Corporate Philanthropy and Mission Investing
This article is the first in a three-part series on corporate philanthropy and mission investingby Peter Broffman. Peter is an Encore Fellow with Mission Investors Exchange, and formerly was Executive Director of the Intel Foundation. In this series, Broffman explores the opportunities and challenges that mission investing presents to corporations and corporate foundations and makes a strong case that the tools of impact investing are underused in the field of corporate philanthropy.
Corporate philanthropy is changing. A recent report from the Council on Foundations (COF), “Increasing Impact, Enhancing Value: A Practitioner’s Guide to Leading Corporate Philanthropy” described how many corporate philanthropic leaders are starting to take a more influential leadership role within their companies, helping to move corporate philanthropy beyond traditional grantmaking to create “a new narrative for corporate philanthropy as an investment in society.” The new catch-phrase is “social impact investments” and a key recommendation of the COF report was that corporate leaders develop “social impact portfolios” that integrate and balance three key types of philanthropy:
Responsive philanthropy: responding to needs of local communities
Strategic philanthropy: actively aligning philanthropic programs with business interests
Catalytic philanthropy: supporting initiatives with potential to drive large-scale change and meet complex social challenges
COF offered examples of various business assets, in addition to traditional grant making, that corporate philanthropy leaders can draw on to build a broad and diverse social investment portfolio. Their list includes: product donations; use of services and facilities; cause marketing to benefit nonprofits; matching employee gifts; supplier access; participation in public policy development; donating employee time and skills; and other valuable assets. This broad definition of social impact investing allows corporations to consider a variety of ways to apply their assets to achieve social good.
A few pioneering corporations are using “mission investments,” also called “impact investments,” as key components of their social impact portfolios. These are targeted direct capital investments in nonprofit and for-profit organizations designed to simultaneously address social issues in the community and provide a financial return to the corporation or foundation.
Mission investments typically fall into two broad categories:
- Mission Related Investments (MRIs): The corporation or foundation invests its assets in “socially responsible” companies or funds that align with its mission. The goal of an MRI is to earn a market-rate return comparable to other socially neutral investments and contribute to the company or foundation’s financial stability and growth. MRIs are usually managed by the investment arm of the company or foundation as a component of their overall investment portfolio.
- Program Related Investments (PRIs): The corporation or corporate foundation uses a portion of its philanthropic assets to invest in “socially responsible” organizations that align with the company or foundation’s programmatic objectives, with the goal of generating a low-to-moderate (below market rate) return as well as achieve a measurable social impact. PRIs can take a variety of forms, including equity investments, term loans, loan guarantees and pay-for-performance transactions. PRIs are typically managed by the programmatic arm of the company or foundation as a complement to its corporate grantmaking program.
A key element is that while both MRIs and PRIs provide much-needed capital to socially responsible organizations, they are also designed to provide some level of financial return to the corporation or foundation, which enables it to reinvest those funds in other charitable pursuits. This feature differentiates it from grants, matching gifts, product donations and other assets that might also be part of the overall social impact portfolio but do not provide a financial return to the company or foundation. A few examples of mission investing by corporations include:
- Union Bank and other financial institutions made an investment in Craft3, a nonprofit Community Development Finance Institution (CDFI) in the Seattle area, helping it to provide consumer and commercial loans to individuals and companies that create jobs, economic opportunity and environmental sustainability. The bank loans are repaid as clients repay their loans to Craft3.
- Goldman Sachs made a $4.6 million loan to United Way of Salt Lake to boost the Utah High Quality Preschool Program. The loan is to be repaid through public and private grants that the Preschool Program expects to receive based on achieving specific success measures.
- Shell Foundation made an investment in GroFin, a business development and finance organization in Africa that works with local entrepreneurs to help them establish sustainable businesses, realizing a meaningful return for investors as well as substantial social benefits in the local communities.
- General Electric made a $1 million investment in Burn Manufacturing, which produces and sells sustainable stoves. The loan allowed Burn to establish a manufacturing facility in Kenya.
As corporations and their foundations seek to round out their social impact portfolios, it is clear that mission investing has distinct advantages. It is one of the only forms of philanthropic investment that is specifically designed both to achieve a measurable social impact and to provide a financial return that can then be reinvested into other charitable pursuits. Corporate and corporate foundation leaders clearly should consider including mission investments in their social impact portfolios.