Noyes Foundation: Message from the President

Keynote Address by Victor De Luca
President, Jessie Smith Noyes Foundation
December 11, 2008
Maine Community Foundation
Eat Local: Food, Farms and Philanthropy

Thank you for inviting me here today to discuss the field of sustainable agriculture and community food security. The Jessie Smith Noyes Foundation has a long history of funding in these areas.

And we have connections to Maine too. In 1984 & 85 we provided $142,500 to the Family Planning Association of Maine. And between 1988 and 1993, we gave $171,000 to the University of Maine for sustainable agriculture graduate students. Matt Liebman was the professor with whom we dealt.

Additionally, we are an investor in Maine through Coastal Ventures Limited Partnership. This is part of our socially responsible investment strategy to make equity investments in sustainable businesses. One of the ventures of the limited partnership is Coast of Maine Organic Products, which deals with marine waste disposal and organic gardening products.

I want to say two things up front so they do not get lost.

1) I want to acknowledge the work that you have already done on this subject. The brochure on Sustainable Maine Agriculture in the 21st Century raises some of the challenges and opportunities you face here. This is clearly a base upon which you can build a more robust body of information which can bring about action.
2) I want to broaden the conversation today. Let me give you an example. How many of you had an agricultural moment this morning? Probably not too many. Now who among you thought about food? Most likely a larger number, whether it is what you already ate or what you are thinking about eating. So why is food separated from growing, production from consumption, agriculture from food?
We have environmentalists, conservationists and even nutritionists. How about an agriculturalist? I am not even sure that is a word and if it is, few people use it.
Here is my point and the take away this morning. We need to become more aware of how the broad umbrella of agricultural activity impacts the food we eat, water quality, land use and development, social justice, healthy living, rural communities, energy use and production, and trade agreements.
Consider this quote: “Our agriculture sector actually is contributing more greenhouse gases than our transportation sector. And in the mean time, it’s creating monocultures that are vulnerable to national security threats, are now vulnerable to sky-high food prices or crashes in food prices, huge swings in commodity prices, and are partly responsible for the explosion in our healthcare costs because they’re contributing to type 2 diabetes, stroke and heart disease.” That was an interview by Joe Klein of Barack Obama, responding to Michael Pollan’s “Farmer in the Chief” article in the New York Times magazine.

I am excited that it seems we will have someone in leadership who gets the connections you seem to get here in Maine. I will come back to the connections later.

First, let me tell you about the Noyes Foundation. We are a family foundation that was established 61 years ago. Charles F. Noyes made his money in real estate in New York City and his wife, Jessie Smith, was an advocate for women’s suffrage and civil rights in the early 1900’s.

In 1947, Mr. Noyes set forth the goal of providing scholarships to the next generation of leaders. He also decided that half of the scholarships would go to non-white students, a heroic decision at a time when racial segregation and discrimination were legal.

Today, we no longer award scholarships. We do make about $2.5 million in grants annually in the areas of sustainable agriculture, toxics, environmental justice and reproductive rights. In 2007, 49 percent of our 100 grants went to organizations with people of color as leaders and constituents.

We have a board of 16, six family and ten non-family members. Thirty-eight percent of board members are people of color and 69 percent are female. Board members live in thirteen states.

I came to the Noyes Foundation in January 1991, after 16 years doing community organizing work in Newark. With no experience other then a great appetite and life long residency in New Jersey, the Garden State, I began making grants in sustainable agriculture. In 2000, I became the Foundation’s president.

Sustainable agriculture became a more defined funding interest of the Foundation in 1981, with a primary focus on agricultural production research and development. Land grant universities were key recipients, studying things like: “the effects of cover crops on soil properties and yield of subsequent plantings” and “alternative management strategies to ease the transition from high energy to sustainable farming practices.”

This was a time when federal government interest in alternative agriculture production was minimal. It was not until the 1985 Farm Bill that Congress authorized sustainable agriculture research and education through the Low Input Sustainable Agriculture Program. LISA was renamed and expanded in the 1990 Farm Bill to the Sustainable Agriculture Research and Education Program (SARE). The program was expanded again in the last Farm Bill.

In 1990, we added a policy focus to our grantmaking. With R&D getting attention by USDA, we began funding state-based organizations and networks “to improve sustainable agriculture policies and programs and their implementation.” We realized that it was not enough to promote “how to farm.” We wanted to support on-the-ground efforts to change public policies that would enable sustainable farming practices to gain traction. The state organizations worked with farmers and their allies to advance sustainable farming practices and promote supportive public policies.

Many of these organizations began looking at a key market opportunity - institutional buying by state and local agencies – schools, hospitals, prisons. Efforts were undertaken to change policies and practices to prioritize local producers as the sources of food supplies. These groups also promoted the expansion of farmers markets as ways to directly link consumers and local producers. Likewise, they advocated for policies around food stamps and WIC coupons to make sure they could be used to their maximum at farmer markets.

One area Noyes became particularly interested in was the establishment of sustainable agriculture working groups. The Northeast Sustainable Agriculture Working Group covers 12 states and includes the Maine Organic Farmers and Gardeners Association and Mains Sustainable Agriculture Society. You can find them at www.nesawg.org. Noyes also was a first funder and key advocate for setting up a national network, now called the National Campaign for Sustainable Agriculture.

In 1995, I made a $15,000 grant to the Community Food Security Coalition, a network built around the concept of “all persons obtaining at all times a culturally acceptable, nutritionally adequate diet through local non-emergency sources.” For years Noyes focused on the production side of agriculture, now food and justice issues became more pronounced for us.

