This is a recorded session from the 2024 AAM Annual Meeting & MuseumExpo. Across the United States Museums hold an estimated $58B in endowments, which are a critical source of annual funding and support for special projects. These endowments are managed carefully for financial return, but do our financial investments align with our visions and missions? While endowments that fuel many museums and non-profits often operate independently from the museum’s values, impact investing recognizes that this money itself can help promote social and environmental good while the returns benefit museums. In this session, a diverse panel of nationally recognized investment experts and museum staff will define impact investing and shed light on what it takes to make this type of commitment and where to turn for resources.

Additional Resources:

Impact Investing Putting Your Museum’s Money Where Your Values Are Slide

Transcript

Judy Gradwall: I’m Judy Gradwall. I’m president and CEO at the San Diego Natural History Museum and I am a tropical biologist by training and so this topic is not part of my training but certainly any of you who become CEOs realize There’s a lot you have to learn on the job. And I’m a firm believer in learning in public and learning from my peers. And so that’s one of the reasons why I wanted to put this panel together.

Of all the heavy hitters up there, I am the lightweight. We have a $30 million endowment, which has doubled since I’ve been there. It started very, very small. But I think if there’s any takeaway from today’s panel, it’s that it doesn’t matter how much money you have to invest in anything, even your cash and your retirement funds. It’s always worthwhile thinking about how your funding, how your money can help do good in the world in addition to helping you and your organization.

So, the reason for the panel is we were interested in moving beyond the sort of ESG exclusionary ideas about what not to fund and thinking about sort of next level, next generation is impact investing. We’re going to hear a lot more from real experts on what that is, how it differs, and why it’s important to think about it. But for us, you know, the most basic would be non-investing in companies that are fracking because we’re in it. We care about the environment. But there’s got to be a lot more that we could invest in that’s positive. And the concept, again, is that our money can benefit the larger world through its investments and us through our drawdown. We might be more typical for a small to mid -sized museum.

As I said, our endowment is about 30 million. We draw down 4 .25 % and we use every penny of that for our annual operating budget.

So, if the return isn’t Maximized it’s somebody’s salary and so our risk we who are very very risk-averse and Our endowment is managed by professional managers and overseen by an investment committee of board and community members And we’re lucky in San Diego to have really really savvy investors who are who are helping us oversee our, our investments up to 5 % and up to 10 % of our total endowment to ESG and hopefully impact investing, but we are taking our time because we want to find the right investments and the field is definitely maturing.

So just to get a quick sense of who’s here, how many people here are from organizations that have an endowment? Well, quite a few. And Sometimes matters, how many have like more than 100 million in their endowment?

Okay, so most people are going to be more like me where we don’t have much money and we guard it really carefully. So, keep all that in mind. And then if you have — is anyone here already investing in ESG or impact investing? We’ve got a few. Anybody doing impact investing? Wow. Okay, this is great. And then one last show of hands, would we have trustees or CFOs here?

All right, so, and then the rest, everyone else is going to be like me, you’re going to need to define all the terms. So, I was delighted to assemble a dream panel of experts in the field of impact investing and a couple of museums who are leading the way.

And I’m going to turn it over to them first, but First, I want to introduce the entire panel, and they all have amazing backgrounds. Deep expertise, and I’m just going to skim the surface. They’re each going to provide short overviews from their perspectives, and then we’re going to have time for Q &A. So, Laura Callanan is going to lead us off, and she’s going to define impact investing and provide examples from the arts and nonprofit world. And she is the founding partner of Upstart Co-Lab. She was the senior deputy chair of National Endowment for the Arts before starting, launching Upstart Co-Lab in 2016. And previously was a leader in McKinsey and Company’s social innovation practice, an executive director of the Prospect Hill Foundation, and associate director of the Rockefeller Foundation where she managed the $3 billion endowment and co -led impact investing.

Noelle Laing She’s going to talk about impact investing in large portfolios and provide a perspective from her work at Builders Initiative. She is the Chief Investment Officer at Builders Initiative, which is the philanthropic arm of Builders Vision and Impact Platform founded by Lucas Walton. She is responsible for the investment management of Builders Initiative Foundation Endowment and Impact Driven LLC. She’s also a member of the leadership team. She was previously at Cambridge Associates and also worked directly in the investment offices of the American Red Cross and at Taft -Hartley Pension Plan.

Lillie Moreno leads the Shed Aquarium’s long -range financial planning and day-to-day business planning, and she and her team make recommendations on investments based on the aquarium’s needs and ensure the Shedd’s insurance and grant reports and oversee financing for capital projects. And prior to joining the Shedd in 2017, she served as the Director of Finance at Banking Administration Institute, a non -profit that provides research and thought leadership to the finance industry.

Finally, we’ll hear from Peter Bain, who is going to talk about impact divesting at the Walters Art Museum, which is one of the leaders in this field. And he’s the president of the Board of Trustees of the Walters Art Museum, a member of the Board of the American Visionary Arts Museum. And he was a member of the advisory board of the John Hopkins Kerry Business School from its founding. So, you helped set up the business school. Okay. And, you know, what the hell? And so he’s on the board of Rebuild Metro, which is an affordable housing initiative focused on reclaiming and rehabilitating Disadvantaged Neighborhoods in Baltimore, and also works with Turnaround Tuesday, a jobs -based organization working with returning citizens and others to prepare and assist them in regaining employment. He is our local Baltimore booster. You can call her after the talk about what to do in Baltimore.

