Impact investing for community revitalisation

Socially-responsible investing. Mission-related investing. Impact investing. While the terms are not new, deploying capital beyond traditional grant mechanisms is a growing trend among philanthropists—individuals, foundations and corporations alike. The Philanthropy Workshop alumni and participants, along with other philanthropists in our broader network, travelled from Canada, Mexico, Texas, Pennsylvania and New York to meet with seasoned impact investing practitioners for a workshop last week to help us unpack the strategies behind the terminology.

We approached our workshop from two angles: (1) how can an individual make a shift to investing more assets for mission and persuade others, like family or board members, to adopt this strategy; and (2) what does it take to actually select and manage these mission-related investments and how do they uniquely help achieve positive returns for society?

To answer these questions we were joined by:

  • Clara Miller, President of F.B. Heron Foundation, dedicated to helping low-income people and communities help themselves. Heron made a bold move this year to invest 100% of its $250 million endowment for mission.
  • Angela Mwanza and Mark Sloss, Private Wealth Advisors, UBS who work with affluent families to implement high performing, values-based investments.
  • Andi Phillips, Vice President of the Goldman Sachs Urban Investment Group & COO of 10,000 Small Businesses, the firm’s initiative to provide capital and mentoring to owners of small businesses in cities throughout the United States.
  • Robin Hacke, former venture capitalist and tech entrepreneur who is Director of the Living Cities Catalyst Fund, seeded by 22 of the largest family and corporate foundations to deploy investment capital in low-income and underserved urban communities.

Before we share practical tips from our experts, below are a few key definitions drawn from the Social Investment Forum and Mission Investors Exchange and presented by UBS:

Sustainable and Responsible Investing (SRI) considers both the investor’s financial needs and an investment’s impact on society. SRI investors encourage corporations to improve their practices on environmental, social and governance issues. You may also hear SRI-like approaches to investing referred to as mission investing, double or triple bottom line investing, sustainable investing or green investing.

Mission Related Investing covers two distinct categories of investments: market-rate mission-related investments (MRIs) that have a positive social impact while contributing to long-term financial stability and growth; and program-related investments (PRIs) that are designed to achieve specific program objectives while earning a below market rate return.

Impact Investments are investments made into companies, organizations and funds with the intention to generate measurable social and environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets and target a range of returns from below market to market rate, depending on the circumstances. Impact investors actively seek to place capital in businesses and funds that can harness the positive power of the enterprise.

Here are the Top 10 Tips shared by our experts:

  1. Family members and/or foundation trustees might be skeptical about impact investing, preferring to manage the investment of endowment assets completely separate from the programmatic activities of the foundation. To overcome this hurdle, a helpful piece of advice is to simply say: “Let’s try it” and remind people that “it’s not new, it’s just different.” Once people experience a deal or two, they often become more excited by the opportunities to use capital in ways beyond traditional grants and gain a greater understanding of what it takes to run and grow and organization.
  2. An entity that governs itself in a way that is good for the community, the environment and the bottom line is arguably a good company to invest in, regardless of intent to be socially responsible.
  3. If you want to start adding socially-responsible investments to your portfolio, the most important guidance you can give your financial advisor is a clear mission and vision for your charitable work. That mission and vision serves as the framework to inform your investment policy statement that a financial advisor can then follow.
  4. One of the best ways to learn how to make social impact investments is to pool resources with more experienced impact investors—learn by doing. Another productive strategy to match lenders with borrowers is to go through a community-based intermediary familiar with the local social dynamics and institutions. In the United States, for example, certified Community Development Financial Institutions (CDFIs) are a good resource for deals. CDFIs provide a unique range of financial products and services in economically distressed target markets, such as mortgage financing for low-income and first-time homebuyers and not-for-profit developers, flexible underwriting and risk capital for needed community facilities, and technical assistance, commercial loans and investments to small start-up or expanding businesses in low-income areas.
  5. While providing loans to scale a community business or organization is important, so is access to business expertise/mentors to help build the capacity of the small business owners and leaders of community organizations.
  6. For financial services firms in the lending arena, a strong argument can be made that it’s good business to put capital toward social impact. Firms already make placed-based investments, most notably underwriting real estate deals. These transactions are more likely to succeed in thriving communities—neighborhoods with good schools, health care, housing and retail businesses. So, adding a social impact component that helps serve communities where the investment is made is a good practice.
  7. Perhaps surprisingly, in the field of impact investing, the challenge is less a supply than demand problem. There often are more funds available to be lent or invested than there are investees capable of effectively deploying large amounts of money—i.e., a capital absorption problem exists. Many organizations are not yet equipped to take on loans and go to scale.
  8. However, once an organization is prepared to go to scale, philanthropic contributions are not enough. Access to significant debt capital to grow the organization—“enterprise-level” capital—is key.
  9. A common “mistake” among new impact investors is to set harder underwriting requirements than for commercial loans.
  10. The best community investments typically involve a consortium of organizations working together with a wide range of civic leaders, supporting a clear vision and a “big hairy audacious goal” or “BHAG.”

This post was written by Tracy Mack Parker, who is Managing Director of the Institute in the US.

The ‘Impact Investing for Community Revitalisation’ event took place on the 13th December in New York. The event was open to philanthropists; for more information about the Institute’s events in New York, please contact Jodi Chao: Jodi@instituteforphilanthropy.org

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: