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This Week in PubHub: Impact Investing

December 21, 2010

(Kyoko Uchida manages PubHub, the Foundation Center's online catalog of foundation-sponsored publications. In her last post, she looked at nine reports on the topic of funder collaboratives.)

As part of our year-end survey of foundation practices and trends, this week PubHub is featuring reports about impact investing -- also called mission-related investments -- as one way of leveraging private capital to address social and environmental issues.

What does the current impacting investing landscape look like from a financial market point of view? According to Impact Investments: An Emerging Asset Class, a new report from JPMorgan Chase, the Rockefeller Foundation, and the Global Impact Investing Network, impact investing -- defined as investments that seek to generate positive impact beyond financial return more proactively than socially responsible investments -- is at an inflection point. With a range of investors, from philanthropic organizations to financial institutions to wealthy individuals, having adopted the approach, impact investments are now viewed as an asset class requiring a unique set of investment and risk management skills, organizational structures, industry associations, and education, not to mention standardized metrics and benchmarks. A recent survey also found that new impact investors increasingly expect risk-adjusted returns that compete with traditional investments and do not believe they need to sacrifice financial return in exchange for social impact. The report puts the global value of such investments at $400 billion to $1 trillion over the next ten years in the areas of housing, rural water delivery, maternal health, primary education, and financial services.

The classification and benchmarking of impact investments may boost interest among individual donors, who cite the immaturity of the market as a key barrier in a recent survey by Hope Consulting. The report, Money for Good: The US Market for Impact Investments and Charitable Gifts From Individual Donors and Investors, also found that half the market opportunity is for smaller investments under $25,000 and that investors are more concerned about downside risk than upside returns; and that only 10 percent of the dollars allocated to impact investing would be "cannibalized" from donors' charitable giving. To unlock impact investing's market potential of impact investing, however, the authors suggest that more clarity, awareness, and information targeting financial advisors is needed.

Maximizing Impact: An Integrated Strategy for Grantmaking and Mission Investing in Climate Change, a report from FSG Social Impact Advisors, explores how foundations can link their grants with their impact investments. The report illustrates how, for example, a foundation might use its conventional stock portfolio to reduce global carbon emissions through shareholder advocacy, purchase conservation land easements as a subsidized investment, or guarantee initial losses on a transformative investment fund that finances the installation of energy-saving equipment with future utility bill savings -- while continuing to award grants for climate change advocacy and research. Indeed, only by including mission-related investments in the mix, the report argues, can a foundation address the many dimensions of a complex issue like climate change.

Though not specifically about impact investing, Caring to Change proposes a related approach in its report Foundations for the Common Good: Foundations will be more effective in advancing their own missions when they base their grantmaking on basic universal values such as diversity and equal opportunity. The report's authors call on foundations to analyze their role in advancing an issue, bring people and organizations together to work for the common good, and seek synergies across program and issue areas.

What benefits -- or risks -- do you see in impact investing? Know of any examples of investments that are making a significant social impact without sacrificing financial returns? We'd love to hear about them. 

And don't forget to visit PubHub, where you can browse hundreds of publications on a range of philanthropy-related topics.

-- Kyoko Uchida

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