So, with that, I’m going to turn the microphone over to Laura.

Laura Callanan: On. Okay. I think this is on. So, thanks, Judy, for putting this together, and hello, everybody. I’m Laura Callanan. I’m the founding partner at Upstart Co-Lab. We’re a nonprofit working at the intersection of impact investing and the creative economy. And part of what we do is look at the creative sector as a source of impact investing capital and how to unlock that. And conversations like this are instrumental in educating art leaders about what impact investing is so that they feel comfortable and they see how it can fit the mission and purpose of their organization.

We see welcoming museums and libraries, performing art centers and art schools into this impact investing conversation, excuse me, as really key, sorry about that, excuse me, And by our count, there’s about $64 billion sitting in the endowments, thank you, of the arts organizations in the United States.

My closer please. Thank you so much.

I didn’t want to cough into it, but yes.

Yes, now I will.

Thank you, we’ve got a second.

Okay, so about $64 billion in the endowments of America’s cultural institutions, two -thirds of that sits with the museum. So you’re all a very important group of folks. When I talk to museum boards, after we have some of those usual conversations about do you sacrifice financial return, if you invest in alignment with your values, and the answer to that is no, which you’ll hear about on this panel today, folks often ask me if there are opportunities that are not just aligned with their value statement, but that are aligned with their mission as cultural anchor institutions. So, the answer to that is also yes, and I’ll give a few examples of what some of those could look like.

One of the most recent examples is a new strategy that Upstart Co-Lab has just launched, our inclusive creative economy strategy, which is something that the Ford Foundation, the Skoll Foundation and a number of other national foundations have already committed to and the Toledo Museum of Art is the first art museum to be part of this new strategy, which I can tell you a bit more about in a minute. So, GD asked me to give a little bit of definitional information up front. We’re using the term impact investing, but you might have heard other terms like sustainable investing, socially responsible investing, ESG, values aligned investing, mission related investing, there’s a whole long list of terms. And part of this is because this field is still relatively new. I would say it’s about 25, 30 years old in its current configuration.

And so, these concepts all mean slightly different things, but generally they fall under the same umbrella. And that’s around thinking about not just financial risk and financial return, but also thinking about the values that you as an investor hold and how to express those values through your investment portfolio. And thinking about not doing harm in the world through your investment portfolio, that would be contrary to your values. I’m sure that Noelle’s going to weigh in on this a little bit when she speaks as well, but I’ll leave it there.

I will say impact investing really is investing. So, all of the rules of gravity that pertain to investing still apply. And this is important in a lot of conversations I have with artists and designers who are entrepreneurs, who are starting for -profit social purpose businesses and looking for the right kind of capital to scale and sustain their work and for artists who are coming from a nonprofit background who think impact investing is code for more grants and donations and it’s not.

So, all of the expectations that Judy was just describing that your endowment’s got to perform, you’re depending on it to generate a certain level of financial resources every year, that is still germane to the impact investing conversation.

So, at Upstart We have done some field building research and published some thought leadership on this opportunity for cultural institutions to live their values and advance their mission through their investment portfolio.

And in June of 2022, we published the results of the first ever survey. We focused on independent museums of art and design because we were doing the survey in up with the Association of Art Museum Directors and with the Black Trustees Alliance of Art Museums.

So sorry for the natural science folks, but we focused on — and the history museums, but we focused on the art museums. And so, we had 61 respondents to the survey. In total, they represented $10 billion in endowments, but 80 % of the folks answering the survey had endowments of $250 million or less. So, we only had two of the really large museums respond to the survey.

And I just wanted to share some of the main findings of this survey. This was the first time we had tried to get a baseline of where museums are at in this whole journey around values aligned and mission-related investing.

So, of the museums who responded to the survey, only 13 percent were engaged in any variety of impact investing, and that compares to 47 percent of colleges and 51 percent of foundations.

So, museums, you’re starting here, there’s a little ways to go, that’s okay, you’ve got to start someplace, but definitely trailing other endowed nonprofit peer institutions.

While 80 percent of the investment committees of responding museums had been discussing this topic, only a third had moved from conversation to taking some action.

So, I’m sure you’re going to hear a little bit about the journey and the education process that it takes to get a board and an investment committee and a leadership team ready to move ahead with some of these new approaches. But you know at a certain point the talks got to move to some walking.

There are barriers to action that are a set of questions that always come up for everybody whether it’s an individual and a family or a foundation or a university. People who are new to impact investing typically ask the same kind of questions, but we have answers to those questions. They have to do with risk. They have to do with financial return. They have to do with how do you measure the impact. They have to do with whether this is possible to do throughout the entire portfolio across all asset classes. We have answers to those questions now. So, while newcomers usually start with the same sorts of questions, we can quickly move past those. They don’t really need to be an impediment.

Investment committees and leadership teams are driving this conversation. But you’re going to hear in this conversation today that increasingly donors and especially next -gen donors are going to be asking questions about whether the art institution, the museum, that they’re thinking of supporting, in addition to living values through their programs and their audience and who’s on the leadership team and who’s on the board. The endowment is not going to be exempt from questions about alignment and donors are going to pay attention to how your endowments invested when they think about in your work.

So, I’m just going to wrap up with a couple of examples of ways that you could start to not just invest in alignment with your values, but also your role as museums and cultural institutions, particularly anchor institutions in your communities. And these are practical things that you could start to imagine to do in the near term.