During our 2003 strategic planning process, we changed our guidelines to reflect a broader interest in agriculture and food. Social justice became a stronger part of our ag funding. We began to address the corporate concentration of food production and industrialization of agriculture. Farmworkers, critical to food production, came onto our radar screen.

Our Board had a long and hard discussion about the lack of sustainable agriculture grants going to organizations led by and working with people of color. This lead to the development of a proposal by the Noyes Foundation – Diversifying Leadership for Sustainable Food Policy – that was submitted to the Kellogg Foundation.

In 2006, a three-year $1.2 million grant was made by Kellogg to Noyes to build the capacity of ten organizations of color to advocate on behalf of their communities with policy makers and within the wider sustainable agriculture and community food security movement. To meet the goals of both foundations, we crafted a unique private foundation to private foundation funding agreement.

As the Noyes Foundation goes forward, food justice will be weaved more into our sustainable agriculture funding. As put forth by the People’s Grocery in Oakland:

“Food justice asserts that no one should live without enough food because of economic constraints or social inequalities. Food justice reframes the lack of healthy food sources in poor communities as a human rights issue … It is an approach to a community’s needs that places communities in leadership of their own solutions and provides them with the tools to address the disparities within our food systems and within society at large.”

So how does all this relate to you here in Maine?

I have been told that “quality of place” is being discussed as an overarching theme for preserving what is good about Maine. I think that allows you to make the issue connections similar to those made by President-elect Obama.

And I think you have plenty to talk about:

Maine lost an average of 16,000 acres of farmland each year for the past ten years. Much of this land was developed, resulting in the loss of open space.
Between 2005 and 2007, 13.3 percent of Maine households experienced “food insecurity.” These are families that struggled to put enough food on the table because they could not afford it. This ranks you fifth in the county just in front of Mississippi, New Mexico, Texas and Arkansas.
Obesity rates have risen 100 percent in 17 years. One in five Mainers is obese, with estimates that obesity causes 1 to 5 premature deaths each day and accounts for 11 percent of the state’s medical expenses. And to make matters worse, 15 percent of children who entered kindergarten in 2003 were overweight.
At harvest time, 10,000 to 12,000 migrant farm worker families come to Maine. Farm work is among the most dangerous occupations in the nation. In 2001, for every 100,000 agricultural workers in the U.S., there were about 23 deaths. This compares with a rate of 4.3 deaths per 100,000 workers in the total U.S. workforce.
Worldwide more than 925 million people – mostly women and children – are unable to buy food, despite the fact that there is enough to go around. Corporate concentration of the global food system is getting more intense. Archer Daniels Midland, Bunge and Cargill control 90 percent of the world’s grain trade. Monsanto controls one-fifth of seed production and Bayer Crop Science, Syngenta and BASF control half of the total agrochemical market.

After hearing all this, a lot of us probably want to put the covers over our heads and hide from these very daunting challenges. Well I am here to tell you with commitment and resources, we stand a very good chance at making the changes that are necessary.

There are many funding needs and I am sure we can find an option for each of your interest. Let me highlight two that I think are absolutely key: One is public policy advocacy – giving a collective voice to a constituency or an issue in order to inform and influence public policy making. I know that some of you do not want to dirty your hands in the policy arena. It is too controversial, too much like lobbying or too hard to measure. Well I am hear to tell you that it is too bad if you do not focus at least some of your resources on making those policy changes that will preserve the quality of Maine. Our challenge is to move from the fringes to the mainstream. That requires that we invest in those who are willing to challenge the powers that want to control the farming and food system in ways that conflict with our concerns about the environment, rural communities, hunger and food security, health, and social justice. We need policy changes and a reallocation of government funding to expand and bring to scale the many good programs in place. Foundations can support these policy efforts, thus leveraging their dollars with public funds.

Second, we need farmers. All the data suggest that current farmers are older or getting there and that second and third generations within farm families are not interested in continuing. I think there is an opportunity to reach the immigrant communities to recruit new farmers. We fund the New Farmer Entry Project that is working with immigrants to engage in farming in Massachusetts and Rhode Island. We also fund a California based organization to work with former farmworkers to become organic farmers on their own. We need vibrant farms and that will require a new generation of farm families.

In closing I want to assure you that change is possible. The organic trade is growing. Sourcing local foods has gained traction among consumers and restaurants. State and national policy changes have been tremendous since I made my first grants 18 years ago.

And things are changing in the philanthropic community. At the 1991 Environmental Grantmakers Retreat, I organized an ad-hoc session to discuss sustainable agriculture issues. Maybe ten foundations were represented. We set up the Sustainable Agriculture Funders, which today has evolved into the Sustainable Agriculture and Food System Funders. It has over 35 dues paying members, each of which is involved because it understand the links between its issues and food and agriculture.

You too can make those links.

Thank you.

Keynote Address by Victor De Luca
President, Jessie Smith Noyes Foundation
October 17, 2008
Grantmakers of Oregon and Southwest Washington

Thanks for the opportunity to speak to you today.

I want to briefly reflect on the recent roller coaster ride we are taking on Wall Street. No matter how much lipstick you try to put on this pig, it is bad. And no one is certain as to when it will all end. Going forward, we will have to make tough choices about our grantees and our internal operations. And it is likely that this pain will be felt more in upcoming years, particularly when we average in the 2008 returns. But, I have yet to hear of a foundation that is going bankrupt or closing up shop. Compared to many other businesses, both big and small, philanthropy is going to survive. And let’s not forget that our job is to make grants and not to accumulate assets.

