Thought Leaders of the Emerging Regenerative Economy

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The former president of the Jessie Smith Noyes Foundation talks about his crusade to create harmony between the “purpose” of a foundation and its investment practices.

"Grandparenting is my vocation,"  says Steve Viederman. "To me this means working to leave options open for my children and grandchildren and by extension all children and grandchildren. That is my definition of sustainability."

“Grandparenting is my vocation,” says Steve Viederman. “To me this means working to leave options open for my children and grandchildren and by extension all children and grandchildren. That is my definition of sustainability.”


Stephen Viederman devotes considerable thought, time and energy these days to a daunting challenge: how can the responsible investing community grow its demand side with institutional investors to match what is an increasingly robust supply-side? Viederman maintains that while  “there is an increasing number of investment vehicles out there for creating, with care and due diligence, nearly a 100 percent responsible portfolio across asset classes, the data suggests we are still not there in terms of institutional demand.”

Among members of the institutional “responsible investing” networks, actual responsible investment holdings are still a relatively small percentage of assets under management,” says Viederman.  For example, the 90 or so institutional investors who participate in the Investor Network on Climate Risk collectively have assets exceeding  $9 trillion. While they are active shareowners on climate and other issues it is estimated that only about 1 percent of those assets are held in climate-related investments. The number of foundations in the Leaders and Members Circles of More for Mission, a nonprofit set up to encourage mission-related investing, has been steadily growing. There are now 70 foundations with $37 billion in assets under management.  Self-identified “mission-related” vehicles, which include program-related investments often made from grant budgets rather than assets, are estimated to be about six percent.

The Jessie Noyes Foundation Pioneers Mission Investing

Viederman’s crusade to dismantle the barriers to responsible investing in the foundation community date back to the late 1980s, in the early days of his tenure as president of the Jessie Noyes Foundation.  “I had no financial background when I began as is true of many foundation CEOs, but I began to realize early on that I needed to engage more in how we were managing our endowment,” he says.

After undertaking a close examination of the foundation’s investment holdings, Viederman noted that although some positive and negative screening was indeed taking place, the endowment also held investments that were completely misaligned with its mission, which was  “to support organizing and advocacy at the intersections of the environment, reproductive rights, community and social justice.”   Its holdings in Monsanto stock, for example, were contrary to everything the foundation, with its focus on sustainable agriculture, stood for.

Viederman, together with the foundation’s board, began examining how they might reduce the dissonance between the foundation’s mission and its investments. They quickly reached a consensus to divest Monsanto stock, although, as Viederman recalls, the foundation’s outside manager insisted  “he could not take responsibility for the portfolio if we did so.”

As the foundation’s finance chair rotated off the board Noyes sought to bring on new finance committee members who possessed strong financial backgrounds but who were also committed to the foundation’s desire to reduce dissonance.  “The board’s first round of discussion of screens left us with a list that would exclude just about every publicly traded investment,” Viederman recalls. “Using a funnel approach we finally agreed upon a set of screens, which in the early 1990s was the state of the art, to guide the foundation’s investment strategies.”  That list required what Viederman calls some “Jesuitical” adjustments.  It became obvious, for example, that the board felt strongly that tobacco should be excluded from its portfolio, so it excluded tobacco as part of its sustainable agriculture screen.   “As we moved along we realized that even our screened portfolio included companies that were questionable,” says Viederman. “The board joked about finding the “Viederman 3”, the three companies that I would be completely comfortable in our portfolio. We never did find them.”   Going forward the board and the finance committee also imposed a “no-finance jargon” zone in discussions and reporting.  As a result, says Viederman, “for the first time, the members of the board of directors were able to exercise real fiduciary duty and were fully engaged in the investment decision-making process.”

Commons Capital: One of the Earliest Impact Investing Funds

In 1993 the Noyes Foundation established Commons Capital, a mission-related venture capital fund that invested in emerging companies offering commercial solutions to the problems the foundation was trying to solve on the grant-making side. For example, the fund took a position in Stoneyfield Farm, one of the first US practitioners of sustainable agriculture at scale. At one point 12 percent of the foundation’s assets were invested in Commons Capital and although the foundation referred to this fund as mission-related investing, it was in fact one of the earliest forays into what is now called impact investing.

Partnering with a Grantee in Shareholder Activism

The same year Noyes also became an active shareowner.  “Looking over our portfolio I noted that we held Intel stock–all of 100 shares,” Viederman reports. At the time, the Southwest Organizing Project (SWOP), a community organization in Albuquerque, New Mexico, that the foundation supported through grants, was engaged in an unsuccessful battle with Intel to get access to information on environmental emissions and water usage in the state.   “I called SWOP’s executive director noting we had three alternatives: we could nothing, which was normative for foundations,” says Viederman, “or we could write a letter to the chair, which would have little or no effect; or we could file a shareowner resolution, asking the company to broaden their Environmental Health and Safety (EHS) Policy to include sharing information with communities. We agreed on the latter.” This led to an Intel dialog with Noyes, and in turn with SWOP.  The foundation made an additional grant of $2000 to SWOP so that they could become an Intel shareowner as well as a stakeowner.  “At the annual meeting our resolution received 7 percent of the vote,” Viederman reports, “enough to enable us to refile it the following year.  Before it went to the vote again Intel agreed to the EHS changes we asked for and we withdrew the resolution. Not only did SWOP get the access needed, their reputation in New Mexico was enhanced.”   Five years thereafter SWOP used their ownership to file their own resolution with Intel on another matter, which was successfully resolved.