So, for example, just about every community has a local community development finance institution. You might hear the acronym CDFI. There are some larger national ones you might be familiar with if they’re in your city like LISC, the local initiative support corporation or enterprise community partners. There are smaller, more local CDFIs. For example, if you’re from Colorado, there’s a great one called Colorado Enterprise Fund, and typically these CDFIs are issuing notes that invest in their local community, and if you have a conversation with them and you kind of dig in, you’ll see that they are making debt capital available to museums, art schools, they’re making loans available to small businesses that are in the food sector, the design sector, the beauty space that are florists, these sorts of companies that are all within our creative economy. And the CDFIs for the most part have strong credit ratings. They have long track records. And they are a fairly safe bet from an investment perspective.

You’re going to get a 2, 3, 5 % interest, but it’s going to be commensurate with the risk that you’re taking. And so, for example, the Colorado Enterprise Fund, which specifically makes loans to small businesses, in addition to prioritizing loans to BIPOC and women entrepreneurs, have about 40 % of their business loans going to businesses in the creative industries.

So, you have to dig into your individual CDFI, but there are a lot of great examples, self -help, which is available in a lot of states, has a note product and They’ve done a lot in the creative economy. And then LISC, which I mentioned because of work my organization had done with LISC over the years in their most recent national investment note, they named the creative economy as one of the five program priorities that they will be funding with the proceeds of the note. So always that you can connect back to the creative economy.

There are also a number of emerging funds led by BIPOC and women fund managers. And Upstart’s research has revealed there’s a very strong correlation between fund managers that are diverse themselves and are intentionally investing in businesses led by BIPOC and women entrepreneurs. And these funds having a very strong representation in the creative industries. It’s not an intentional part of their investment strategy, but it The facto is what’s reflected in the companies they’re investing in, again, companies that are in the fashion space, the food sector, the beauty space, design, home goods, these are all examples of creative industries.

And so, while many of these funds are second time funds, you know, which might feel a little early compared to some of the funds you’re currently working with, if you are looking for opportunities to have 50 or 70 percent exposure to the creative industries investing with professional fund managers. There are examples out there that would allow you to do that. I’m happy to talk with you afterwards about some of the ones that we’re seeing that are in the consumer good space and in the beauty sector in particular.

So I’m going to stop there.

Noelle Laing: Thank you. That was a good overview, Laura. So I’m Noelle Laing, as Judy mentioned, and I’m with Builders’ Vision, which is a family office, so we’re not a museum, and so there will be some differences. But I have been doing impact investing for a long time, and our investments at Builders’ Vision are very much mission aligned. So that’s, I think, why I’m here, to talk a little bit about that, and to talk about how the principle behind Builders’ Vision, Lucas Walton, has helped kind of spur some ESG and investing, impact investing in organizations that were doing a lot of the talking, but not actually the moving to your point.

So just a bit of background on the organization I work for. As we mentioned, it’s Lucas Walton is the principal behind it. So, he’s a member of the Walton family from Walmart. And he’s a third-generation family member. So, His grandfather, Sam Walton, is the one that started Walmart. And Lucas has dedicated his assets to solving climate change, whether they be philanthropic assets or investment assets. And I’ve had the pleasure of working with him for about 12 years, first it was on his own personal wealth his private wealth portfolio and then in 2018, he endowed a foundation. And, Lucas and I had already been and with others to invest his assets, again, aligned with climate and other impact investing themes. So, when he started the foundation, in my mind there was no question, and I think in his mind there was no question that it would be mission aligned, and that was indeed the case.

But, we actually went on a journey to and even though I’d been in this space for a while and he’d been doing it for a while. We went on a journey to just kind of repoll, you know, the community and see what others were doing. So, in 2020, we spent the whole year almost interviewing all the major foundations that are doing it, other family offices, just to kind of get their best work, the lessons learned, things we could skip. and really had a lovely body of work that we’re always happy to share, although it’s a little dated now with the permission of those we interviewed, on how to do it. And so everyone has to do it their own way, which I think you’re gonna hear about from all of us, impact investing, that is.

The interesting thing about impact investing, and Laura was definitely touching on this, is that it is kind of a choose your own adventure. Some organizations and people choose to make it very, very aligned with their own values or mission. You know, so for us, it’s climate. We invest in food and ag, food and agriculture, oceans and energy. We want to solve climate change. Other people that might be the creative economy or education or, you know, whatever, whatever the theme is. People can choose to, you know, try to earn those stellar returns. That’s what we do through the foundation. Our foundation endowment is supposed to exist into perpetuity. We are mandated by the IRS to spend 5 % out of it every year. Often, we spend more in 2022 when the markets were down. We spent 9%, which as the CIO gave me a minor heart attack.

But I was very glad we could be so philanthropic in that very difficult year. So, We, you know, but Lucas wants it to exist into perpetuity. We want to prove that you can generate market returns with impact investing. So again, that very high bar of, you know, not being concessionary is important to us in the endowment.

But there are also other opportunities where you can be more of a philanthropic investor. You might purposefully take a concessionary return. Maybe you want to give a low interest loan, you know, to a local organization in your community so they can build a building, you know, something like that. And you purposely want that to be kind of a blend of philanthropy and investment. So, I think that’s often, you know, Laura referenced the question we always, all of us always get is do you have to take a hit on your returns to do impact investing?

