The Rise of Impact Investing in the Southeast: Are we really scaling philanthropy?
Author: Mark Crosswell
In contemplating the degree to which impact investing influences philanthropy in our region, the blog last fall suggested that innovative forms of capital are slowly creeping into the thought of foundation leaders and organizations. Impact investing trends are continuing to show a hockey-stick swing upward – yet, we have to ask, is it really scaling social good?
Reviewing the market overall, global impact investments of all types - including Environmental, Social & Governance (ESG) and Socially Responsible Investing (SRI) - has tripled to nearly $12 trillion since 2015. This incredible growth is fueled by institutional and individual investors interested in aligning mission with money by investing in over 600 socially-minded funds and other private investments.
In the U.S., community-based impact investments, which is capital invested by community development lenders, credit unions and others investors in low-income communities, now exceeds $180 billion, a three-times increase since 2014. These are primarily driven by place-based investors seeking greater impact and scale in areas such as affordable housing, charter schools, healthcare clinics and job creation among small businesses in economically-deprived areas, often at below-market rates of return.
As important, there is a form of wholesale capital that supports the institutions making community investments, which comes from foundations, commercial banks, impact funds and public sector partners who share an interest in creating social change along with a financial return. The trends are showing no signs of slowing (see US SIF reports) and new entrants continue to join the market from all corners of the investment world, including university endowments, religious organizations, development authorities and many others.
So what’s happening in the Southeast? We have a number of exciting, ecosystem-level initiatives underway in the region:
Scaling Philanthropy: The Emergence of Creative Capital for Social Solutions
Author: Mark Crosswell
Over the past several years, many of us in the philanthropic community have watched and wondered about impact investing and what it means, if anything, for fueling social change. Whether you've read about it in blogs, witnessed panel discussions or actually put your toe in the water, for the longest time most of us have been confused on how a social good could come from an investment that also yields a financial return.
Along the way, I also noticed that Georgia and the Southeast were trailing other regions regarding the use of impact capital with philanthropy.
Apparently, I haven't been alone. In late 2016, I joined a group of other concerned Georgians who came together to tackle one question: How might we accelerate impact investing throughout Georgia?
We call ourselves the Georgia Social Impact Collaborative, or GSIC, and our goal is simply to educate stakeholders and provide onramps for investors to find ways to invest in social outcomes. Some of us are with foundations or nonprofits, some are private or angel investors and a few are involved with startups, social enterprise and funding social ventures. Yet all of us were truly perplexed on why impact investing in the Georgia and the South was not nearly as developed as in other parts of the country.
Take a look at the West Coast, where social innovation reigns - venture capitalists and angel investors are investing in social startups of all kinds. Or the upper Midwest, where nonprofit banks have eclipsed the $1 billion mark by lending money for community development. Or the Northeast, where national foundations invest loans and equity in social enterprises and the public sector is willing to "pay for success."
Impact Investing: Toward Impact Consensus
A prevailing narrative has developed that impact investing offers investors pre-defined financial returns. This has many in the philanthropic community confused whether impact investing is about the needs of investors or the needs of the communities which their funding seeks to benefit. Indeed, the more recent debate has framed the discussion as one in which investors attain nothing less than market-rates of return for their impact investments. However, impact investing was originally conceived to improve the lives of others; that impact investing could also deliver financial returns to investors was a means to an end.
For decades, the financial instruments used to improve the lives of people living in poverty included making grants to nonprofit organizations, or possibly offering below-market-rate loans instead of grants to support low-income housing. The microfinance movement dramatically expanded access to credit for people living in poverty. Gradually, new financial instruments coupled with innovative business models could benefit marginalized communities.
Endowments and Foundations in a Low Interest Rate Environment
In December 2016 and January 2017, Associated Grant Makers (the regional association of foundations and grantmaking organizations in Massachusetts) partnered with Fiduciary Trust on a survey to research how foundations, endowments and other nonprofits have been affected by the low interest rate environment.
The results of this survey are now out. On June 19, my colleagues from Fiduciary Trust – Joel Mittelman (Vice President, Endowments and Foundations) and Stacy Mullaney (Vice President & Chief Fiduciary Officer) – joined me in presenting findings from the survey which received 236 responses from nonprofit organizations including corporate, family, public and private foundations as well as other nonprofits from across the U.S. From the results, we shared insights on recommended best practices covering areas of fundraising, investing, grantmaking, spending and board governance.
Looking back over the last 50 years, we have been in an unprecedented extended period of low interest rates. Given that we cannot change the circumstances, there are smart, informed ways to move forward – finding strategic approaches to operating in this environment. Particularly for trustees and others reliant on volunteers, sharing best practices and providing informed, professional perspectives can help you be more strategic in your work. Also in this particularly challenging time of low interest rates, there is an even smaller margin for error.