Research conducted by the Center on Philanthropy at Indiana University after the September 11th attack found that:

There has been only one year (1987) in the past 27 in which philanthropy has dropped from one year to the next, even during years in which the market has dropped.
In 2002 when the Dow Jones Average decreased 17% and the S&P 500 Index dropped 23%, philanthropy increased by 1 %.

A recent Foundation Center paper – Past Economic Downturns and the Outlook for Financial Giving – shows that in the past four recessionary periods, U.S. foundation giving did not decline. In fact, it increased slightly.

We cannot put our heads in the sand but we also cannot panic. For 2009, the Noyes Foundation’s Board reduced our payout by five percent. We are holding our administrative costs flat and will be looking at possibilities of sharing space and staff with other foundations. We also are limiting our grants to one year instead of two.

So your invitation and the economic events got me thinking about the field of philanthropy. I’ve been on the funder side for 18 years and before that spent 16 years as a grant seeker. Being a funder is very rewarding and satisfying. I get to meet remarkable people and provide resources to really good grantees who are working to make our world better.

But philanthropy is also somewhat of a Disneyland experience. We don’t sell anything. We never miss a payroll. Our jokes are funnier. The public doesn’t hold us accountable, hell most people don’t even know what we do. We enjoy a special tax status and the IRS focuses on only five percent of our assets. We get to decide how much information we want to share. And our phone calls are returned promptly.

In this business, we have all the power. But imagine if the tables were turned. Let’s say Bill Bradbury, Oregon’s Secretary of State, changed the way in which non-profits operated. Instead of asking foundations to consider its proposal, a non-profit would evaluate three foundations to see who gets chosen to provide funding. The interview would go something like this:

I invited you here today to bid for our services. I have a series of questions that I would like you to respond to using no more than one page each, with margins of at least 1 inch on all sides. You must submit your proposal by 5pm within three business days.
First, please explain the mission of your foundation. What is your theory of change? In quantifiable terms, how will you meet the objectives that you have set forth?
Next please tell us about yourself. What is the composition of your board and staff? How does that composition relate to the population you expect to serve? Please explain plans for leadership development and the nurturing of secondary leaders.
In a minute I’ll ask you about finances. We want to make sure your investments are sound. But now I want to know with whom you partner? Are you a member of any collaboration, either formal or informal?
One final question: Tell us what there is about you that would make us want to accept your grant.

Of course this would never happen, in Oregon or any other state. But if it did, could our own institutions withstand the scrutiny we use with our grantees?

Back when I was a grantseeker, I often thought I was living through the Dr. John’s song – Right Place Wrong Time. With many of my funding requests, I felt like:

I’ve been in the right place, but it must have been the wrong time.
I’d said the right thing, but I must have used the wrong line.
I took the right road, but I must have took a wrong turn.
Refried confusion is making itself clear, wonder which way do I go to get out of here.

Let me take a moment to tell you about the Noyes Foundation. We are a family foundation that was established 61 years ago. Charles F. Noyes made his money in real estate in New York City and his wife, Jessie Smith, was an advocate for women’s suffrage and civil rights in the early 1900’s.

In 1947, Mr. Noyes set up the foundation with the goal of providing scholarships to the next generation of leaders. He also decided that half of the scholarships would go to non-white students, a heroic decision at a time when racial segregation and discrimination were legal.

Today, we no longer award scholarships. We do make about $2.5 million in grants annually across the nation in the areas of sustainable agriculture, toxics, environmental justice and reproductive rights. In 2007, 49 percent of our 100 grants went to organizations with people of color as leaders and constituents.

We have a board of 17, six family and eleven non-family members. Forty-one percent of board members are people of color and 71 percent are female. Board members live in thirteen states.

We believe that within the philanthropic community, we have a responsibility to be an activist organization. In that regard we participate in more than a half dozen funder affinity groups, serving in key leadership roles. We promote policies and practices that improve our profession and seek out ways in which to advance social justice.

Today I want to talk about three things: accountability, diversity and shareholder activism.

I believe we are at a crossroads. Foundations are increasingly going to be scrutinized to ensure that we are providing for the common good. Collectively we must accept responsibility to ensure that our own foundations and the field adopt the highest professional and ethical policies and practices.

Four years ago, I led the Task Force on Shared Values and Professional Practices for the New York Regional Association of Grantmakers, one of your colleague funder networks. The result was the adoption of a statement – In the Public Trust - that spoke of the need to operate with integrity, be transparent, embrace diversity, collaborate and be bold. We talked about maintaining constructive relations with grantees and other funders based on mutual respect. Communication was an important theme we raised as was the need to exchange ideas and share knowledge.

We must do more of our work in public, be straight with grantseekers and follow sound business practices. And we need to call out those who betray the philanthropic trust. If we fail to be leaders in setting the bar high for our own profession, then we deserve government intervention and heightened criticism from the media.

Diversity. Let me say straight up that diversity is the right thing to do. Diversity also makes good business sense. By opening up the Noyes Foundation’s decision making table, we know more about real world viewpoints and experiences and are better able to make informed decisions. Having a diverse board and staff grounds us, making us more accountable to our grantees and their communities. In July our board adopted a more explicit statement about embracing diversity and challenging institutional and cultural discrimination which you can find on our website.