The resounding answer is no, but you can always choose, you know, to be more philanthropic in your investments. And as Laura said, it’s just still investing. So that foundational investment, fundamental research and view of the attractiveness of any opportunity is always there. And then you layer on the social or in the environmental due diligence or whatever the theme is on top of it.

So, it is complex, I would say, but very interesting. And so with our foundation endowment, the Builders Initiative Endowment, we’ve reached 92 .5 % mission alignment, and it’s a $1 .7 billion endowment. So, we’re very pleased with that, thank you. So, with that to cross asset classes, we do environmental, social, and governance investing in our public markets, so that means that those global equity managers that are picking stocks on our behalf, they’re thinking about things like the company’s greenhouse gas emissions, you know, what are they doing with their waste? How are they thinking about the energy transition and participating in it? They’re thinking about if they have products that product safety, how they treat their employees, you know, these are kind of environmental, social, and governance factors that the managers are thinking about, again, alongside the fundamental investment factors they always look at. And then they’re looking for opportunities that blend both of those together to be a strong investment.

So, we’re doing that on the public market side, and then we have venture capital and private equity. And we’re looking at real estate and other asset classes where we’re really targeted in those climate themes that I talked about.

So obvious, you know, types of things we’re investing in might be building wind farms and solar panel solar fields and battery storage and things that are very, very renewable energy focused we’re also investing in regenerative agriculture assets and we’re one of the leaders in investing in oceans which is a very nascent investment sector but one we’re really excited to help build up so this is just all to say that you know there’s opportunities across different types of asset classes and that you know when there’s a will there’s a way you know we found we found an ability to put quite a bit of capital to work in a mission-aligned way and and I will say we’re producing returns commensurate with the you know the benchmarks that we’ve set. We’re still early so I’m always hesitant to quote returns but but they’re there and we’re really excited and I know Lily’s going to talk a little bit about some of the partnerships we’ve had as a donor.

You know, as a philanthropist, Lucas, you know, gives away $200 million or more a year. And some of that is to our local cultural institutions in Chicago where we’re based. And one of those was to the shed. So I’ll let Lily talk about that. But again, we’re really thinking about how can we get others to do, you know, go on this journey with We don’t think people have to do it just like builders and there wouldn’t there’d be lots of reasons why you wouldn’t do it Just like builders. But our mission is shifting markets and mines for good and Lucas knows that these climate issues that we address are The some of the most pressing of our you know a lifetime and he can’t do it alone And so we’re always trying to get more people to join us on this journey.

So that’s my call like I’m always around to talk and be a sounding board or point you in the right direction, so happy to do that either during the panel or after.

Lillie Moreno: Thank you. – Hi everyone. Thank you, Judy, for the introduction. I’m Lillie Moreno. I’ve been with the Shedd Aquarium in Chicago for over seven years now, and I’ve been in my current role as Vice President of Financial Planning Analysis for the past year. So, in my new role I’ve been fortunate enough to learn more about Shedd’s endowment and investing and that’s why I’m thrilled to be here speaking with you all today.

Specifically, I’ve learned more about our ESG or environmental social and governance investing are and I’ve learned more about our ESG endowment how and why it was set up and the impacts that it’s having and I’m able to marry my financial background with Shed’s mission and conservation actions that we’re seeing through the ESG investing.

I am not a financial, or I’m not an investing expert. Those people here on the stage know more about investing than I do, but I’m able to share a little bit about Shedd’s journey on how we got started with Impact Investing, how we moved from just our operating dollars to supporting our mission to our investments, supporting our mission as well. So today I’m gonna share a little bit about Shedd Aquarium, our endowment, how we got started with Impact Investing and where we are today.

So, let’s go back. Let’s go way back to 1927 when construction on Shedd started with a three million dollar gift from John G. Shedd. John G, in a little history on John G. Shedd, he actually started as a stock boy at Marshall Fields Company in Chicago, a significant department store and at the time the largest department store in the world.

He made his way up the ranks starting as a stock boy and when Mr. Fields passed away, he actually became president of Marshall Fields and Company. Interestingly, if you go onto the museum campus in Chicago, you will see the Field Museum, a museum of natural history, situated right next to the Shedd Aquarium. So, they are back together again. Shedd opened its doors in 1930 and welcomes 2 million guests a year.

We’re home to Beluga whales, Pacific white -sided dolphins, otters, reptiles, birds, and of course thousands of fish. We are an AZA accredited institution, which stands for the Association of Zoos and Aquariums. But our impact expands well beyond the historic walls on Lake Michigan. We have programs across the globe. We are in the Caribbean researching coral restoration. We are in Central America studying freshwater mussels, we hold beach cleanups, we educate communities on plastic pollution, we’re in schools across Chicago, engaging with students of all grades, and we can’t wait to welcome them back on site when construction is done in our lakeside learning studio.

And one really quick that I just learned about, we are participating in the AZA SAFE program, which stands for saving animals from extinction. With this program, we’re partnering with other AZA institutions to breed and reintroduce animals into the wild. Animals like the bowel mouth, the guitar fish, zebra sharks, and sunflower sea stars. Hard to say. But these sunflowers, these sunflower sea stars grow to three feet across and have 16 arms, which is really incredible. And they are imperative to the kelp forest they inhabit, but due to sea star wasting disease, their population has died off 90%. And right, sorry, you learned a lot working in an aquarium, but our impact investing will support these programs and so many more. Shedd’s mission and vision is at the forefront of everything we do. Our vision of a world thriving with aquatic life, sustained by people who love, understand, and protect it, and our mission of marking compassion, curiosity, and conservation for the aquatic animal world.