Philanthropy’s Bermuda Triangle

Viederman has spent considerable time thinking about why responsible investing has made so little headway in the foundation world.  One of the principal reasons, he believes, is what he calls philanthropy’s “Bermuda Triangle” composed of the board and investment committee; the investment office; and the foundation consultant.  These decision-makers invariably have little or no knowledge of responsible investment practices and tend to either ignore the discipline entirely or reinforce one another’s negative biases against it.  What’s more, says Viederman “within the cultures where they work there are few incentives to bolster their taking alternative approaches.  For instance, most of them will not go proudly back to their jobs and say,  “we are going to file a resolution with Accenture to find out where they stand on climate issues since their supportive statements are diametrically different from those negative statements of the US Chamber of Commerce on whose board they sit.’”

How can this  “bounded awareness” be overcome? asks Viederman, referencing the term Harvard Business School ethicist and behaviorist Max Bazerman invokes for the phenomenon when individuals and groups are unable to process information outside their comfort zone.  “Resistance to learning certain new things is always there,” he says. “Our leading business schools continue their focus on accepted belief, which is retrospective, rather than the reality, which is prospective. The reality is that issues such as availability and utilization of water, labor and human rights, and climate are real and not externalities and intangibles, as they are largely viewed by the mainstream investment community today.”   Viederman says he often returns to John Kenneth Galbraith’s reflection on his long career as an academic economist, public servant, journalist and diplomat:  “One must accept a continuing divergence between approved belief–called conventional wisdom–and the reality. And in the end, not surprisingly, it is the reality that counts.” It is a curious fact, Viederman further notes, that many members of the investment community exercise their citizenship concerns after work and on weekends when they write generous checks as donors to environmental and social nonprofits, but invariably fail to consider these issues during their day jobs.

What Does Fiduciary Duty Really Mean?

One way to get the discussion on bridging the dissonance gap going, says Viederman, is to take a fresh look at fiduciary duty.  For example, it is time to challenge the notion that crept into the investment culture at some point in the 1990s that a fiduciary’s duty is to “maximize” rates of return.  “Along with this came the myth of financial underperformance from ‘social investing,’ a myth that still lies at the heart of the problem for finance committees who conveniently forget that two-thirds of traditional active managers underperform their benchmarks every year,” he maintains. “ I think that foundation fiduciaries have an obligation to seek  ‘good’ and ‘competitive’ returns, not necessarily to maximize them,” he reports. “Yet the profit maximizing argument–that you will underperform if you do sustainable investing–comes up time and time again in conversations and is never examined by the people who are making it.”

Fiduciaries also need their attention drawn in a more compelling way to the categories of environmental and social risks and opportunities that have been largely off their radar screens.   “All investments are about the future, but most investment decisions are made on retrospective data, which as fund offerings make clear, are not predictors of future earnings,” says Viederman. “We need to ask about what Bazerman has called  ‘predictable surprises,’ which include climate change, the BP Gulf disaster and the financial bubble among others. If I was considering an investment in the food sector, for example, I would want the management of a company to be thinking about such issues as obesity and healthy living, water, climate, labor and human rights, food safety and security to avoid predictable surprises.  They have to be made to understand that any institutional investor who ignores them is in breach of their fiduciary duty. To be prudent, as in the prudent person, is in its original meaning, to be farseeing.”

Inventing a New Vocabulary to Reach the Mainstream

This may require the sustainable investing supply side to invent a new vocabulary that will speak a language that is understandable to the mainstream investment community.    At an upcoming investment conference, Viederman reports, he and his co-panelists will be speaking on the topic of “Investing as if the Future Mattered.”  “We won’t be using any of the usual terminology associated with social investing,” he confides, “because that is not what we are talking about.  This is not about values, which are important, but about value created by assessing the future in terms of risk and opportunity. It is our hope that with this new approach we will not be signaling to the audience that it is time to make their phone calls.”

Is it About Mission or About Purpose?

Even when a Foundation’s board has overcome the barriers of “bounded awareness” and has abandoned the constraints of outmoded definitions of fiduciary duty, another issue must be addressed: should a foundation’sresponsible investing strategy be guided narrowly by its underlying mission, or more broadly by its purpose?

