To the Editor:
At a time when foundations are increasingly embracing impact investing as an important way to deploy their capital to drive social and environmental change, the Chronicle of Philanthropy deserves applause for “Good Returns,” its January cover report on the topic.
As CEO of Mission Investors Exchange, the leading network of foundations engaged in impact investing, I was thrilled to see several of our 250 members, including the McKnight Foundation, mentioned in the report as models for others.
I also welcomed the Chronicle’s tough questions about the current impact-investing landscape and the challenges foundations face as they continue to shift their investment approaches. However, by choosing to equate impact investments exclusively with market-rate investments coming from foundation endowments, the Chronicle missed the broad spectrum of options and strategies that are part of the impact-investing toolbox today.
What constitutes impact investing?
While the term is still evolving, the current, commonly accepted definition among practitioners is this: Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside some level of financial return. They encompass a broad range of tools on the risk-return-impact continuum, from low-interest loans to loan guarantees to market-rate equity investments and more.
For foundations, there is a special impact-investing tool called program-related investments, established by Congress 50 years ago, that enable foundations to make riskier investments without legal jeopardy as long as those investments are primarily designed to achieve charitable impact.
PRIs play a critical part in the impact-investing marketplace, providing flexible, patient, risk-tolerant capital to test new ideas and markets, scale up small but promising efforts, and sustain organizations that serve people and places most in need. PRIs are vital fuel for high-impact nonprofits, social enterprises, and funds and often prove that these ventures are worthy of market-rate investments. Thus, PRIs help attract private capital that otherwise might not have been available.
Decades of experience and numerous examples illustrate these points.
The Detroit Home Mortgage Program, for example, used a mix of grants, loans, and loan guarantees from the Ford and Kresge foundations to bring local banks back into the lending market, helping Detroit families purchase and renovate their homes.
The Chronicle’s report included an example of a PRI by the MacArthur Foundation that supported SJF Ventures’ early work to finance startups in clean energy, food, and health, but the story did not fully connect the dots to demonstrate the PRI’s role. That early PRI was not just another investment in SJF among many; it allowed SJF to prove its new model and, over the following 20 years, attract $260 million from a broad range of market-rate impact investors.
In both examples, as is often the case, a PRI was the risk-taking capital that helped unlock other sources of financing.
As my colleagues and I reflect on the Chronicle’s cover story, we agree that more foundations and other impact investors can and should take bolder steps to align more of their assets with their values and mission.
We encourage them to use all the tools in the impact-investing toolbox across the risk-return-impact continuum, whether they are just starting an impact-investing program or are committing to invest 100 percent of their endowment for impact.
Thanks to our members and partners, who provide concrete models for emerging practices, we are confident that impact investing is becoming more accessible than ever before. The field increasingly offers a broad tool kit and a diverse, interconnected set of investors with different risk and return appetites willing to partner for change.
As the impact-investing field continues to grow, philanthropy has a special role in keeping the field laser-focused on “impact” — on creating a more equitable and just society and a healthier planet.
Matt Onek
CEO Mission Investors Exchange
New York