All Investing is Impact Investing:

Preface to Heron’s Investment Policy and Principles

Download the complete Investment Policy Statement here [PDF].

In some respects, this investment policy document is similar to those of other foundations. However, unlike most other investment policies, this document makes extensive use of such concepts as “mission return,” “social performance,” and “mission” or “social” risk.

Heron believes that all enterprises, regardless of tax status, have an impact on our mission and public purpose, positive, negative or neutral. We believe we have an obligation to invest in robust enterprises—whatever their tax status, size, or business—that can perform reliably for the people and communities we are dedicated to serve.

Like any prudent investor, Heron seeks to manage risk with an appropriate asset allocation. But at the heart of our approach to investment selection is an emphasis on enterprises, not asset classes. We believe we have an obligation to invest in robust enterprises—whatever their tax status, size, or business—that can perform reliably for the people and communities we are dedicated to serve. Therefore, our fiduciary duties of care, loyalty, and obedience to mission require that we look to invest capital in a way that supports both reasonable return and reliable and high quality social performance by the enterprises in our portfolio, whatever their legal form might be.

Consequently, this policy also departs from customary usage in its treatment of grants, which are considered part of Heron’s investment portfolio (off balance sheet). Our financial role as capital investor means that the lion’s share of our grants are made as a form of equity investment, in which we take an active interest in the strength and performance of the grantee’s enterprise but concede all returns to the recipient. Because one key purpose of Heron grants is to improve the business model on which nonprofit enterprises operate—by, among other things, helping to increase the amount and reliability of their revenue and improve their performance—we view grants as investments that produce measurable performance in both financial and social terms (which can be positive, negative or neutral) over a specified time period, even though the financial return does not accrue to Heron. This document therefore contains references to “enterprise capital grants” as a subset of equity holdings.

Similarly, we regard “program-related investments” (PRIs) as a subset of our debt and equity holdings. PRIs, by statutory definition, cannot have as their primary purpose the generation of income and normally earn a below-market risk-adjusted financial return. Foundations make such investments because they expect the mission benefits to be particularly high, even when return is not consonant with risk from a market point of view. In Heron’s portfolio, PRIs represent one of a number of ways of balancing mission and financial return, and are therefore evaluated alongside other, similar financial instruments that also represent a combination of the two types of expected return.

Finally, we believe that the fiduciary responsibilities of all philanthropic institutions mean that we have both a duty of obedience to our specific mission, and a duty of obedience to a larger public purpose. As a practical matter, we are obligated to examine our portfolio on an ongoing basis to identify holdings that may unintentionally do harm to our missions or to the broader shared interests of society. Heron is in the process of conducting such an examination as it continues on a path to fully deploying its capital for mission.

Investment Principles

Heron’s investment policy embodies eight essential principles, summarized below:

1. All investing is impact investing. All enterprises, regardless of tax status, produce both social and financial results, on a spectrum from positive to negative, including “neutral.” Their financial and social performance is measureable and varies over time. The conscientious investor takes note of both. Therefore we monitor all our holdings on both dimensions so that we can substitute, over time, more positive combined positions for negative or neutral ones.

2. Heron, like all philanthropic institutions, is subject to the fiduciary duties of care, loyalty, and obedience to mission. This obliges Heron to examine all investment holdings for both social and financial performance, and to make investment decisions that optimize both together to fully abide by our duty as a custodian of tax-privileged assets

3. All enterprises, regardless of tax status, fall within the scope of this policy. Enterprises that receive Heron grants and program-related investments receive the same duty of care with respect to those investments as do for-profit enterprises, even when Heron expects no financial return for itself or when risk of non-performance is relatively high.

4. For Heron, investment risk encompasses beneficiary risk. Risk assessment includes but goes beyond financial or mission risk to the foundation itself. While these are considered, our definition of risk also encompasses risks to beneficiaries, including the risk that companies cannot deliver results, reliable jobs or both.

5. Heron acts primarily as a capital investor or equity holder in making both grants and investments. In all sectors, we seek to invest in strong enterprises with reliable revenue. Investing with the overall needs of an enterprise in mind, with shared performance goals, promotes the resilience enterprises and their leaders require to succeed. Most importantly, strong, reliable enterprises are better positioned to deliver results, as well as continuing to employ and serve the people we focus on.

6. Heron investment decisions are fundamentals-driven. We believe that enterprises that provide superior performance on both mission and financial dimensions are identified through thoughtful analysis of an enterprise’s fundamentals—broad social contribution, market opportunity, management team, and business model, including revenue reliability—as compared against peers and understood within a larger industry, sector and market context.

7. Heron itself intends to operate as a strong and productive enterprise, like those in which it invests. We strive to identify, build and maintain skilled hybrid investment capacity to invest, co-invest and leverage our funds well.

8. Full achievement of our mission entails extending the reach of this policy beyond our walls. and aligning ourselves with like-minded investors and enterprise leaders who can participate in transactions with us, help promote the kind of investing we envision, and co-leverage capital. The changes we seek in the function of markets and civil society cannot be achieved by one investor acting alone, or even by many investors acting within individual funds, including philanthropy’s largest. We will therefore develop, with others, data infrastructure, comparable performance analyses, certification protocols, investment vehicles, and similar practices that extend this style of investing beyond Heron and beyond philanthropy—bringing financial and non-financial impact together—with the goal that it becomes standard for the investment world and the economy as a whole.