Impact Investing

Impact investments are made by foundations of all types and sizes, as well as individuals. They include investments across all asset classes and along the entire spectrum of risk and return, from program-related investments (PRIs) to market-rate investments that yield competitive rates of return.

Impact investing refers to the intentional deployment of funds by investors that seek both a social and a financial return. It grows out of the practice of social or socially responsible investing (which includes positive and negative screening and shareholder advocacy) and mission investing (investments by mission-based organizations). All three terms are currently used interchangeably.

Consider Impact Investing

By becoming an impact investor, you can put more or even all of your financial resources to work in support of your philanthropic mission.

“Whatever the terminology, a smart investment is one that matches the right kind of capital to the problem you are seeking to solve. If the desired result is solely programmatic, a grant will do. To capitalize a social or environmental initiative while preserving assets for future uses, consider a program-related investment. To further mission and build assets, find a market-rate investment that will also lead to positive, measurable social returns. More foundations than ever are using all three approaches and some are working to deploy 100% of their resources in mission investments.”

- Peter Berliner, former CEO of Mission Investors Exchange

Financial vs. Social Returns

There is a common misperception that impact investing risks financial return at the expense of social return. There are many—and increasingly more—impact investment tools available with market-rate returns, and a number of studies show that impact investing doesn’t sacrifice return and may, in fact, lead to better returns.

2015 IRS Ruling Makes Impact or Mission-Related Investing Easier

The Treasury Department's 2015 guidelines for mission-related investments state that "a private foundation will not be subject to tax under section 4944 if foundation managers who have exercised ordinary business care and prudence make an investment that furthers the foundation's charitable purposes at an expected rate of return that is less than what the foundation might obtain from an investment that is unrelated to its charitable purposes."

 

Resource

New IRS Rule Likely to Make Impact Investing Easier

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Essentials of Impact Investing: A Guide for Small-Staffed Foundations

This actionable guide to impact investing includes definitions, key questions to consider, resources, and dozens of case examples from small foundations across asset classes and issue areas.

Download the guide (PDF, external source)

 This guide was produced in partnership with Mission Investors Exchange and Arabella Advisors.

Get Started

Board engagement is a critical step for implementing an impact investment strategy, including learning what individual board members think about the possibility, educating the board on the state of the field, and taking a broad survey of potential areas of interest or investment opportunities that engage the board’s imagination.

Resources

Essentials of Impact Investing: A Guide for Small-Staffed Foundations

Understanding what you currently have in your investment portfolio can guide your process. The Meyer Memorial Trust created a graphic to categorize its investments and if/how they meet the foundation’s mission. Read about their process online or in this case study created by Harvard University’s Kennedy School of Government.

Resources

Impact Investing Brief Overview

Embracing Unique Investment Opportunities

Engage Your Board, Define Your Values

Extending Our Mission

Preparing to Invest for Impact

Socially Responsible Investing: From Negative to Positive looks at the long history of screening stocks and the ease with which foundations can use this strategy

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Make the First Investment

Foundations use impact investments to fund innovation, seed new enterprises, support the development of new markets, and expand access to critical products or services.

Here are common strategies:

  • Social screening/ESG integration—Selecting or excluding companies in your portfolio based on social and environmental performance, in addition to the company’s financial performance. In addition many investors believe integrating environmental, social, and governance (ESG) factors into the investment analysis process can help deliver better risk/adjusted returns (this is most often used in public equity investing).
  • Direct social investing—Investing in companies or projects (often in private equity) that generate direct social returns that support your philanthropic mission, in addition to market-rate financial returns.
  • Shareholder advocacy—Using your power as an investor in a corporation to influence the corporation’s policies, practices, performance, governance, and the degree to which it discloses its practices. This includes proxy voting and filing shareholder resolutions.
  • Program related investments (PRIs)—Making below-market-rate loans and other investments with the primary purpose to accomplish one or more of a foundation’s charitable purposes. Learn more about PRIs
Impact investing is practiced across all asset classes: cash & cash equivalents, fixed income, public equities, private equity, and real estate. These resources share examples:

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More Products & Tools

There is a lot of momentum in the impact investing field. Learn from organizations at the center of the movement as well as from foundations who both are at the forefront of the movement and those who are in earlier stages.

Resources from foundations:

Resources from colleague organizations:

Webinars

Additional resources

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