Ultimately Viederman argues for a more inclusive approach: philanthropic purpose rather than just mission.  “The purpose of any charity and foundation is the public benefit. Philanthropy is, of course, the love of human kind. An arts funder, a health funder, a funder of the environment or human rights all have the same purpose,” he maintains. “Their mission is more narrowly defined because you cannot do everything well with limited resources. While there is good reason for an environmental funder to look at climate and related issues in their investments, although too few do, there is also good reason to look at human rights and other issues. All of these societal and environmental issues present future financial risks and opportunities and can identify predictable surprises and competitive advantage. The same holds true for the arts funder whose mission is not easily related directly to mission investing. Most discussions of mission investing instead focus on a foundation first defining its mission and then seeking investments that harmonize with it.”

“Foundations should not feel overwhelmed by what may appear more complicated than it actually is. It is appropriate for institutional investors to find their comfort level by beginning with a portion of their asset base, by voting proxies according to a set of guidelines, and by doing some community investing,” Viederman advises.

“We in the world of philanthropy need to go beyond the concept of mission-investing to something broader,” Viederman concludes. “Borrowing from Harvard Business Emeritus Professor Michael Jensen, perhaps we need to focus our attention on integrity, being whole, honoring our word. I am allergic to all of the adjectives of investing–social, socially responsible, responsible, ethical, ESG, impact, and even sustainable–so I am not proposing a new adjective. But I do believe that integrity and purpose are wed. The separation of mission as expressed by grant-making and of investment management is a false one.” Viederman recalls Gandhi’s admonition to overcome the dissonance between creed and deed.

Bedding Down with a Mosquito

Viederman takes the view that even the smallest foundation can make a difference as a responsible investor.    “At the Reynolds Foundation we take our ownership responsibility very seriously,” he reports.    Indeed the foundation is now about 85 percent invested in vehicles that fall under a broad definition of sustainable investing.   “We are doing community investing with our cash and in our fixed income portfolio, and this year we filed four shareholder resolutions, on climate risk, on political contributions, and on companies’ US Chamber of Commerce board membership. We feel it is the right thing to do and whatever little power we have with our $25 million asset base we are determined to use it,” says Viederman. “We may not be a CALPERS but we take the view that if you think you are too small to make a difference you have never been in bed with a mosquito.”

What’s the Next Step?

Viederman continues to ponder how to bring more foundations into the responsible investing tent. “What is the next step to try to deepen this analysis?” he asks. “Where, for example, does behavioral finance fit into this? What are the most effective strategies for change? It is an iterative process; it will evolve if we can get people thinking and working on it.  Lawyer Keith Johnson talks about the lemming-like quality of how pension funds invest.    What I take from that on the foundation side is that we need leaders who will make the jump but they have to be institutions of some size. Many small foundations have led the way. But I think it will take one of the larger, household names in philanthropy to really start the ball rolling.”—Susan Arterian Chang

Steve Viederman on Grand-parenting and Sustainability

Grandparenting is my vocation. To me this means working to leave options open for my children and grandchildren and by extension all children and grandchildren. That is my definition of sustainability.

Foundations, colleges and universities, and public pensions funds have enormous economic power. Pension funds alone accounted for almost 40 percent of institutional investor public equity holdings in the United States during 2009, totaling over $10 trillion. They should be investing as if the future mattered, not only for financial returns, which they are, but also with a view to the societal and environmental effects that go along with these returns, which by and large they are not. The challenge that consumes much of my time and energy these days is how to increase their involvement in future-oriented, risk-adjusted and opportunity-directed sustainable investing. I am focusing most of my attention on foundations because they have the simplest structure with the hope that this will also offer insights into the issues at the larger, more complex institutions.

My experience spanning two decades as president of the Jessie Smith Noyes Foundation, on the board and finance committee of the Needmor Fund, and now the Christopher Reynolds Foundation’s finance committee demonstrates that sustainable investing can be done successfully. The financial performance of all three during the years of my affiliation with them met or outperformed their benchmarks.

“Serving the public benefit” foundations made grants of $46.8 billion dollars in 2008. But the question that haunts me is: why don’t these foundations use all or some significant part of their assets—the more than $565 billion that makes those grants possible—to further their missions and purpose to respond to the societal and environmental challenges now and for the future?

Join the Conversation…

Also see Stephen Viederman’s commentary on “When and Where Foundations Should Blur the Line Between Profit-making and Charity.” Capital Institute and Stephen Viederman hope to catalyze an ongoing discussion on the issues raised in this article and we invite your comments below.  Viederman also welcomes your reactions at

—Susan Arterian Chang is Director of the Capital Institute’s Field Guide to Investing in a Regenerative Economy Project.

Further Reading… 

Dissonance, Responsibility and Corproate Culture Or, How Two Camps Struggle For Our Hearts and Minds and What We Can Do About It

Community Organization and Shareholder Activity

Foundations and Mission Related Investing

Thinking About Mission Related Investing

Inflection Points