In May, the Rockefeller Philanthropy Advisors issued its report, Philanthropy in a Changing Society: Achieving Effectiveness through Diversity, a comprehensive examination of foundation diversity over a 25 year span. It found that staff diversity had increased to 23 percent in 2002, an increase of more than ten percent since 1996. At the program officer level, diversity more then doubled in 2006 to 35 percent compared to just over 15 percent in 1985. At the board level, diversity registered 13 percent, a steep increase from the 4 percent in 1982. It found that independent foundations had the most diverse staff; public foundations had the most diverse boards and corporate grantmakers the most diverse CEOs.

And what about grants? The share of grant dollars targeting minority populations increased modestly from 5.9 percent to 7.4 percent.

Okay, so some of you are saying thanks for raising this point. Others of you are wondering how a white, privileged male from New Jersey gets off talking about this. And there are probably a good number of you who think that even with good intentions it is too hard to deal with this in Oregon, a state that in 2006 was estimated to be 90.5 percent white.

It may be hard but not impossible. In fact, if you look at the census numbers a little more, you will find that almost one in five Oregonians is African American, Native American, Alaska Native, Asian and Latino.

Whatever you may be thinking, diversity and inclusiveness are issues here and now and you should be talking about them at your foundations. They sure are being talked about at other places. Most of you are probably aware of the California legislation, AB624, requiring public disclosure about foundation and grantee demographics. Most individual foundations and foundation trade associations came out squarely against the law.

We at the Noyes Foundation supported it. Why? You can read the full statement on our website but the bottom line is we think “there is a disinclination to act and no sense of urgency” and that “the philanthropic field is not sufficiently ‘moving the needle’ to advance diversity and inclusiveness.”

Now let me talk specifically to family foundations. It is without question more difficult for you to diversify your boards, many of which are limited by charter to family members. Most of you also have just one or two staff members. It was hard for Noyes at first too. But it took the courage of three family members back in 1985 to agree to expand the board and bring on new faces. So that is one avenue.

For those of you who cannot expand the board, you can still include perspectives of communities of color in your decision making. Advisory committees, in-house advisors, expanded grants committees are just some ways to diversify your foundation. There are plenty of tools on the Council on Foundation’s website to help you explore this area. You can also give us a call to talk through the issues.

Now suppose you just bought a brand new car. It’s a great car, one that you can do so much with, it’s reliable and gets you where you want to go. But it only uses five percent of its power. The other 95 percent is just stored in the trunk, sometimes getting fatter and other times shrinking a bit. You’d probably bring that car back to the dealer and demand a refund.

Well isn’t that what we do with our assets? We are required to pay out five percent of what we own but are not required to do anything else with the other 95 percent, the bulk of our resources. In fact, most of us cede control of these assets to third parties, money managers and consultants, whose primary interests are not our missions. We build a wall between program and investments. It is time that wall came down or at least made more porous.

In the early 1990’s, Noyes decided to harmonize our investments with our mission. We felt it made sense to use all of our financial resources to further our goals? We also wanted to ensure there was no dissonance between our grantmaking on the one hand and our investments on the other?

Our investment policy states that “we recognize our fiduciary responsibility does not end with maximizing return and minimizing risk. We believe that … fiduciary responsibility … will dictate the integration of prudent financial management practices with principles of environmental stewardship, concern for community, and corporate accountability to shareholders and stakeholders alike.”

The five fingers of our shareholder activism include screening, proxy voting, shareholder resolutions, company dialogues and venture capital investments.

We have exclusionary screens, such as nuclear power plants, top ten on the Toxic 100 list, tobacco, synthetic pesticides and fertilizers. We also have inclusionary screens, like signing the CERES Principles, avoiding genetically modified organisms, and providing reproductive services or insurance to employees.
We vote proxies. This year proxy votes were cast with 289 companies, including 279 votes for board of director nominees. We voted for the nominees of 164 companies (59%). But we also withheld votes for the nominees of 115 companies (41%) because none had any women on their boards. In August we sent letters to all 115 companies explaining our vote. So far, a dozen companies either wrote or called to discuss the issue. We also voted on 22 shareholder resolutions at 20 companies.
We’ve co-filed resolutions with Intel and other companies over the years, joining with large pension funds, unions and the Interfaith Center on Corporate Responsibility to put pressure on companies to change practices.
We communicated with companies in support of increased farmworker income, to express concern about toxic packaging, and to advocate for better labor and environmental practices.
Lastly, we invest directly in venture funds to support the kinds of business development that moves our agenda forward. We invested green energy and technology, organic food production and community based businesses. We even set up our own venture fund, Blue Dot, which is now winding down.

One other strategy is to support grantees who want to use shareholder activism as part of their change strategy. We provide a $2,000 grant for them to purchase stock in a targeted company. This gives them access to shareholder meetings and the ability to file shareholder resolutions.

So where do you start? Let me suggest that the first order of business is to go back to the board room and get agreement that you are not going to be passive investors, that you are going to use 100 percent of your resources to pursue your mission. Once you get that decision squared away, the next thing is to pick a strategy that works for you. Take baby steps. Don’t do anything that is impossible to achieve or beyond your current capacity. Seek out advice from those in the socially responsible investing field. Most importantly, whatever you do, don’t do nothing and miss the opportunity to get that car working on all cylinders – 100 percent of its power.

Okay, by now I have really kept you from going home. I hope when you get back to your offices you’ll give some thought to what I am saying today.

