As a private charitable foundation, we have the privilege and the responsibility to deploy all of our assets to help advance our mission to foster a resilient, inclusive and sustainable society that can successfully address its complex challenges. The scale and the urgency of the issues facing our three main focus areas of Communities, Reconciliation and Climate require large-scale mobilization of public and private capital, including philanthropic funding, loans, and investments, in order to create lasting change.
That is why, over the next five years as market conditions continue to evolve and more investment products become available, we aim to commit the entirety of our endowment toward investing for impact. We will deploy all $655-million dollars of our assets in the form of both charitable funding and investing toward generating measurable, intentional positive impact in our communities and for the environment. We are also committing to achieving net-zero carbon emissions in our investment portfolio by 2050 and divesting our fossil fuel holdings by the end of 2023.
Our commitment is part of a growing movement of investors, including philanthropic foundations, seeking to create impact with their capital and a widespread recognition that capital markets must demonstrate greater concern for societal and environmental impact alongside financial return. In Canada, the philanthropic movement has been energized by Inspirit Foundation’s 2016 commitment to a 100% impact portfolio. Their work has been an inspiration to our strategy. We hope to build on the momentum they started, and that other Canadian foundations will consider embarking on this journey alongside us.
“The scale and urgency facing our environmental and social systems requires both a large-scale mobilization of capital and long-term stable investment. By aligning all of our assets toward impact – both our charitable funding and the entirety of our endowment – we hope to amplify the impact of our partners and help to create lasting social and environmental change.”
-Lili-Anna Pereša C.Q., President and CEO
The McConnell Foundation was originally endowed with a first gift from J.W. McConnell in 1937. The endowment has since been managed to generate returns that fund our operations and charitable activities for long-term impact. Our impact investing journey began with a single bridge loan to Quest University for $10M in 2007. The loan was repaid in full, with interest in 2009. This was an important milestone for us; it gave us the confidence to further explore impact investing as a means of advancing our philanthropic objectives. After a few more successful investments, our Board approved the mandate to allocate 5% of our endowment to impact investing in 2012. Not long after, we doubled that goal to 10%, achieving it in 2018.
As more impact investment opportunities became available and as our impact portfolio grew, our investment strategy continued to evolve. Today, over 20% of our endowment is allocated to 31 impact investing funds aligned with our mission. Our progress to date and the commitments in this strategy have been made possible by the enormous amount of work, from a diverse range of actors, that has gone into building the impact investing ecosystem in Canada and globally.
As part of our new strategy and recognizing that our three focus areas require both an urgent mobilization of capital and long-term stable investment, our staff and board have spent the past year developing a strategy to transition all our assets toward advancing our mission. In December of 2022, our Board approved the following:
- A gradual increase in our impact investments over five years to reach 100% impact investing, while achieving a sustainable financial return so that we may continue funding our operations and charitable activities for years to come.
- A commitment to net zero carbon emissions by 2050 at the latest, with interim reduction targets of 36% by 2025 and 60% by 2030.
- Divestment of all fossil fuels holdings by the end of 2023.
Our investing strategy
In setting the goal of aligning all our investment assets with our mission, we hope to help build a thriving impact investing ecosystem in Canada, accelerating the shift to an impact-first economy where all investments contribute to meaningful positive impact for people and planet. As the ecosystem evolves, our commitment to 100 per cent impact becomes more achievable.
In addition to aligning with our mission and focus areas, our investment strategy aims to:
- scale impact
- build and influence the market through financial innovation and by shifting corporate and institutional behaviour,
- strengthen the capacity of the community sector by enabling new forms of finance for charities and non-profits, and
- Align our investments, both new and existing, with international impact management best practices, including the integration of equity, diversity, inclusion, and accessibility (EDIA) considerations throughout our investment process – from due diligence through to investment decision-making and portfolio and impact management.
Working within our existing investment policy, we seek to build a balanced portfolio that meets the dual objectives of generating returns to fund our activities while also achieving measurable, solutions-oriented impact. Our investments include Mission–Related Investments (MRIs) and Program–Related Investments (PRIs). MRIs are made with established managers whose strategies and organizational characteristics align with institutional investor requirements, delivering market rate returns alongside positive social and environmental impact (MRIs). PRIs, which often have lower rates of return, provide catalytic capital to help products and business models scale to deliver impact, will continue to be a core part of our impact strategy. They will increase over time to represent approximately 5% ($32M) of our endowment.
We also understand that as the wider responsible investment market continues to grow, the need for a shared commitment to transparency and consistency around impact performance has never been greater in order to ensure our investments are genuinely leading to better outcomes. We have refined our approach to measuring, monitoring, and reporting on the impact – both positive and negative – that our investments generate. Our process draws on trusted international frameworks and principles and includes the complete integration of diversity and inclusion considerations in our investment process. We will continue to report on our progress annually through our published impact report.
“Philanthropic investors are uniquely positioned to make impact investments a core part of their portfolios. And, because of the depth and breadth of opportunities now available in the market, complete or near–complete allocations to impact investments is now possible. At the same time, there is a growing need to ensure that impact transparency and accountability are at the heart of any future market growth. We are, therefore, committed to transparently reporting on the impact that is (and is not) being achieved by each of our investments over time.”
-Ed Piro, Chief Investment Officer
Net-zero carbon emissions by 2050
As one of our core focus areas, addressing the climate crisis will continue to be a priority in our investment strategy. The Intergovernmental Panel on Climate Change (IPCC) has reported that, in order to avoid catastrophic impacts from climate change, we must limit the average global temperature rise to no more than 1.5°C above the preindustrial era. To achieve this target, global carbon emissions must decline by approximately 45% relative to 2010 levels by 2030 and reach net zero around 2050. Canada’s actual carbon emissions have decreased by only 9.3% only since 1990. We have a long way to go.
As stewards of capital, we have a fiduciary responsibility to consider all material factors that may impact the risk-adjusted returns of our investments, including climate-related financial risks and opportunities.
In 2021, we signed the Canadian Investor Statement on Climate Change. As a first step on our path to net-zero carbon emissions in our portfolio, we are divesting from all fossil fuels. The process of divestment, which includes the application of negative screens for all companies that derive at least 10% of their revenues from the production, distribution or retailing of fossil fuel products will be completed by the end of 2023.
We have also made a commitment to reach net zero carbon emissions by 2050 at the latest (based on a 2020 baseline), setting interim milestones that align with the accelerated European Union objective of a 60% carbon emissions reduction by 2030. We will shortly be publishing McConnell’s Net-Zero Action Plan and will be reporting on our progress annually.
As we embark on this new strategy and implement our Climate Action Plan, we are cognizant that this will be a learning process. We will have successes and we will make mistakes. For the sake of transparency and to share what we learn, we commit to sharing our experience with our partners in the sector through regular updates, our impact reports, and our updated due diligence approach.
We hope that other institutional investors will join us on this journey toward 100% impact. We invite you to connect with our investment team to learn more.