Sustainable Investing as Part of a 10-Year Spend Down at The John Merck Fund

When The John Merck Fund embarked on a 10-year spendout of its assets in 2012, the board aimed to maximize its grantmaking clout across four core program areas. The board also set another challenge: to finance the effort as much as possible with sustainable investments consistent with the Fund’s philanthropic mission—and, what’s more, to do this without sacrificing market-rate returns.

The strategy reflected a belief that good sustainable-investment managers could deliver financial returns equal to or better than those of traditional managers. This confidence was well placed, as the Fund exceeded its target by a wide margin. Over the 10 years, the Fund paid out $103.5 million—$91.5 million in grants and $12 million in administrative expenses—on the strength of a portfolio weighted heavily toward investments deemed sustainable based on environmental, social, and corporate governance (ESG) considerations. Representing 12% of it’s holdings in 2011, sustainable investments grew to 90% at their high point in 2018, permeating all asset classes in the Fund’s diversified portfolio.

The results helped support a then-nascent view in the investing world that socially responsible financial management need not come at the expense of market-rate returns. They also demonstrated that investing with societal impact in mind could succeed in the arguably more complicated context of a foundation spendout.

Read the full report here