Take a look at your internal policies and practices – be the best you can be;
Assess how prepared you are to meet the demographic changes that are occurring now – As one of our Native American grantees said, “If you’re not at the table you’re on the menu.”
Evaluate your financial house – align your investment decisions with your values and make all your dollars work for you.

Thanks for listening.

Remarks by Victor De Luca
President, Jessie Smith Noyes Foundation
February 13, 2007 - Sustainability Practice Network

Every day we make choices. What to wear. What to have for lunch. Do we want paper or plastic? Should we brave the weather to attend tonight’s meeting.

Except for those that are whimsical, choices are made for a reason, in fact many reasons – some consciously and others unconsciously. So we are experts when it comes to choices – the best ones are informed, the good ones are better than the bad and often our choices are rewarding.

Ironically, when it comes to managing or investing our money, we tend to leave the choices to others. We generally take a hands-off approach to our investments, leaving the decisions to fund managers and corporate boards of directors.

I submit to you that there is a disconnect here. Not only do I want to choose paper or plastic, I want my money managers to think more broadly about the bottom line. I want the companies I invest in to integrate a set of social and environmental values in their business decisions.

The Jessie Smith Noyes Foundation is sixty years old. Our mission is to promote a sustainable and just social and natural system by supporting grassroots organizations and movements committed to this goal. Our funding priorities focus on environmental justice, communities threatened by toxics, a sustainable agricultural and food system, reproductive rights, and an environmentally sustainable New York City.

In the early 1990’s, we decided to broaden our choices to harmonize our investments with our mission. When it comes to foundations, the IRS requirement is that we payout at least five percent of our assets each year. For us the question became what to do with the other 95 percent. Should we use the bulk of our resources to further our mission? Should we ensure that there is no dissonance between our grantmaking on the one hand and our investments on the other? Should we look for ways to advance positive social and environmental practices and businesses through our investments?

Our choice was to “Just Do It.” We adopted an investment policy stating that “we recognize our fiduciary responsibility does not end with maximizing return and minimizing risk. We believe that in light of the social, environmental and economic challenges of our time, fiduciary responsibility in the coming decades will dictate the integration of prudent financial management practices with principles of environmental stewardship, concern for community, and corporate accountability to shareholders and stakeholders alike.”

There are three legs to our investment stool: screening, proxy voting and shareholder dialogues.

We have exclusionary screens, such as nuclear power plants, top ten on the Toxic 100 list, tobacco, synthetic pesticides and fertilizers. We also have inclusionary screens, like signing the CERES Principles, avoiding genetically modified organisms, and providing reproductive services or insurance to employees.
We vote proxies. In 2006, proxy votes were cast with 127 companies. There were 123 votes for board of director nominees. We voted for the nominees of 65 companies (53%). We withheld votes for the nominees of 58 companies (47%) because none had any women on their boards. We voted in accord with our guideline to “ratify Directors unless … there is a lack of diversity on the board.” We recently sent letters to 24 of these companies explaining our vote. So far, one company has responded. We also voted on six resolutions: four shareholder resolutions (voting for three and against one) and two company resolutions (voting against both.
We signed onto letters to: McDonalds – urging them to improve wages and working conditions of the company’s tomato supply chain and four electronics manufacturers asking about labor and environmental practices of their suppliers and we participated in a company dialogue with Henkel regarding their plans to use safer alternatives in its products.

By any measurement imaginable, we are not like the Bill and Melinda Gates Foundation.

A recent L.A. Times series reported on the perceived contradictions between the good works the foundation is doing and the negative impacts of the companies in which it invests. Patty Stonesifer, CEO of the Gates Foundation, responded that “it is naïve to suggest that an individual stockholder can stop that suffering. Changes in our investment practices would have little or no impact on these issues. While shareholder activism has worthwhile goals, we believe a much more direct way to help people is by making grants and working with other donors to improve health, reduce poverty and strengthen education.”

This sounds a bit like what someone said to us back when we first starting discussing our investments. He said that “the problem with tainted money is that there taint enough of it.” He went on to argue, somewhat implied in Ms. Stonesifer’s remarks, that a foundation primary investment goal should be to make as much money as possible from its investments so that it can make more grants.

Well we do want to make as much money as possible, but we want to do it in a way that reflects our values and is consistent with our mission. And we are not alone.

According to the Social Investment Forum, in 2005 nearly one out of ten dollars under investment in the United States – more than $2 trillion – was actively involved in socially responsible investing. Each year more socially responsible funds are established, giving investors greater choice.

Proxy voting is gaining traction among foundations and other institutional investors, including huge public pension funds. Shareholder resolutions are growing and shareholders seem to be paying more attention. Boston Common Asset Management reported that in 2006, 325 proposals were filed on social issues, with about 25 percent addressing environmental concerns. They say that a record number of social issues received over 15 percent support from shareholders.

As an individual investor in mutual funds, you have rights too. For the past couple of years, mutual funds have been required to publicly disclose how they voted on proxy issues. Votes are now listed on the funds’ websites. Contact your fund managers and ask that they vote a certain way. Use this information to make your investment choices.

Is any of this making a difference?

A new study by the Social Investment Research Analysts Network (SIRAN) found that in 2006, 79 companies in the S&P 100 Index included special sections on their websites, providing information about their social and environmental polices and performances. This is an increase of 20 companies or 34% over 2005. The study also found that over the past year, 12 of the largest U.S. companies issued corporate social responsibility reports for the first time.

