How Foundations Are Using Impact Investing to Advance Racial Equity
How Foundations Are Using Impact Investing to Advance Racial Equity
In this series, presented in partnership with Mission Investors Exchange, 10 foundation presidents share their organization’s efforts to embed commitments to racial equity into their institutions and impact investing practices.

The demographics of the United States are shifting. By 2050, people of color will represent half the total population and more than half the working-age population. Through rigorous study and economic modeling, we’ve learned that the benefit of closing the racial equity gap in the United States is valued at $1 trillion in earnings today. The corresponding gain in 2050 gross domestic product (GDP) would be $8 trillion—more than the current GDP of every nation in the world except the United States and China.

People of color drive population growth, but population growth alone does not equate to economic growth. (Image from Kellogg Foundation’s “Business Case for Racial Equity”)

The opportunity costs of racial inequity are too great to ignore, and at the W.K. Kellogg Foundation, we have learned over many years that it will take more than strategic grantmaking to capitalize on this potential economic boon. Impact investing’s first wave of adopters, many of whom will contribute to this article series co-launched with an essay by Mission Investors Exchange, has demonstrated it is possible to invest with purpose and create real impact. That’s no longer a question. But building a capital system expansive enough to include all Americans and creating pathways of equitable opportunity takes hard work, commitment, and an intention to advance racial equity.

Racial Equity and Mission Investment at the Kellogg Foundation

The Kellogg Foundation has made investments that track against the patterns of racial and economic disparity since 1930. When cereal product innovator Will Keith Kellogg—an entrepreneur himself—established the foundation, he described its purpose as promoting the health, education, and well-being of children and youth without regard to sex, race, creed, or nationality. Over almost 90 years, we have built on that legacy. The foundation has been making targeted investments to dismantle the crippling effects of racial inequity since the 1960s, including ongoing investments that support historically black colleges and universities.

Since then, we have implemented a wide range of programs, both inside and outside our grantmaking portfolio, that explicitly foster diversity and advance racial equity. These include America Healing (2010); Truth, Racial Healing and Transformation (2016); a National Day of Racial Healing (2017); and the Solidarity Council on Racial Equity (2018).

In 2007, the Kellogg Foundation Board of Trustees committed the foundation to being “an effective antiracist organization that promotes racial equity.” In this pursuit, we have scrutinized internal policies and practices, as well as every aspect of grantmaking. Over the past decade, our staff composition has changed from 24 percent to 44 percent people of color, and our combined senior leadership and board is now 50 percent.

In 2007, we also began discussions about impact investing, and in 2008, we allocated $100 million of the foundation’s endowment for market rate, mission-related investments. We have been investing, learning, and honing our strategy to align our mission investment work against the foundation’s deep commitment to racial equity ever since. In fact, the Kellogg Foundation remains one of the largest foundations to invest funds in advancing its mission through mission-related investments (MRIs) and program-related investments (PRIs). Over the last 10 years, we have deployed more than $152 million in MRIs and an additional $48 million in PRIs.

Over the past decade, Kellogg Foundation staff composition has changed from 24 percent to 44 percent people of color. (Image courtesy of W.K. Kellogg Foundation)


We also work to build diversity within the investment community through our Emerging Managers Program, with the goal of generating above-market-rate returns from new managers. Working in partnership with Progress Investments, we provide support and investment capital for a set of high-potential firms owned by African Americans, Latinos, Asian Americans, and women to help build their investment funds, unlock new opportunities, and eventually manage more of our $8 billion portfolio. We currently have allocated $205 million dollars for these emerging managers to oversee—$120 million in the core program and $85 million as additional investments for high-performing managers.

Reshaping Capital Systems for Equity

Racism, and conscious and unconscious bias, are well-known barriers to quality education, employment, safe neighborhoods, healthcare, and housing in many communities. Traditional capital systems have compounded the problem and led to unprecedented inequality for low-income communities and communities of color. As of 2017, the gap in median net worth between white households and households of color was $110,000. In addition, 32 percent of black children lived in poverty, compared to 5 percent of white children, and 1.6 times as many whites as people of color owned homes. Meanwhile, in financial services alone, minority and women-owned firms controlled less than 1 percent of all hedge fund assets, less than 2 percent of all real estate assets, and less than 5 percent of all equity assets.

If we do not seek new approaches that expand opportunities for more people, our economy and the private sector will continue to leave revenue on the table. The good news is that Gen X, Millennials, and Gen Z investors recognize that racism and white supremacy are a business risk. Now more than ever, impact investors are well positioned to re-imagine a capital system that creates opportunity for new approaches that maximize profits for all.

Several investments we’ve made over the past few years demonstrate that influencing capital markets—and making the people who control capital markets more diverse—can make an impact. For us, that means improving the lives of children, their families, and their communities. In 2015, to address lack of business financing for people of color,  the Kellogg Foundation launched an Entrepreneurs of Color Fund (EoC Fund) with a $3.5 million PRI and $3 million from the JPMorgan Chase Foundation. The fund has since deployed more than $6 million to 62 businesses in Detroit and has a default rate of less than 2 percent. Ninety-eight percent of the borrowers are people of color, and 57 percent are female. EoC Fund businesses have helped create or retain 642 jobs in Detroit, many in communities of color that are still working to recover from decades of systemic disinvestment and the city’s bankruptcy. And in 2018, the fund hit an important milestone, more than tripling in size to $22 million in three years, and is being replicated in other metro areas throughout the United States.

In 2017, we made a $4 million MRI in SixUp Community Fund, an education finance marketplace that helps underbanked, underfunded students bridge the financial gap that often stands between them and selective four-year colleges. Studies have shown that students of color carry the most student debt and are most likely to default, impeding their ability to move up the economic ladder. SixUp gives low-income, high achievers the same access to opportunity as credit-worthy, higher-income peers. The fund is a promising solution to student debt, particularly debt for students who come from households that can’t cover the cost of attending four-year colleges. Providing cost-efficient, non-exploitive, and culturally competent financing to students will help place them on a path to completing school and attaining employment so that they can ultimately achieve greater economic prosperity and success.

Pathways to Action

For the Kellogg Foundation, investing with a racial equity lens requires that we identify opportunities with people and in places traditional capital markets often overlook. We don’t have all the answers, but we’ve been at this a long time. For me, advancing racial equity is not simply my job; it’s my life’s work. I encourage other leaders to apply the same basic principles to their work as we have applied to ours, including:

  • Reflecting on your own biases and learning together
  • Challenging structural racism and supporting healing
  • Yielding power and fostering humility
  • Amplifying community voice and wisdom
  • Embracing change and exploring creative possibilities

We need leaders with the courage to keep this issue front and center. We need creative thinkers who will help us tackle this complex problem. We need resources—grant capital and investment capital. And we need more voices added to the burgeoning choir that says: We need to do better. When we stand together, we are closer to creating the society that all of our children deserve.