To share a little bit about our endowment, going way back again, our endowment started in 1938, funded by a $1 .5 million gift from Mary Shedd in honor of John Shedd. Our endowment has grown over the years thanks to generous gifts and prudent financial management, and it currently exceeds $300 million. We dip into our endowment every couple years for large impact investments. So, every 10 to 20 years, we will make a significant withdrawal from our endowment to support a big project. And as some of you might know, we’re in the middle of our centennial commitment.

Our centennial commitment includes a large-scale capital renovation, along with deepening our investment in the communities, new educational and experiential programs, and advancements in animal care and conservation. So, we are right now renovating our historic galleries that date back to 1930, improving accessibility for our guests, and finally, finally getting one of those underwater tunnels that everybody already thinks we have and asks about on a daily basis.

So, we took out a significant withdrawal for this construction project. And once the centennial commitment is complete, We’ll go back to replenishing our endowment. So, luckily, quite a few years down the road, when we embark on our next large -scale initiative, the funds will be there and we can use them. Shedd’s very fortunate to have a robust endowment. But a few years ago, our CFAO, who is actually relaxing in Spain right now, instead of presenting to you all, took a deep dive, Aquarium Pun intended, on our investment policy statement. And although every dollar we spend on operations supports our mission and vision, we realized that our investment policy statement was silent on our mission and vision. And only was it silent on our mission and vision. It was silent on our DEAI statement. It was silent on our core values. It was even silent on how you pick up investment partner.

So of course these things are woven into everything we do, we just wanted to make sure it was clear and specifically stated in our investment policy statement.

So, we started a project to update our investment policy statement to reflect our core values. This update was not easy. There were lots of discussions, debates, questions, and as you’ve heard up here, would we be trading return for mission? And if we decided to trade, you know, if we decided to invest in different things, and they had a lower return, what impact would that have on our programs? Would we not be able to do as much? But as you’ve heard, we could do both. We could align our investments with our mission and be prudent with Shedd’s financial resources.

As we were in the middle of updating our investment policy statement, we received an extremely generous gift from Builders Initiative. This gift was catalytic And it propelled our efforts forward to create an ESG specific endowment. And just to touch on that, you’ve heard a little bit about it today. Environmental social governance. All three components are extremely important, but they E-align nicely with Shedd’s mission and vision and what we hope to accomplish with this newly created endowment.

So, our next step was how do we go about investing this new 19 million dollar endowment that included the funds from builders initiative and some of Shed’s resources. We had lots of options, but we decided to invest in private equity funds. We had already partnered or been working with Adam Street partners on investing some of our other endowments in private equity funds, and we knew that investing in private equity funds would give us great insight into the companies that we invested in, so we would know the initiatives they support, and we would be certain that our money was doing what we wanted it to do.

Next we need to figure out the best way best lens to evaluate all these private equity funds which leads me to the UN SDGs, or the United Nations Sustainable Development Goals. The UN SDGs are 17 goals that were identified to achieve a better and more sustainable future for all and Actually, if you all are interested in the UN SDGs, there’s a session on it tomorrow that looks super interesting.

So, as Shedd went through and evaluated the 17 and we narrowed it down to seven that align nicely with our mission and vision and what we hope to accomplish with the E and ESG investing. Not surprisingly, these included things like clean water and sanitation, climate action and life below water. So now every fund that Adam Street partner brings to Shedd, it has a vein in multiple of these seven UN SDGs.

So where are we now? We’ve invested over half of our $19 million endowment in three different funds, and we anticipate investing in two additional funds over the next year.

It’s really important for us to diversify who we are investing with, where we are investing, and what companies and their impacts they were having. Working with Adam Street partner has given us fantastic insight into where our money was going and who we’re investing with. So for example,

we know that a fund manager selected a company conducting a soil bioremediation No idea how this works, but I know this driving recycling and waste reduction and it’s efficient and cheap a Fund manager also selected a company making biodegradable and plant-based sustainable packaging, which is essentially replacing plastic packaging. It’s made from locally grown fiber crops and essentially it costs the same as plastic. Both of these companies, as they grow, our impact grows. Both the impact to our investment and the impact in the environment and we’re able to track and report on both of those things, which is just amazing. So we’re in the early stages of our ESG endowment, but for Shedd, it has a double bottom line. As our endowment continues to grow, we’ll be able to draw funds from that endowment to support our education and conservation programs. The programs I mentioned earlier, like that Sunflower Sea Star that I know you all are going to fact check me on those 16 arms later, but also improving Shed’s on -site energy usage, our sustainability practices, and continue to send staff across the globe for rescue rehab efforts on vulnerable animal populations.

I know the organizations represented in this room have very different resources when it comes to investments and endowments. But for Shedd’s journey with impact investing, we really just started by reflecting on a policy, aligning it with our mission and vision, finding the right partners, and for us, it was Adam Street and Builders Initiative. And now we know that our own investments are making an impact.

Peter L. Bain: Awesome. There you go.

Afternoon,  everybody. I want to hit on a couple of what I think are probably going to be basic but important points about the process you go through to end up getting where you’d like to be.

