Jennifer Astone can’t pinpoint exactly when she began to feel uneasy about how the boards of foundations were investing their endowments.
A cultural anthropologist by training, she loved her job as a foundation executive, meeting with grassroots communities and human rights activists around the world and funding their work.
But as executive director for the Swift Foundation, which supports biocultural diversity and community resilience, she became increasingly frustrated to learn that the endowments of foundations similar to hers were often invested in companies that were damaging the environment and exploiting communities—the very companies that were being criticized by the nonprofit groups her foundation and others were funding.
Astone also knew that small farmers in the United States were being squeezed by consolidation and lack of access to financing, while agribusiness companies in Africa were clearcutting forests and promoting genetically modified seeds. The former Monsanto official overseeing Malawi has even tried to push the country’s government to outlaw seed sharing among farmers.
”It’s kind of insane they could criminalize the exchange of seeds on the continent where 80 percent of the farmers use seed exchange,” Astone told Inside Philanthropy. ”To undermine this culture—and genetic diversity—is frightening. It’s a human rights violation.”
Connecting the Dots
All this led Astone to look more closely at where foundations were investing their endowments—and how they could better use them to support small farmers and sustainability. What she learned was disheartening: that when it comes to sustainable agriculture and human rights, foundations were often investing their endowment funds at cross purposes from where they were directing their program funds.
Even the investment arm of Swift Foundation—which made many mission-related investments and social finance loans—had most of its investment capital tied up in global companies whose profit-making operations the staff knew little about.
This gave rise to other questions: How could foundations align their mission with their investments? And how could they put serious money behind small farmers and other groups challenging industrial agriculture, whose practices were contributing heavily to global warming?
Her investigation led Astone on a journey from grantmaker to financial activist.
After learning more about social investing through RSF Social Finance’s Integrated Capital Institute, a fellowship program, she urged other foundations to take a hard look at their investing practices. With Tim Crosby of the Thread Fund, which taps multiple forms of capital to generate social and environmental returns, Astone convened a meeting in Minneapolis of 20 like-minded foundations. This eventually became the Transformational Investing in Food Systems Initiative (TIFS), a network of funders committed to creating a community of practice where they could share investment opportunities, learning and insights into investing in small farmers, social justice and sustainability. Astone also led the Swift Foundation’s work with the AgroEcology Fund and the Global Alliance for the Future of Food.
Social financing aimed at transforming food systems is a welcome addition to the grantmaker toolkit—even if the funds committed are dwarfed by the spending of agribusiness companies, says agroecologist Robin Currey, a professor, and director of the Masters Program in Sustainable Food Systems at Prescott College in Arizona.
“The issue is the bigger dollars are coming from the U.S. government [for agribusiness], so the dollars coming from foundations are still not enough,” Currey told Inside Philanthropy. “We’re not at scale yet on any interventions that specifically support smallholder farmers. But this is a great start, and I’m excited to see how they are going to address the issue of scale and specific impact for smallholder farmers going forward.”
The network, however, was still in the future when Astone went to the Swift Foundation board and asked to have the board divest itself of fossil fuels. The board members, in turn, asked her to do some more investigation. Over the new three years, Astone and a group of consultants did research that convinced the foundation to adopt No Buy Guidelines and sign the Invest Divest Pledge, a global initiative urging organizations to divest in fossil fuels and invest in climate solutions.
The foundation also divided the portfolio into core and transitional investments, the latter of which now devotes $10 million focusing on social impact investing. “After our investment manager realigned our endowment along our No Buy Guidelines,” Astone said, “I discovered it was 99 percent fossil fuel-free!”
Creating a Food System Financing Network
In the sustainable agriculture financing network, some funders agreed to invest in pooled funds, which mitigate risk since any portfolio losses are shared by co-investors. These food system-focused funds include the Iroquois Valley Farmland REIT, RSF’s Food System Transformation Fund, and California FarmLink (Swift invests in FarmLink, Iroquois Valley Farmland, and RSF’s fund; RSF invests in Iroquois Valley Farmland, which has invested in 50 farms in 14 states for a total of nearly 10,000 acres).
Astone left Swift Foundation and affiliated networks this month to become a principal at Integrated Capital Investing in Aptos, California, but she still engages in informal advising and consulting with her former colleagues. Meanwhile, the TIFS’ social financing network has swelled to at least 24 foundations.
