2012 Year in Review: Impact Investing, Other New Forms of Giving Gain Traction

Impact investing -- the practice of making loans and equity investments in nonprofits and socially minded businesses working to generate measurable social or environmental impact with the expectation that the money will be repaid over time -- and other new forms of giving continued to gain traction in 2012, thanks in part to the efforts of organizations like the Nonprofit Finance Fund, Omidyar Network, and the Skoll and Rockefeller foundations.

The year got off to a flying start when, in February, NFF announced a $40 million New Markets Tax Credit allocation in support of community development projects across the United States; an initiative of the U.S. Treasury Department, the NMTC program enables nonprofits to affordably complete facility improvements and finance projects in low-income areas around the country. In March, Omidyar Network and ACCION International made a $3.2 million investment in Zambia-based Mobile Transactions to boost financial transactions across the Zambian economy. In April, the Skoll Foundation and the U.S. Agency for International Development launched a $44.5 million global initiative to identify and fund high-impact social entrepreneurs who have created workable innovations and sustainable, scalable business models. And, in May, the John S. and James L. Knight Foundation announced its participation through its Knight Foundation Enterprise Fund in a $3.7 million Series A venture financing round for Umbel, a privately held digital audience measurement company.

The year also saw the announcement of the first social impact, or pay-for-success, bonds in the United States. In May, the Omidyar Network announced $2.1 million in grants to London-based Social Finance Ltd. and its sister organization, Boston-based Social Finance, Inc., to encourage the use of social impact bonds as a tool to finance sustainable solutions to social problems in the U.S., Australia, Canada, Ireland, Israel, and Scotland. Then, in August, shortly after the release of a report from McKinsey and Co.'s Social Innovation practice that examined how SIBs might be applied to persistent homelessness and recidivism in the criminal justice system, New York City mayor Michael Bloomberg announced that investment banking firm Goldman Sachs had agreed to provide a $9.6 million loan to a New York City-based nonprofit overseeing a four-year program aimed at reducing the rate at which young offenders incarcerated at the city’s Rikers Island complex re-offend after their release — and that the Wall Street firm could profit from the investment if the program exceeds certain benchmarks. Bloomberg's announcement was preceded by a few days by news that the Commonwealth of Massachusetts had selected seven nonprofit social service providers to tackle the problems of chronic homelessness and juvenile recidivism in the state under a new program that rewards the agencies only if their programs prove effective.

The White House also got into the act when, in May, it proposed a series of new rules designed to encourage foundations to use their assets in more creative ways to promote social good. Later in the year, the Global Impact Investing Network, which was established in 2009 to encourage impact investing globally, announced a three-year collaboration with  Omidyar Network, the Rockefeller Foundation, and USAID to promote and help build the emerging field. And news organizations like the Washington Post and the New York Times did their part to put the concept on the map by reporting on and highlighting institutions that were looking more closely at allocating a portion of their capital to impact investing approaches.

Ironically, as the field and its promoters basked in the newfound attention, a note of caution was sounded by Philanthrocapitalism author Matthew Bishop, who warned that impact investing was likely to experience growing pains as it grew in popularity, just as microfinance had before it.

Taking Bishop's words in the spirit in which they were meant, Nonprofit Finance Fund CEO Antony Bugg-Levine told the Times that it was incumbent on the field "to harness the best of both the capital markets and the social sector to address problems we cannot solve inside the two silos. [But any] ensuing confusion," added Bugg-Levine, "is a small price to pay if what it ends up in is adaptations that bring some sustainability to our social endeavors."

Related items:

Nonprofit Finance Fund Awarded $40 Million in New Markets Tax Credit Allocation (2/28/12)

Omidyar Network, ACCION International Provide $3.2 Million to Zambian Mobile Technology Company (3/02/12)

Skoll Foundation, USAID to Partner on Global Development Efforts (4/30/12)

Omidyar Network Awards $2.1 Million in Support of Social Impact Bonds (5/03/12)

White House Aims to Boost Spending, Investment by Foundations (5/11/12)

Knight Foundation Enterprise Fund Invests in Digital Audience Measurement Tool (5/30/12)

'Impact Investing' on the Rise (7/17/12)

Goldman Invests $9.6 Million to Reduce Recidivism Among Young Offenders in New York City (8/03/12)

Massachusetts Announces Nonprofit Partners in 'Pay for Success' Experiment (8/03/12)

Global Impact Investing Network Announces Partnership to Expand Reach of Impact Investing (10/04/12)

Foundations Making 'Impact Investments' See Positive Returns (12/13/12)