My premise operating on this group is the folks in this room are here because philosophically and conceptually you’re in favor of impact investing. To confirm to you that sometimes you can judge a book by its cover, I am an investment guy and I look like I probably should. And so, what I would like to share with you a little bit is what we went through at the Walters Museum to get to a point where the museum’s board was prepared to commit endowment dollars to impact investments, right?

Because to my shock and amazement over the course of my career, I have learned that not everybody agrees with me all the time. And you know, that’s been a disappointing development in my view of humanity, but I’ve overcome it. So, two seconds of real American economic history, because it impacts, it has a real effect on these conversations, right?

I’m a lapsed lawyer, lived in Wall Street World, and the finance world, and the corporate world. And the business judgment rule is established law in the corporate world. And in essence, the way that’s evolved over the years is, Boards of directors of companies in this country have been told for decades that as long as every decision you make is rooted in the best interests of the shareholders, you’re okay. And what that means to them is, okay, I took the highest bid for the stock, okay, I did what I thought was going to increase earnings, I’m going to deliver a return to shareholders.

Not surprisingly, there’s a recent Venn diagram overlap of boards of trustees of philanthropic organizations and people with success in the corporate sector.

And so, when we started having the conversation at the Walters, going back probably 20 years now about, and this is not an economic discussion even though it’s impacted by all these economic legal variables. It’s not an economic discussion it’s a cultural conversation and it’s a values conversation and it’s a mission conversation and it’s it’s it’s great if you’re starting with an organization that was founded for that purpose and for that mission.

It’s a little bit of an interesting conversation if you’re starting that conversation with a group who at its core believes that their fiduciary duty is to protect the enhanced risk-adjusted returns of the endowment regardless of the environment or mission of the museum or said differently they interpret the mission their mission to be that and that discussion is a tough one to start from but we started it and the real conversation was bringing folks back to not the mission of the investment committee but the mission of the Walters. And the Walters is an urban museum in a city that’s on the east coast that is old and rooted in a lot of cultural and historical challenges and faces a number of genuine problems that need to be solved and addressed. And it was a, again, to me, I just, why is this so hard, right? But it was a remarkable jump for the board to begin to take seriously the Walters’ existence as a citizen of Baltimore.

Once you get over that hump, you can then have a conversation about all right now we’ve agreed on a value right which is it what are we really fulfilling our mission if we build this fortress in the middle of Mount Vernon that nobody ever comes to but the endowments in great shape and the collections fantastic and the curators are well known. The answer to that to all of us is obvious but it was a majority and women-owned managers, let’s start there. And we had some great leadership on that investment committee who really helped this process. And we made those allocations and we reached a point where now over a quarter of the whole endowment is managed by majority and women-owned managers.

And lo and behold, the endowments perform just fine. Calm down, everybody. And enables the next conversation, right, which is, all right, are we prepared to be a little more active in this framework? And then that takes you to a whole next level because it’s one thing philosophically and conceptually to agree with the value of impact investing.

It’s a really different thing to turn it into, okay, we’re going to put these dollars here. That’s an important conversation and again, that was the next iteration with the investment committee and the full board All right, if we’re prepared to engage in the conversation How are we going to put in place the metrics that are going to guide us on the implementation journey? Not the philosophical run you win the philosophical one, which is awesome But then you have to win the implementation one because if you fail an implementation All the people who opposed the philosophical one one of the first best they’re going to say, “See?” And so, you know, you’ve got to do this stuff right.

We worked through a real process, and we actually had a number of meetings with other philanthropic organizations and leaders whose successes we respected and really did some brainstorming with them.

How do you go about it? And we ended up with a matrix, good old fashioned, hardcore matrix of, okay, what are the criteria? You know, Well, is the mission of the organization we’re thinking about investing in aligned with the mission of the Walters? Is the management team of the organization we’re thinking about investing in experienced, proven, successful, committed, engaged? Is the organization itself solvent today? And is the strategy that they’re telling us they’re going to proposed that they’re asking us to invest in, in our view, recognizing that nobody knows, but do we believe it’s viable and compelling?

And then for the Walters, the last two specifics were, is the organization engaged in an activity specifically focused on something that’s going to make Baltimore a better city for more people? And then the last piece was, is the amount of money we’re talking about investing actually going to move the needle for this organization.

If you lay that stuff out and then look at an opportunity, you can actually work your way through it. And that’s how we ended up again. So much of this is internal negotiation, but we worked through with the investment committee and the board and even the folks who just kept saying, “Not a fiduciary duty.” And we had a couple resigned from the board. And we had to respect that. And honestly, those were a couple of conversations I’ve had where I think it was evident to me about 12 minutes into discussion, the person was not accustomed to being told no. And when I said, you know, I agree with everything you’re saying, we’re no longer a good fit for your service.

You know, that was not what they thought was coming. But you have to do that in this process because when we did that, the rest of the trustees and also I think very importantly, the staff of the museum looked at the board and said, “Wait a minute, they’re actually, they’re not kidding. They’re doing this.” And that really helped with momentum, morale, culture. And we went then sorted through, you know, seven or eight, nine different organizations, and we’ve invested in two. One is directly involved in dealing with the abandoned and vacant housing crisis in neighborhoods in Baltimore, which changes population, which is critical because our job is to bring art and people together. So, we want people to live in Baltimore. And the other one is an organization which invests only in companies that are prepared to base their operations in Baltimore and create jobs.

