthropy.”
The California Endowment’s assets were previously managed by David Greenberg, who departed from the fund in 2023, landing the CIO spot at Virginia Tech. Since his departure, Mike Wee has been serving as interim CIO.