One of the network’s key goals is financing small farmers, small food distributors and related businesses, which is crucial to building a resilient food system. As Astone and Meredith Storton of RSF Social Finance explained in a recent article for the Stanford Social Innovation Review: “‘Small’ doesn’t mean insignificant in this sector: Small farmers feed 70 percent of the world’s population and are responsible for 20 percent of agricultural sales in the US. Yet lack of access to affordable farmland and capital is limiting the number of new farms and farmers—a troubling fact given the average age of the U.S. farmer is 58.”
Not only that, the authors noted, but service providers are meeting only one-fourth of the estimated $200 billion in capital needed by small farmers, according to a recent study by the Initiative for Smallholder Finance (ISF).
At RSF Social Finance, Storton is in charge of sourcing and evaluating prospective borrowers and strengthening existing relationships within RSF’s Food & Agriculture portfolio. Talking with Inside Philanthropy, Storton explained that lenders are naturally risk-averse, and smallholder agriculture is marked by both low financial returns and high risk (think: weather, pests, natural disasters, volatile prices, consolidation, and more). Smallholder farmers, she says, “need slow, flexible, patient capital in order to thrive.”
And that’s just what RSF Social Finance, the Swift Foundation, the Surdna Foundation, and other like-minded foundations are trying to provide.
“We know industrial agriculture is a huge player here, and immigrants and people of color [who farm] are at a disadvantage,” Astone told Inside Philanthropy earlier this year. “FarmLink addresses that head-on in the way they develop their credit review—they’re able to loan to people who don’t have assets but who have strong farming experience.”
With the foundation’s backing, California FarmLink is slating 75 percent of its loans to farmers of color—one of the most underrepresented groups in US agriculture—and 85 percent to low-income farmers.
Kudos and Challenges
One of the California farmers to receive a loan was Luis Silva, who spent nearly 40 years picking strawberries and other crops as a farmworker in California. His fortune changed in 2015 when he was able to open Silva Organic Farms, specializing in celery, mixed vegetables, and strawberries. He joined two other Latino-owned farm businesses in a search for a large swatch of certified organic land with access to water and good soil—an increasingly difficult proposition in California. But in 2018 FarmLink helped their dream become a reality by giving them operating loan money to buy 60 acres of organic land near Watsonville, the strawberry capital of the nation.
“It’s critical for foundations to measure return on investment in something other than just yield,” Astone says. “To combat climate change, we’ve got to look at pollution, greenhouse gases, and other downstream costs of doing business as usual.”
Currey agrees. “Foundations can absolutely make that shift—the science of impact measurement of food systems is still in its infancy,” she told Inside Philanthropy. “In agribusiness, we have to take into account the hidden costs of water contamination from pesticides and the impact on our fisheries due to phosphorus in synthetic fertilizer. Also, the availability of highly processed, high-calorie foods are associated with obesity, diabetes, high blood pressure, coronary artery disease—none of that is factored into the cost of cheap food.”
However, Currey does sound a cautionary note about foundation expectations on returns from sustainability initiatives abroad, based on her own experience.
In 2008-2013, she worked in the Mercy Corps as a country director in Kyrgyzstan, where she ran a program to help families become economically self-sufficient by planting backyard apple orchards and kitchen gardens. She found that even a return rate considered low by U.S. standards was too high for a developing country.
“If you’re demanding rates of return that are challenging for social businesses in developing countries, there’s a potential to actually cause harm through well-meaning investments,” she says. “If investors are expecting a return of at least 6 percent, the cost of funds will put considerable pressure on businesses.” The cost of funds, she explains, is the amount of money one has to “pay” in order to use money, which can include losses due to exchange rates and other factors.
“If a company makes a 4 percent profit on the year, they will actually be at a loss because it costs 5 percent to get the funds. But if the cost of funds becomes zero, it then frees up the business.”
Another sustainability expert who did not wish to be identified mentioned that social investing in sustainable farming has been around for several decades but has had little impact because foundations lack sufficient capital and are reluctant to put money into program-related investments (PRIs). In his opinion, foundations would need at least $10 billion in assets to make a real difference in terms of sustainable agriculture.
Currey acknowledges that the foundations involved in the food system investing network convened by Swift and RSP are fairly small, but she feels the work makes a difference.
“There’s a lot of very positive potential for targeting the middle of the value chain,” Currey says. “This is where more energy and effort is still needed. Foundations can really be the disruptors in any sector that aligns with their missions. They can be the innovators. They have a lot of nimbleness in what they choose to fund and how they measure it. Also, they can make these changes quickly because they’re not accountable or beholden to a lot of institutions outside of their own. In making smaller, more risky investments to local food systems, they can be truly effective.”