(Illustration by iStock/Henki Lestio)
I joined Inspirit Foundation as its director of finance and impact investment back in 2015. Based in Toronto, Inspirit is a public foundation that advances racial, social, and economic justice in Canada. At the time, Inspirit was dabbling in its first impact investments. A short time after in 2016, we committed to a 100 percent impact portfolio—a pledge to allocate all our assets to investments that generate positive environmental and social outcomes.
I was the driver behind Inspirit’s complete overhaul of its portfolio, shifting from a traditional approach invested broadly across the stock market to one entirely composed of impact investments across public and private asset classes. I designed the portfolio’s transition strategy and was tasked with implementing the commitment. I won’t pretend the path ever felt certain: My doubts were strong. I suspect that those same doubts hold back many who are drawn to this approach. I believed this was the right decision for the organization, but I was privately concerned we might sacrifice returns in the name of impact and validate the skeptics.
In the end, we proved the skeptics wrong: Our impact portfolio outperformed traditional investing over a 10-year span. To my knowledge, Inspirit became the first institutional portfolio to achieve a decade of outperformance while maintaining a 100 percent impact mandate. Its success should inspire bolder experimentation and commitment to impact investing as a strategy compatible with investing for returns.
Portfolio Overhaul
When I first joined Inspirit, it was immediately evident to me that the portfolio needed a complete overhaul.
First, the foundation’s grant-making dollars advanced social progress while its investment capital worked against it. Grants funded efforts to build a better future, while the investment capital bought shares in businesses contributing to the very problems the foundation was trying to solve. While reconciliation with Indigenous peoples was one of Inspirit’s strategic priorities, some of the foundation’s assets were invested in energy companies with a history of illegal appropriation and exploitation of Indigenous land and resources. That had to change.
Second, I believed in the business case for investing with an eye toward positive social and environmental outcomes. My view wasn’t simply that impact investing would outperform, but that businesses solving long-term societal challenges would be better positioned for long-term financial success than companies creating or ignoring those challenges.
That belief naturally led us toward investment areas such as healthcare innovation for an aging population, the energy transition, and financial inclusion, while avoiding industries we believed faced increasing structural headwinds, like tobacco, firearms, and fossil fuels. I believed that investment hypothesis would eventually prove true. What I wasn’t sure about was how long the proof would take. The reality was that there was no contingency plan, no turning back. The foundation set out to honor its commitment, regardless of time horizon.
I first heard about the concept of a 100 percent impact portfolio from a consultant’s research report published in 2012 that an investment advisor shared with me. The report referenced Heron Foundation, a private foundation based in New York City focused on community economic development. Under the leadership of then CEO Clara Miller, Heron in 2012 committed to invest the entirety of its assets to further its mission. Its bold approach captured my attention, and I followed its progress closely. I took my first work trip after joining Inspirit to meet Miller at the Heron office in Manhattan.
Our conversation framed the whole project for me: Increasing the impact of every dollar and earning strong financial returns did not have to be competing goals. And so, this idea became the crux of Inspirit’s new investment policy statement that embedded social and environmental outcomes into its investment strategy. We redefined fiduciary duty as optimizing for both risk-adjusted financial returns and risk-adjusted positive impact.
The policy also laid out why we believed this approach would succeed over the long term: “Our expectation, based on historical and simulated data, is that companies focused on industries that provide solutions to our world’s most pressing problems will be better positioned for long-term financial success than companies that have neutral or negative effects.” In other words, the portfolio was built for where we believed the economy was heading, not where the market happened to be rewarding capital at any given moment. That sentence became the lens through which every investment decision was made.
From there, the real test began: building the portfolio. On the private markets side, the foundation invested primarily through debt, private equity, and pay-for-performance instruments. Over the following decade, Inspirit made 30 private impact investments, with no losses or impairments to date. That record is itself an argument.
Inspirit became known for its willingness to be the first investor in a fund or project. It was the initial investor in Raven Indigenous Impact Fund, Canada’s first Indigenous venture capital fund supporting Indigenous ventures generating value for their communities. The foundation was the first investor in Windmill Microlending, a loan fund providing financing to new immigrants pursuing professional accreditation that has since raised more than $60 million and also a fund managed by BKR Capital, Canada’s first institutional Black-led venture capital firm funding Black-led businesses meeting the unmet needs of marginalized communities.
