This section features a Q&A on what impact investing is and how it’s used as a tool to support our communities. It’s important to remember that the Impact Investing field—along with its terminology and uses—is constantly adapting and redefining itself as practitioners learn by doing. Mission Investors Exchange, the leading network for foundations committed to impact investing, will continually revisit this page as we incorporate the perspectives of our members and evolve with the field.
What is impact investing?
Impact investing is a term coined in 2007 to describe a spectrum of investment practices intended to generate social and/or environmental impact alongside a financial return. The idea of impact investing isn’t actually new. In fact, foundations, community development organizations, and others have been serving our communities as impact investors for over a century, using different terms to describe their work. These terms including mission investing, social investing, community investing, and more. One unifying phrase—“impact investing”—kickstarted a new way of thinking, speaking, and organizing around finance for good. We use the term impact investing to honor the movement as a whole, while recognizing the rich history and diversity reflected in other common terms.
What or who is an impact investor?
Just about any invidual or entity that seeks to invest with an intention to achieve social or environmental outcomes is an impact investor. Examples include banks, community development finance institutions, diversified financial institutions, family offices, foundations, fund managers, governments, individual investors, insurance companies, nonprofits, pension funds, and religious institutions.
How do foundations act as impact investors?
What are the common tools that foundations use to make impact investments?
Foundations generally organize their impact investing practices into two areas: Program Related Investments (PRIs) and Mission Related Investments (MRIs).
Program-Related Investments (PRIs)
A “PRI” is an IRS term that refers to foundation investments made with the primary purpose of accomplishing mission, not the generation of income. Historically foundations have used PRIs to make below-market investments. A PRI can take various forms, including but not limited to debt, equity, guarantees, and linked deposits. PRIs can be counted toward part of a private foundation’s annual distribution requirement (a 5% minimum). Because PRIs are generally expected to be repaid, they can then be recycled into new charitable investments, increasing the leverage of the foundation's distributions. Click here for a complete legal definition of PRIs.
Mission-Related Investments (MRIs)
MRIs are typically risk-adjusted, market-rate impact investments made from the foundation's endowment. MRIs are not an official IRS designation and are often distinguished from other investments by their alignment with the foundation's mission and programmatic goals. Opportunities for MRIs exist across all asset classes and issue areas. Click here for a complete legal definition of MRIs.
How does impact investing make a difference?
- Investing in a municipal bond to construct storm water treatment infrastructure for better resiliency to climate change.
- Providing low-interest mortgages for first time homeowners.
- Screening an investment stock portfolio to support carbon-neutral companies.
- Making a venture capital investment into a drug development company.
What are the different types of impact investments?
There are a range of impact investments, from below market to risk-adjusted market rate. Just like any investment, they can be made across asset classes, such as cash equivalents, fixed income, venture capital, and private equity.