There are many other examples of companies that have been convinced to improve their environmental, social and governance (ESG) practices. On other hand, there are some companies who have no interest in, and even an antagonistic attitude toward, ESG concerns. Exxon Mobil is a case in point. For years it has opposed environmental and alternative energy initiatives and questioned global warming. So how did they do in 2006? They made $39.5 billion. But even at Exxon Mobil things are changing. Rex Tillerson, the new CEO, recently said about global warming, “It is clear that something is going on. It’s not useful to debate it any longer.”

I look at this as an opportunity. And that is why the Gates Foundation should not be a passive investor. And that is why institutional investors should embrace their responsibilities as shareholders. And that is why you as an individual investor should not give up your choices.

A couple of weeks ago, Jon Entine of the American Enterprise Institute wrote an op ed in the Wall Street Journal criticized socially responsible investing. He wrote, “Selling a bad company would have no more impact than scooping a thimble full of water out of the deep end of the pool; it goes back in the shallow end when the person on the other side of that transaction buy it.” He may be right if avoidance of a stock was the only strategy employed.

But what if those of us with thimbles joined those with cups and those with pails and those with buckets to control enough water that we could press for changes like protecting the aquifer from which the water comes or finding alternatives to the chlorine chemicals now used, or paying decent wages to the pool boy. Our coalition of shareholders would have sufficient water power to convert to water pressure.

The money is ours or is entrusted to us. Let’s be active and exercise our choices.

Remarks by Victor De Luca
President, Jessie Smith Noyes Foundation
April 6, 2006 – Michigan State University

Responsibly Investing in Michigan’s Future:
Community Development Investment Strategies

Thank you very much for the opportunity to discuss prospects to advance socially responsible and mission related investing. Today I am going to focus my remarks on the market rate investment side of the ledger. I want to recognize the great work of our sister foundations, which have led the way in supporting their missions by using their assets for program related investments and other below market rate strategies.

Fifteen years ago when the Noyes Foundation’s Board of Directors discussed how to use the full complement of our resources to advance our mission, we talked it over with a group of stakeholders to get their feedback. Most thought an entry into socially responsible investing was the right thing to do. One respondent, a grant seeker, had a rather contrary perspective. After listening to the merits of aligning our program and investment goals, he said, “You know the problem with tainted money is there’s taint enough of it.”

His view, subscribed to by many charged with investing institutional dollars, is that the singular investment goal should be to maximize financial returns. After all, if an institution makes as much money as it can, there will be more resources available to pursue its mission. For these proponents, a wall should be constructed between investments and mission to allow for each to reach their highest potential. In the foundation world that wall is pretty high, less than 15 percent of surveyed members of the Council on Foundations report using social investment screens to guide their corporate investments.

Another view, one that we subscribe to, is that all parts of the organization should work in harmony to support the mission. Under this theory it is incoherent to do good works through our programmatic efforts and counter those acts by our investment decisions. The wall should come down and investment decisions guided by a philosophy that takes into consideration fiduciary, social and environmental bottom lines.

So is responsible investing and community development plausible? If on your computer you hit shift – F7, it gives you other words for plausible. Possible? For sure it is possible. Reasonable? I think it is reasonable. Conceivable? Certainly it is conceivable. Likely? Well, if we do not get organized and lead this effort, it is not likely to happen very soon.

What are the challenges?

For one, there are the “prudent investor” and business care standards. An 1830 Massachusetts court ruling spoke of exercising sound discretion and observing “how men of prudence, discretion and intelligence manage their own affairs.” It goes on to say that an investor should consider the “probable income” from such investments and the “probable safety of the capital to be invested.” Lewis Solomon, Professor of Business Law at George Washington University and Karen Coe offer an expanded view. Their conclusions are that a prudent investor may consider social implications only if they do not take precedence over financial considerations. According to Solomon and Coe, under the business care rule, institutional investors may equally consider social and financial factors. Others take an even broader view, arguing that investors may have a responsibility to weigh the effect that certain investments may have on charitable purposes and the pursuit of mission.

Another key challenge is the widely held belief that socially responsible or mission related investing has a negative impact on financial performance. There have been papers written and studies conducted that show that socially responsible investing does not hurt returns. And some have argued that companies that pay attention to issues of the workplace, the environment and the community tend to be better companies to invest in from a financial perspective. In January, Mercer Investment Consulting reported on a survey of 183 U.S. institutional investors which found that 75 percent “believe that environmental, social and corporate governance (ESG) factors can be material to investment performance.”

I think an equally important challenge before us is how to change the institutional investment culture. Whether a foundation, university endowment or pension fund, it takes willingness and leadership from the top of the organization to initiate these changes. At the same time I believe there is an opportunity to advocate and organize from the bottom up. In practice, what is needed is a grassroots and grass tops strategy for change.

I am hopeful and believe that we are witnessing a deeper interest by the public in including social criteria in their investment decisions. The 2006 Fearless Forecast by Mercer Investment Consulting showed that among 157 investment management firms from around the world, the “proportion of managers expecting increased client demand for the integration of environmental, social and corporate governance analysis into mainstream investment processes is 13 percent in the coming year, rising to 38 percent over the next three years.”

Let me tell you about the Jessie Smith Noyes Foundation. It was founded in 1947 by Charles Noyes, in honor of his late wife Jessie Smith. Mr. Noyes made his fortune in New York City’s commercial real estate market. For the first forty years, the Foundation provided scholarships and fellowships to individuals who shared Mr. Noyes’ commitment to fairness, integrity and hard work. In the late 1980s, the funding strategy was changed away from scholarships and fellowships to program grants to organizations working on agricultural, environmental and reproductive health and rights issues.