The public markets posed a harder problem because Canadian asset managers were not prepared to meet Inspirit’s unusual goal of marrying financial returns and positive impact. So the foundation partnered with asset managers to create new mandates that could satisfy its more holistic investment goals. In every public asset class, Inspirit’s investment was the first money in, teaming up with managers to become the first investor in new investment vehicles built specifically to meet the foundation’s financial and impact requirements. That’s what happened with Addenda Capital’s new impact fixed income fund, and the early results were so strong that others joined us. Addenda’s public fixed-income mandate now has over $700 million CAD ($497 million US) in assets under management—quite the leap from Inspirit’s initial $8 million CAD commitment.
Even cash had the opportunity to work toward our impact objectives: The foundation moved its bank account to a credit union that leverages deposits to finance affordable housing, clean energy, and social enterprises.
One of our most important decisions was to benchmark the portfolio against traditional market indexes, such as S&P/TSX Composite for Canadian equities, MSCI World for global equities, and FTSE Canada Universe Bond for the fixed income allocation. If we were going to claim impact investing worked as desired, the portfolio needed to be measured against the most common investment indexes with broad exposure to the stock market.
Ups and Downs
For the first four years, the portfolio added about 2 percent of excess performance relative to the benchmark—solid success. Then in 2020, when the COVID-19 pandemic caused enormous social and economic hardship, the portfolio outperformed by more than 7 percent.
What surprised me wasn’t that the portfolio outperformed, but that it succeeded so quickly. I honestly thought we’d still be waiting decades before we’d have any real indication whether we were right. More money in the portfolio meant more resources available to advance Inspirit’s mission. But this was also the first sign of something I hadn’t fully anticipated: a much higher degree of volatility than expected relative to the broad stock market. I knew our portfolio would behave differently from conventional benchmarks. I just didn’t expect it to produce outperformance of 7 percentage points in a single year.
The good feeling didn’t last long. The following year, the portfolio underperformed by nearly 4 percent. That degree of difference caused me some discomfort, but the portfolio was still ahead overall.
The next two years helped, adding approximately 6 percent of relative outperformance. Eight years into the journey, the portfolio had accumulated nearly 11 percent of excess performance relative to its benchmark.
Then the tide turned. Geopolitical developments, including US President Donald Trump’s rollback of clean energy commitments and ongoing global conflicts created a challenging environment for many impact-oriented strategies. Over the past two years, relative outperformance declined by more than 10 percent.
A full decade into the initial commitment to a 100 percent impact portfolio, Inspirit finished ahead of its benchmark by approximately 0.7 percent. The margin is slim, but its meaning is not. The financial outperformance contradicts the naysayers, refuting the assumption that impact investing inevitably leads to lower returns. It quelled some doubt, too.
A Meaningful Milestone
These past two years have admittedly tested my conviction, yet the commitment remains firm. Our fundamental premise—that investments that create value for society are more likely to create value for investors over the long term—remains sound. The portfolio is now aligned with the foundation’s mission in a way that would have been difficult to imagine a decade ago.
The last two years also reinforced another lesson: While our underlying premise hasn’t changed, our understanding of specific investments has shifted. That’s how long-term investing should work. Steadfastness isn’t about stubbornly holding the same companies forever; it’s about remaining committed to the investment thesis while continually reassessing whether individual investments still support it. Ten years doesn’t settle the debate, but it is a meaningful milestone. It suggests that a portfolio intentionally constructed around long-term societal and economic trends can remain competitive with conventional investing over a significant investment horizon, even through periods when markets reward very different parts of the economy. For me, that’s the real takeaway, not whether we finished 0.7 percent ahead of a benchmark.
After more than a decade of learnings with Inspirit, I felt it was time to branch out on my own and launch an impact-investing consultancy to work with a wider group of values-driven investors and their portfolios. With my next step comes my next question: How do we use what we have learned to reshape a system presumed to almost always reward the opposite? I do not intend to watch that from the sidelines. I intend to help build it. I hope you will join me.
Read more stories by Jory Cohen.
