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Five Questions with Preeti Bhattacharji, director of strategic initiatives, Heron Foundation

Heron Foundation launched in 1992 with a mission to help people help themselves out of poverty, with a focus on the U.S. The New York City-based private foundation has decided to redirect its financial holdings into impact investments. How’s that going?

We manage about $280 million. Clara Miller, our president, said every dollar we have needs to be a dollar for our mission. That means every single resource has to be philanthropically inclined. Right now, we’re about 70 percent mission-aligned and plan to be 100 percent mission-aligned by 2017. Getting to 100 percent is the first step. Then the hard work of optimization starts. Some investments overperform on their social impact and others have gone sideways. You have to have continual optimization of picking impactful investments. That process is even harder.

What kinds of impact investments have you made?

The majority is in public equities, but we’ve made some private investments as well. We’ve backed DBL Investors. They’re an early investor in Tesla and Revolution Foods and other popular social enterprises that have gone well. The company has changed food systems in charter schools by providing access to fresher, better and cheaper food — and they make money while doing it.

On the debt side, we’ve invested with Community Capital Management and Breckenridge Capital Advisors. What they do — which is I think one of the opportunities we see for growth — is they’re not doing unique debt issuances. They’re finding municipal and corporate bonds that happen to be impactful and are financially viable. We’ve invested in a bond offering that helped retrofit an automobile factory to create hybrid vehicles. They bring investments to us viewed through the impact-investing lens.

Do you have any energy investments?

We do have positions in traditional energy [and] we’re working through optimizing them for impact investing. We have an eye toward climate change, but we also have an eye on jobs. We’ve realized these companies are providers of jobs in low-income regions. We’re not in a rush to pull income out of those communities. When you pull all the data, energy is more nuanced.

How does impact investing differ from environmental, social and governance investing?

Impact investing is broader and includes ESG. ESG is usually a term used for investing in publicly traded stocks. I’m not going to pretend it’s easy. Step one is asking what you own. There are foundations doing grant-making but can’t speak to what’s in their own portfolio. We’ve worked to break down the walls between grant-making and investing. Our enterprise-capital grants are designed to produce a return for non-profits, but we don’t recoup the investment in those cases and instead allow it to stay with the enterprise. We think of them as equity-like investments. We don’t count it on our balance sheet but we track them in our “off-balance-sheet portfolio” to show that they yielded a gain.

Why is impact investing is on the rise?

There’s growing interest and it’s fed in part by what we’re about to witness: the biggest international wealth transformation in history, from Baby Boomers to Millennials, who expect transparency in a way that previous generations didn’t. That’s certainly a driver. People are getting more thoughtful on the impact their investments have. It’s a really important trend and we’re pushing for that trend to become more popular.

Action Item: Heron’s strategy for capital deployment, http://bit.ly/29QX72C

Photo of Preeti Bhattacharji courtesy of Heron Foundation