Today our mission is to promote a sustainable and just social and natural system by supporting grassroots organizations and movements committed to this goal. Our funding priorities are shaped by a view of the Earth as one community, an interconnected web of life in which human society is an integral part. We continue to fund the same issue work but we are now more interested in learning about ways to connect social movements.

On the investment side, we believe that:

our fiduciary responsibility does not end with maximizing return and minimizing risk,
economic growth can come at considerable cost to communities and the environment,
investors should consider these social issues in the pursuit of financial objectives, and
it is essential to reduce the dissonance between philanthropic mission and endowment management.

We also believe in making money. The Foundation is viewed as a perpetual institution. Therefore, investments with the potential to generate substantial and long–term returns that offset inflation are important to pursue. We utilize all the tools available to us as investors to obtain a competitive rate of return measured against industry-wide benchmarks.

Our investment philosophy did not just happen. In the early 1990s we began discussing ways in which to use the Foundation’s assets to further our mission and to reduce the dissonance between our grantmaking values and our asset management. The three strategies identified were

negative and positive screening of stocks and bonds,
shareholder advocacy and
mission related venture capital.

In 1993, we set up a limited liability venture capital company, Blue Dot Fund, with an initial allocation of $6 million. There were no ground rules other than a general mandate to invest in deals that were consistent with the Foundation’s values and mission. Over a ten year period, the fund invested $12.4 million in early and later stage investments and in mission-related venture funds. We have been winding down the Blue Dot Fund and the lessons learned from our experiences as a venture capitalist can be a topic at a future conference.

Through Blue Dot we invested directly in emerging companies: Stoneyfield Farms, producer of organic yogurt and milk products which contracted for raw materials with family farmers in the Northeast; Highland Energy Services, operator of programs to reduce energy use in commercial buildings; Just Desserts, San Francisco baker that created quality jobs in an urban enterprise zone; and Lyme Timber, investor in sustainable timber land management.

In addition to our own fund, we invested in other venture funds. We were among the initial investors in Coastal Ventures Limited Partnership, which focuses primarily on Maine and Northern New England. Coastal Ventures makes equity investments in growing companies which can generate above-average equity returns over five to seven-years and also meet social goals. These include the creation of high-quality jobs and ownership opportunities for low-income individuals, the production of socially beneficial and environmentally sound products and services, and the implementation of progressive management practices. The quarterly reports that investors receive not only measure the financial and management performance but also the number of jobs created.

Two more venture funds in which the Foundation is invested in are:

Commons Capital, which invests in "double bottom-line" early-stage companies whose products, services or corporate cultures promote a sustainable economy by delivering market solutions to major social and environmental challenges. Investments are made in companies working on clean energy, environment, education and healthcare. Commons Capital also looks for companies owned or managed by women and minorities, and companies that enhance community development and international sustainability.
Solstice Capital II is a $60 million socially responsible venture capital fund that invests 50% or more of its assets “pro-actively” in high growth companies promising significant, positive social or environmental impact in the field of energy/environment, healthcare/medical, and education/training.

Venture capital investments are not the only vehicle we have used to support our mission and to focus on community development needs. We have made some use of program related investments (PRIs) and recoverable grants. We have also made grants to organizations developing for-profit subsidiaries, including one selling sustainably harvested timber in a small community outside of Santa Fe, New Mexico and another operating a materials recovery facility in a South Providence, Rhode Island neighborhood.

Additionally, the Foundation’s social screens promote principles of sustainable communities. We ask our investment managers to look for companies with demonstrated leadership on charitable giving, innovative approaches to community development, environmental friendly building designs. We also seek to invest in companies that purchase goods and services from minority and women owned businesses and actively promote contract opportunities for minority and women owned suppliers and service providers.

Lastly, as an active shareholder we engaged in dialogues with and send letters of concern regarding various issues to decision makers in corporations in which we own stock. We have voted our proxies in support of resolutions calling for an end to predatory lending and for the inclusion of community factors in corporate planning.

Our experience is that options are available for institutional investors to engage in mission-consistent and/or community investing. Again it is about changing the way in which investors think about their responsibilities.

So what about the broader picture for community investing?

The Social Investment Forum’s 2005 Report on Socially Responsible Investing Trends in the United States, shows that socially responsible investment assets in the United States are at $2.3 trillion, a 258 percent increase since 1995. Of the $2.3 trillion, $19.6 billion or one percent is in community investing assets, defined as “capital from investors and lenders that is directed to communities that are underserved by traditional financial services.” The $19.6 billion in 2005 is up from $13.7 billion in 2003 and from $4 billion in 1995.”

The 2005 Report identifies four primary community investment options:

Community Development Banks – 54 banks with assets totaling $10.1 billion.
Community Development Credit Unions – 275 credit unions with assets totaling $5.1 billion
Community Development Loan Funds – 180 funds with assets totaling $3.4 billion
Community Development Venture Capital Funds – with $870 million of capital under management

There are new and exciting investment products coming onto the market. I suggest that you visit the web site of the Community Investing Center or that of the Community Development Venture Capital Alliance.

