By Elaine Gast Fawcett on behalf of ASF
When investing and philanthropy come together, it can seem messy.
On the one hand, there’s investing, which focuses on financial return. Philanthropy, on the other, focuses on achieving social change, and tends to downplay financial returns.
Impact investing, a relatively newer term for mission investing, combines the goals of investing and philanthropy. It means investing money intentionally into companies, organizations, and funds to get a social return along with a financial one.
Sound like having your investment pie and eating it too?
For many (including investment advisors), the idea is inherently uncomfortable. Investments are about concentrating on return, period. Some say it’s complicating things to add in getting the highest social return as well. The market exists to make money, they say—not deliver social services.
Yet, according to panelists at last fall’s ASF 2012 National Conference, the market can make a huge impact, and there’s a big opportunity for foundations to use their investments for good.
“Typically, foundations invest 5% of assets and other 95% sits there,” said ASF member Floyd Keene of the Triple EEE Foundation. “Impact investing is using the 95% (all or any of it) to also serve your social goals.”
The Triple EEE Foundation first started investing for impact after attending an ASF conference years ago. “We realized we could increase our impact by 20 times,” said Keene. Within 30 days, the foundation made its first impact investment to a Community Development Investment (CDI) that he said was as simple and safe as buying a CD. The money they invested was FDIC guaranteed; it was also guaranteed that it would go toward community development.
By 2006, the Triple EEE Foundation was 100% mission invested. “Every single investment we now make must pass a two-prong test,” said Keene. “First, it must pass our standard risk–reward diversification test; second, it must have a social impact consistent with our mission.”
According to panelists, 2013 may be a breakout year for small-staff foundations to enter the impact investing space. The opportunity is certainly there: Of the more than $618 billion in assets held by U.S. foundations, only $3 billion is dedicated to impact investing (Source: Georgette Wong of Correlation Consulting and Take Action! Impact Investing Summit.)
So how do small-staff foundations get started in impact investing?
Opportunities and a range of flexible tools are everywhere, said panelists. Some foundations might feel comfortable jumping into venture opportunities, whereas others may stick to program-related investments (PRIs). Still others might join an angel network, which allows people to invest in small amounts within a community of other investors.
The point is, there are a lot of options, and some at a relatively low entry point.
Investing and philanthropy: unlikely bedfellows? Maybe. But the intersections are worth exploring.
- Program-Related Investments: A Fit for Your Foundation?
- The Future of Investing: A Conversation with Melissa Bradley of Tides
- ASF’s CONNECT conference, October 1-3, featuring an Impact Investing session
- ASF’s Mission Investing resources (requires member login)
- Global Impact Investing Network
- Mission Investors Exchange
- Stanford Social Innovation Review’s Impact Investing channel
- US SIF: The Forum for Sustainable and Responsible Investment
Elaine Gast Fawcett helps foundations tell their story, educate their stakeholders, and move their mission forward. For 12 years, she has worked nationally to strengthen the philanthropic and nonprofit sectors as a communications and grantmaking consultant. Originally from the Maryland/DC area, Elaine now lives in the San Francisco Bay Area with her husband Ted and toddler Scarlett. Reach Elaine at Elaine@fourwindswriting.com or on Twitter @4WindsWriting.