So that’s sort of how you start from a philosophical premise of geez maybe the business judgment rule isn’t the way to run museums. And you end up with seven million dollars invested into organizations that are having a meaningful impact in the city and that’s how we got there.

Judy Gradwohl: We have a small microphone shortage, so I’m going to use this one over here. And I want to leave time for a few audience questions, but I wanted to just hear from the panelists here.

We’re hearing a lot of numbers being thrown around, you know. So, Lucas Walton has 90 % of his billions in, one point something billion in impact investing, we’re looking at 5 to 10 percent of our 30 million. Can the Shedd and Walters talk about what proportion of your endowment is going to be an impact investing?

Peter L. Bain: Sure. I’ll do this real fast. Right now, as I said earlier, a quarter of the endowment is in minority women-owned management firms that engage in ESG management, that’s distinct from impact investing. The impact investing is direct investment. And here actually, thanks for asking that because I want to add, we, again, long, long good debate, we have determined that an impact investment’s return will be viewed differently by the investment committee than a publicly-traded security investment funds return.

We’re prepared to have a lower economic return on an impact investment if the entity we’re investing in can demonstrate to us the economic value it is creating.

And so, again, that was another one of those Rubicon’s that we weren’t sure we were going to successfully cross we have. And those dollars represent probably five four percent of the endowment that number probably will go up over time but it’s to get recognized that’s something where we have affirmatively agreed that it’s a different economic return framework we just accepted that.

Noelle Laing: Well as I mentioned we do have the specific 19 million dollar ESG endowment that we have set up. And then as we have been going through this process, we’ve been adding things to our other investments that we already had out there, whether they be various ESG screens or whether they be how we are selecting the funds that we are invested in. So, it’s really now just becoming an everyday discussion for us.

So, it may not be a specific ESG endowment like we have, the $19 million one we carved out, but it is now just something we are talking about more and more on a daily basis and it impacts all of the decisions we’re making.

Judy Gradwohl: So, I know we all make decisions about retirement funds if we’re in a non -profit and the investment of those retirement funds on behalf of our employees and also we make decisions about where we bank, where our cash is held and can any of you talk about those or other ways that our money can and also support our mission.

Peter L. Bain: Quick one, but yeah, that’s a very good one.

Michelle Rhodes -Brown, who’s our CFO, is really good at this stuff. And in a sort of interesting David Goliath framework, there’s a local Baltimore bank called Harbor Bank that explicitly takes its cash deposits and investment in development communities here in Baltimore. And it’s very good at it and very focused on it. They partnered with JPMorgan Chase. JPMorgan Chase is now sponsoring programs for large corporations that whose boards will require them to invest in the too big to fail banks. But JPMorgan Chase has a sub -cash investment strategy that takes that money and puts it with harbor. And so that’s how the Walters is in fact managing our cash now. And it’s been great.

Noelle Laing: Yeah, We definitely offer environmental, social, and governance funds in our 401 (k )s. That’s something that the organization can do, and whatever platform you use, Fidelity or Vanguard or whatever it might be, I’m sure has some options. I always just look at the fees, make sure you do your work.

They’re not all good. It’s still investing, as Laura said, but that’s absolutely a great And then for the endowment on the cash point, we are, Lucas charged us last year. He’s like, the cash is just, we have 1 % in cash. It’s not a lot of cash. But he wanted us to mission align the cash. So, we’ve been looking at local Chicago banks and community development finance institutions and that’s been a really rewarding exploration for that 1 % of the endowment, which is very important.

Judy Gradwohl: Laura, do you have anything? One last question that I want to throw it out to the audience. Just something about how you go about evaluating whether the — whether the investments are actually helping the creative community or helping combat the effects of climate change.

Laura Callanan: So, for upstarts, new the creative economy strategy, we set up a five -pronged impact thesis. And the first three elements of the impact that we’re going to be measuring are the types of things that a lot of impact investors care about.

Are we providing access to capital to BIPOC and women entrepreneurs? Are we enabling quality jobs in the 21st century creative industries, especially for BIPOC women and folks from low -income communities, and are we anchoring vibrant communities through creative places in businesses? What Peter was describing, the way the Walters thought about its role in Baltimore is a perfect example of that. So, these are impact measures that a lot of investors think about, DEI financial inclusion, workforce, and community development. We’re just thinking about them as they pertain to investing in the creative industries.

We also, at Upstart, are motivated by supporting creative people. So, our fourth impact goal is to enable sustainable lives and livelihoods for artist designers and other creatives.

And then the fifth element of our impact thesis is around what we call an inclusive creative economy. So, it thinks about an attitude of openness and experimentation to solve problems. It believes in the power of both traditional wisdom and innovation, and it pushes forward with diversity and inclusion. So just to say, you can take impact measures that are applied in a variety of settings and think about how they fit in the creative economy. And you can also be really pushing for opportunities for creative people through your investments in the creative economy.

Peter L. Bain: And on a very nuts and bolts level, I think what’s really I think what’s really important, you’re asking right to you about the real world of metrics and accountability, which matter, and what we did was with each investment, with rebuild Metro, the housing, and with Turnaround Tuesday, we sat with rebuild and said, okay, you’re telling us, this is your mission, so you’re telling us that the abandonment and vacancy rate in this neighborhood should go from X to Y.

You’re telling us the median house value should go from A to B. You’re telling us the crime rate should come You know here are the things you’re telling us that this is designed to do. That’s perfect Let’s just all agree and let’s see if you do it and if you do you’re we’re in great shape And that you know so far that’s happened, which is great But it’s that conversation up front about almost agreeing with them with the investment on the metrics that it can be very helpful.