And then there is the putting your money where your mouth is. In 1999, the Public Welfare Foundation purchased the True Reformer Building in Washington, DC’s Shaw neighborhood. In 2001, they moved their offices there from the famous Watergate Hotel. The True Reformer building was the first in the nation to be designed, financed, built and owned by the African American community after Reconstruction. The foundation’s building is integrated into the community, with its resources available to community-based and civic groups. Now the Foundation has teamed up with the Manna Community Development Corporation to build 12 affordable homes on land that the Foundation owns.

Another great story is the Jacobs Family Foundation in San Diego, which invested $5 million in the Diamond neighborhood and worked with residents to create the community-owned Market Creek Plaza. The Plaza is a 75,000-sq. ft., three-story building housing a cultural training kitchen, a state-of-the-art meeting and conference center, accessible community and office space, a showplace for public art and a neighborhood gathering place. With creativity, respect for cultural diversity, and passion for their community, resident teams transformed the site of an old dilapidated aerospace factory into a vibrant community hub with 11 national and local business (some owned or managed by local residents) and more than 170 new jobs.

So the opportunities are available. The question is do we have the will?

In September of 2005, the National Committee for Responsive Philanthropy (NCRP) issued “A Call for Mission-Based Investing by America’s Private Foundations.” The Call states that “nonprofit endowment assets, including foundations, universities and hospitals, easily top $1.3 trillion, though some estimates including institutional investors such as pension funds, put the tax exempt endowment total at some $7.3 trillion.”

NCRP feels the foundation community should do more: “The overall picture is one of foundations with large amounts of capital failing to make it reasonably accessible to the nonprofit sector whether in grants or loans or other kinds of investments…How can foundations reposition themselves to become the doorway to a functional nonprofit capital market, both providing capital from the billions currently capitalizing for-profit corporations and leveraging government and private capital?” Their proposal is for foundations to “devote a similar proportion of their endowments … for mission-related investments. Taking the most recent number on foundation grantmaking, that would be $30 billion in investments matching $30 billion in grants. Anything less…shortchanges the nonprofit sector and diminishes the potential of institutional philanthropy.”

NCRP offers two rather interesting suggestions that are worthy of our consideration. The first deals with foundation program staff, who NCRP believes do not understand much about nonprofit financing. NCRP suggest a massive undertaking “to identify and train the thousands of staff people working for major foundations and turn them into financiers.” Second and more boldly, NCRP proposes the creation of a financial intermediary, with significant financial resources, that can “function between the nonprofit and foundation spheres as a vehicle for legitimizing foundation endowment investment.” They suggest modeling the intermediary on the success made by the Local Initiative Support Corporation (LISC) and Enterprise Foundation.

The past January, Mark Kramer and Sarah Cooch of the Foundation Strategy Group issued a report for the Shell Foundation entitled, “Investing for Impact – Managing and Measuring Proactive Social Investments.” I think it is a valuable read on how to measure social and financial impacts. They wrote, “ Proactive social investment is an activity that holds immense promise for foundations and other organizations dedicated to social progress, yet the field remains largely undeveloped…The hundreds of billions of dollars in foundation assets currently held in conventional investments are certainly one resource that must be tapped.”

To advance the field of social investment Kramer and Coe suggest collecting better information about financial performance of PRIs, cataloguing social investment options to help investors better understand the field, clarifying fiduciary duty with regard to risk and return, creating intermediaries or pooled funds to reduce staff time and costs, developing a standard approach to measuring and comparing returns on social investments, and establishing better communication among those who are active social investors.

The last idea I want to raise with regard to moving this agenda is pressure from the bottom up. Everyone is a consumer and/or a constituent. We buy products of companies, we engage providers for services and we pay tuition for our education. We should utilize that connection as an opportunity to make change. A few years ago the Noyes Foundation funded an organization – the STARC Alliance – Students Transforming and Resisting Corporations. Among the many things that STARC did, was a Community Investing Campaign on college campuses. As reported to us in a 2004 final grant report: Vassar College – two percent of its endowment was to be invested in a socially responsible fund; Williams College – a social choice fund was started; Portland State University – a community investment fund was set up as part of its endowment; and Mount Holyoke – students were working on two percent of the endowment going to a screen fund and one percent into community investing.

I read with interest the web site information about The Campaign for MSU, “a comprehensive capital campaign designed to better prepare Michigan State University for meeting the needs of the next 150 years.” The goal is to “maintain excellent investment returns while minimizing the associated market risk.” It spoke about the investment managers focusing on “investment fundamentals and risk controls to keep the record of investment performance outstanding.” It also touted how the returns have been ranked near the top in the nation.

A survey by the National Association of College and University Business Officers showed that the average return on endowments in 2005 was 9.3 percent. That was a drop from 15.1 percent in 2004 but still significant. The study also showed a growing trend toward alternative investments, such as hedge funds, private equity, venture capital, natural resources and real estate. Such holdings went from 12.8 percent in 2004 to 15.1 percent last year. This is a good sign because it is in the alternative asset class that you will find more opportunities for mission related investing.

The challenge before us is to change the culture of investing, making social and community investing criteria against which we measure institutional investment success. We know the assets are there to be invested. We know the products are there to be utilized. We know there are good models to follow. And we know the successes that have been achieved. Now we need to know if we have the will to make it happen.

I suggest to you that the trends are moving in the right direction, more investors are aware of mission investing and more communities are looking to scale up and partner with investors to pursue unique development opportunities. It is now our responsibility to tip the scales in our favor, using sound information, rational persuasion and good old fashioned organizing to get it done.

I thank you again for the opportunity to share my views and look forward to your questions.

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