Unlocking Capital for Good; Ford Foundation’s Social Impact Bond and Responsible Investing

COVID-19 has drastically altered our global economy and has caused a widespread health crisis unlike any we have seen before. In response to this ongoing threat, nonprofit organizations, foundations, and companies have provided resources to those individuals and organizations experiencing the worst effects of this global health crisis. However, as COVID-19 continues to upend our economy, additional capital and innovative solutions are needed to address unemployment, racial inequities, increasing poverty rates, child care issues, and more.

On June 23, the Ford Foundation announced the pricing and sale of a $1 billion aggregate principle social bond. This social bond is “the first-ever such offering by a U.S. nonprofit foundation in the taxable corporate bond market” (Ford Foundation, 2020). The proceeds of Ford’s sale of these social bonds will be used to help sustain and stabilize the nonprofit sector, which has been heavily impacted by the COVID-19 pandemic. Utilizing the net proceeds of the bonds will allow the foundation to increase its grantmaking capabilities from $600 million to over $1.1 billion per year in 2020 and 2021 (Ford Foundation, 2020).

How Does This Work?

1. The Ford Foundation will sell social bonds so they can raise emergency money to distribute as grants for the nonprofit sector. By selling social bonds, the Ford Foundation is essentially borrowing money for a period.

2. As an investor, when you purchase the bond, you are lending your money to the foundation for a set period, with the expectation that the foundation will pay you back with interest (Ontario Securities Commission, 2020). According to the foundation, this social bond offering “includes 30-year and 50-year maturities, with $300 million maturing in 2050 and $700 million maturing in 2070 at a fixed rate of 2.415% and 2.815% per annum” (The Ford Foundation, 2020).

3. By selling these bonds, the foundation can borrow money and not erode its endowment (Steward and Kulish, 2020). Considering market instability, utilizing debt instead of its endowment allows the foundation to uphold its “fiduciary responsibility of long-term stability and capital growth for future grantmaking” (Ford Foundation, 2020).

In addition to the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, the W.K. Kellogg Foundation, the Andrew W. Mellon Foundation, and the Doris Duke Charitable Foundation have pledged to increase their giving by at least $725 million (Steward and Kulish, 2020) in response to COVID-19.

Responsible Investing

While this approach to philanthropy is unique, finding innovative ways to unlock capital for social good is not uncommon. Since the early 1960s, there has been an evolution in responsible investing. Investment strategies such as ESG (environmental, social, governance) investing and impact investing have become mainstream. Financial institutions and investors have realized the importance of utilizing these strategies not only for financial gains, but the included social or environmental returns. Financial powerhouses such as BlackRock, Goldman Sachs, and JP Morgan have all made impact investments a large part of their portfolios.

Millennials have and will continue to impact this rising trend of responsible investing. According to recent reports, “millennials will inherit an estimated $30 trillion of wealth from baby boomers” (Yeoh, 2019) and “95% of millennials are interested in sustainable investing” (Yeoh, 2019). This next generation of impact investors will unleash the power of capital and financial markets to have a positive impact on the world.

The Future

The COVID-19 pandemic has shown that we cannot solve this crisis in silos. Philanthropists must work in tandem with impact investors and government to unlock capital and develop innovative solutions. The Ford Foundation’s ground-breaking approach is impressive, but with the rise in responsible investing, there are unlimited opportunities to build a more resilient and equitable world for the future.

What’s Next?

Over the next several weeks, we will provide analyses of different investment strategies and innovative solutions to unlocking capital and addressing social problems. We will discuss the organizations that are directly involved in these efforts and their ongoing work to implement change.

Sources

Ford Foundation. (2020). FAQs: Our Social Bond Retrieved from https://www.fordfoundation.org/ideas/equals-change-blog/faqs-our-social-bond/.

Ford Foundation. (2020, June 23). Ford Foundation Announces Sale and Pricing of Landmark $1 Billion Social Bonds. Retrieved from https://www.fordfoundation.org/the-latest/news/ford-foundation-announces-sale-and-pricing-of-landmark-1-billion-social-bonds/.

Ontario Securities Commission. (2020). How bonds work. Retrieved from https://www.getsmarteraboutmoney.ca/invest/investment-products/bonds/how-bonds-work/#:~:text=When%20you%20buy%20a%20bond,a%20government%20(the%20bond%20issuer&text=In%20return%2C%20the%20issuer%20pays,money%20back%20without%20any%20penalty..

Stewart, J.B. & Kulish, N. (2020, June 6). Leading Foundations Pledge to Give More, Hoping to Upend Philanthropy. New York Times. Retrieved from https://www.nytimes.com/2020/06/10/business/ford-foundation-bonds-coronavirus.html