Noelle Laing: Yeah, and when we’re looking at an investment we actually have an investment measurement and management team, so we’re very You know nice to be well resourced. But they and they were collaboratively with the investment team to end the beginning You know when we’re into diligence while we’re currently holding the investment and then upon exit Measuring the impact.

We actually just created our first impact report last year available on our website 55 pages of interesting commentary, but we do, yes, so in the beginning we’re really looking at three main factors, but kind of divided into different sections. So, we’re looking at, we call them the partner, because we do this for the grantee, whether it’s a grantee or an investee. We look at the partner’s commitment to impact. So do they have an ESG policy, what are, types of HR policies to have you know just kind of what is their kind of organizational commitment to impact then what is their contribution to impact so is there kind of a theory of change behind the way they are trying to solve climate through investing and looking at details there, and then it’s our our contribution to the impact so with our money being invested is it but for our money be invested what would this be done you know what But can we learn something from it? Can we contribute in some way? So, we’re looking at those three factors. And that’s been really informative as we’ve really started to build that out.

Judy Gradwohl: So, we have time for probably a couple quick questions and answers. And while we ask because the session is being taped that you use the microphone in the center. But I also want to point out we have a QR code up here and that links to our resources. We have a bunch of links, and then Peter has actually provided one of the matrices that he uses to make decisions, and there’s some good resources in there. Yeah?

>> I recognize this may be a contrarian question, but I mean, do you ever think — thanks for the thumbs up, Peter. Do you ever think or worry that impact investing is a passing trend? And I mean, the kind — like my thought process with that is, I’m throwing my own age group under the bus here, but it’s like what’s what’s going to be the next shiny object and do you feel like in the long term you know your staff donors and trustees are going to remain committed to this area of investing.

Peter L. Bain: So as the old guy who’s been in this business for decades I worry that everything’s a trend right and and you just you just have to do your best thinking on it, do the most digging you can, and see if you think there’s substance to it. And if you believe there’s substance to it, and sustainability to it, and it makes sense and is aligned with your objectives, then I think you support it. And I think that part, in a weird way, is almost the easy part. The hard part is to look at something and say, I’m seeing billions of dollars of cash flow go into that, and I don’t see the value. I’m just not gonna go there. I don’t care how much I see ads during the Super Bowl for cryptocurrency, right? I’m just, I’ve been working really hard on that, and I can’t find the value in it. So, I think that’s what you just kinda have to do. Yeah, but yes, trending,

Look, the history of capitalism is the history of trends, right? And you just got to try and sort your way through it.

Noelle Laing: >> I definitely want Lillie maybe to comment on, you know, what you’re seeing there, but I, and Laura, but I’ll say two things. One, all investments have impact, whether it’s positive or negative, and it’s probably a combination of both, no matter what the investment is. So, impact investing, again, is just investing. And all the investments you have now have some kind of impact. And then secondly, I think that the kind of the way we do impact investing will evolve greatly.

It already has. I’ve been in it for 12 years and it’s become so much more sophisticated and bigger and better. But I also, it’s just like, I know, I just know that, you know, in 20 years, 30 years, whatever it is, it’s just going to be called investing because these are actually the way you make money, you know, these climate things that we’re solving, this is the future. We are transitioning to a clean economy. It is happening, you know, so these are just the companies of the future.

Laura Callanan: And Peter was giving us a history lesson of how people have evolved their thinking about what a prudent investment looks like and the standard of how prudent investors manage organizations.

And if you think about it, right after the Great Depression, it was considered imprudent to invest in stocks. People only invested in bonds if they were applying that prudent investor rule.

And then people were like, oh, maybe we needed to invest in some stocks ’cause there’s this thing called inflation and you gotta kind of keep up with it. And so then people, the prudent approach was to look at each stock individually and assess the risk of that stock.

And then at a certain point folks are like, but wait a minute, we’re invested in a group of stocks and a whole portfolio of stocks. And then the standard was to look at the risk and the return and the volatility of the entire portfolio working in tandem. Some would be lower risk, some could be higher risk, some would be lower returning, some would be higher returning. And now we’re thinking about not just the financial risk in return, but the environmental, social, and government factors as well, which as Noelle described, have a risk and return component to them. And so, the reason I share this is the trend has been a more holistic, more expansive view of what risk and return looks like in investing, not a lesson. So what impact investing is doing is just adding to that expanded viewpoint of the types of considerations you need to be making as you’re making your investment decisions.

Lillie Moreno: And I’ll say for Shed, this isn’t just a kind of a one -off investment. It’s not like we went for the shiny new thing. Impact investing, especially the E &ESG investing, aligns perfectly with everything what we do, with the conservation work that we’re already doing, with the educational work we’re already doing, and so It was almost like the next logical step, not a one -off for us.

Judy Gradwohl: >> Well, I hear that they finish next door. So not to be too competitive, but I think we better wrap it up as well. We’ll all be around for a while, but I want to thank the panel for lending their expertise and to say that I hope this is the beginning of a long conversation and we meant this to be provocative, a lot more questions than answers. I’m sure coming out of this session, but I think it’s good for us all to go back and think about, well, what is our money doing for anybody else other than ourselves? So, thank you.

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This recording is generously supported by The Wallace Foundation.