You need to be more than a bit interested in foundations to make it all the way through the new president’s letter from the F. B. Heron Foundation. (That’s not just our opinion. Heron President Clara Miller accompanied the letter with “a bit of a warning”: most of her message would be “pretty nerdy.”) But if you are at all interested in how foundations are focused, steered, and managed, you’ll want to read every word. This is not your usual president’s letter.
Ms. Miller, starting her fourth year at Heron, founded and ran the Nonprofit Finance Fund for more than 25 years. She has spent most of her career thinking about how capital is used for (or, sometimes, against) the public interest. No surprise, then, that she devotes most of her annual letter to how Heron manages its capital for social benefit — not just the grants and program-related loans, but every penny, regardless of where it appears in the financial statements.
This is possible because the foundation has decided to dedicate all of its endowment and earnings, both investments and grants, to the pursuit of its mission. It plans to account for the mission benefits, as well as the financial return, from every dollar. Even its audits will reflect that fusion. The endowment will eventually contain no investments whose sole purpose is to generate profits for later charitable use.
To make sure this happens, the foundation has merged its grantmaking and investing units, so that one team oversees a single pipeline of deals for all varieties of capital deployment. In that way, Ms. Miller writes, the foundation is “able to track both financial and mission performance for every dollar, credibly, across the entire portfolio — grants, PRIs [program-related investments], loans, bond purchases, equity, everything.”
This choice has set up a chain reaction of other adjustments, including a small revolution in the way Heron manages and uses data. If you want to know more about this, you’d better read the whole thing. But be warned —a typical sentence describes “data standards development (SASB) for ESG data reporting by public companies in SEC ‘10K’ filings.” She warned you it would be wonky.
But this obsession over ESG data (it stands for “environmental, social, and corporate governance,” which encapsulates the main criteria for socially responsible investing) isn’t just about reporting and record-keeping. The Heron Foundation is trying to create a coherent, real-time way of assessing both the public-interest return and the financial return on all its grants and investments, side-by-side, whether from nonprofit or for-profit enterprises — to develop “rigorous, credible, standardized and auditable evidence for net contribution to society.”
This is not an assignment for the faint of heart. Great intellectual crusades have been launched to quantify “social return on investment,” to “monetize social impact,” and to report rigorously on the “blended value” of financial and social benefits. Most have come limping home with considerably less than the Holy Grail they sought, though the search continues.
To have a whole foundation — and particularly a financial luminary of Ms. Miller’s stature — commit itself to this difficult, elusive cause is anything but nerdy. There is actually something epic about it. It’s a fair bet that future annual letters from Heron will need no introductory apologies for their technical complexity. Now that the foundation has staked its whole operation on producing and measuring both social and financial returns, anything that happens from here on is bound to be dramatic.