Mission: Political – California Endowment Goes All In on ESG

One of the state’s most powerful, most woke foundations is getting even woker, and even more powerful…maybe.

The California Endowment, which now has about $4 billion dollars in assets, was created in 1996 when the then-non-profit Blue Cross health insurer bought Wellpoint and became the for-profit Anthem. For whatever reason – it’s rather murky and even people who were involved aren’t exactly sure of all of the moving parts of the deal – the state made the insurance company spend about $3 billion dollars to set up a pair of “charitable” foundations to increase access to health care services and related activities. The Endowment got about $2.4 billion of that “seed money.”

Since then the Endowment has become a serious political player in the state, even though it technically cannot play politics as such. But the state and federal laws regulating non-profit political activities have more loopholes than rules and, since the Endowment has itself defined health care as pretty much everything, it has been allowed to dump its grants pretty much anywhere.

For example, in the tax reporting year ending in March, 2023, the Endowment dropped $650,000 on the ACLU, $150,000 on California Walks (they work “on strategies for making communities more just, inclusive, and walkable,”) and Catalyst California, which got $3.4 million dollars to pursue their work in the fields of educational equity, social justice, racial equity, and building a “political voice” throughout the state.   

Except for the walking bit, none of that sounds terribly health care-related.  In fact, in the previous reporting year, the Endowment spent about $70 million of political activity – or what any regular person would deem as political activity, such as getting out the vote and community organizing efforts – and only $50,000 on grants directly tied to health insurance access.  

And, since they shifted their investment strategy earlier this year, they will be able to do even more of that kind of work.

Since it started, the Endowment has, under the cover of health care, pushed literally billions of dollars into the shady world of professional activism.  In the year ending in March 2023,  it reported making about $250 million in grants, the equivalent of (only) 60% of its investment income – the rest went for staff, overhead, and for things like fighting the proposed gondola from downtown Los Angeles up to Dodger Stadium (quite possibly because the gondola would pass right in front of their HQ building in Los Angeles, disrupting the view.)

Like most foundations, the Endowment invested its funds across a wide variety of financial instruments – stocks, bond, mutual funds, etc. – with the safety of the capital playing a large role in the decisions.

Now, the Endowment has adopted “Mission Investing”  – which calls for direct investments in concepts and groups and projects which in the past were only eligible for grant funding.

A foundation rule of thumb is 95/5 – the 95% stays safely invested and the 5% is spent on grants and overhead and what not.

With “mission investing,” that 95% comes into play and the endowment will target its capital fund investments to projects that will further its mission.   

There are a number of varying definitions of “impact” or “mission” investing, but – in a nutshell:  imagine your fund gives a grant to a low-mod housing project.  Under mission investing, not only could you give the grant but you could also invest in the project itself (yes, low-mod housing makes money – a bunch – for investors.)   

And here’s the Endowment’s mission(s):

The California Endowment’s mission is to expand access to affordable, quality health care for underserved individuals and communities and to promote fundamental improvements in the health status of all Californians.

We focus on fixing broken systems and outdated policies, ensuring the balance of power is with the people.

We don’t focus on the individual, we focus on the larger community as an ecosystem of health. We work with citizens and elected leaders to find lasting solutions to impact the most people we possibly can.

The goal is simple: First, change the way people view health—from the notion that health happens in the doctor’s office to a belief that health happens where you live, work, learn, and play.

We follow the ABC’s of health equity.

The core ingredients of health equity are Agency, Belonging, and Change Conditions. With these in place, there’s better health and more equity for everyone living in California.

Think for a bit – can you come up with literally anything that would not fall under that broad to the point of meaningless definition?

Something similar, for example, would be the Bill and Melinda Gates Foundation which dedicates a portion of its capital to what it calls “strategic investing,” which are investments meant to make the world better (as Bill Gates defines better) and make them money, too. One of the more notable investments of “direct equity” was in a company the world has gotten to know very well over the past few years:  BioNTech of covid shot fame.

The investment was made in 2019, shortly before the start of the pandemic.

Mission, or impact, investing has been called “ESG (environment, social, and governance) investing on steroids” by a number of experts, who also note that many other private and/or foundational funds are actually turning away from ESG because the returns have not at all lived up to the hype.

But compared to private equity firms like BlackRock – which recently sent up the “we’ve got the willies about all this ESG stuff” flag after being a global leader in the sector – the Endowment has two distinct advantages.

First, there are no shareholders so no technical need to make money. The Endowment could literally bet its entire $4 billion on homeless housing, watch it evaporate like California taxpayers do, and, except for the employees and the activists they own (sorry) fund, no one would care.

Second, investing in essentially openly political projects would have a snowball effect for the Endowment’s statewide power.  “Thanks for the $100,000!” turns into “Oh my God, you guys are the best, amazing, wonderful and thankthankthankyou for the $10 million investment.  Now, what can we do for you?  Anything, just name it!  A proposition banning jails entirely because they make people sad, I mean have deleterious mental health impacts? Sounds great!!”

And that kind of political cover is priceless.

Oh – two things.

First, the Endowment has a new president. Brenda Solórzano was tapped in March to take over for longtime leader Dr. Bob Ross.  Solorzano got her start in “charity” 22 years ago at the Endowment and was most recently chief of the Headwaters Foundation (basically, Montana’s version of the Endowment.)  She begins in September – it is not known if she will inherit Ross $1-plus million dollar a year compensation package.

Second, the Globe did reach out to the Endowment with a number of questions but did not receive a reply. Here are the questions they left unanswered:

– How do you define “mission investing?”

– Will the shift put the endowment at risk, as, if I understand correctly, the concept involves directly investing in projects and programs and companies that may end up losing money?

– Will the endowment continue with its current funding concept as well or will everything shift to “mission investing?”

-Will programs and people and groups and companies be allowed to “apply” for such funding or will all decisions be made internally by the staff and board?

-Will such investing be limited to original goal of the endowment – helping people access health care – or will it follow the newish/current concept of, paraphrasing, the idea of health care applies to many many aspects of life, including community organizing, voting, etc.?

– Exactly what will the endowment be going “all in” on?

– As to “making capital accessible,” what would that entail?  For example, could that involve investing directly in low/mod housing projects, transit-oriented development, public transit systems, etc.?

– The idea has been referred to as “ESG investing on steroids.” Would you call that accurate and as ESG investing is on the wane does it make sense to move into that field now?

-The endowment has piloted the program already – can you give me an example or two of a success?

– Will the endowment continue to invest in political movements or will those expenses still fall under the current standard grant concept?

– Though it was made before she was hired, was the new president involved in this decision at all?