Thought Leadership

A Journey From “Should We?” to “How Do We?”: Community Foundations Identify 5 Top Impact Investing Themes

“Impact investing is the wave of the future and the way all community foundations are headed.”
These are the words of one leader, echoing a sense of pride among many attendees at a special convening of community foundations that followed the Mission Investors Exchange National Conference on May 14-16, 2018 in Chicago. During this convening, participants gathered to explore the impact investing challenges and opportunities for community foundations as their sector rapidly moves from questioning whether or not to pursue impact investing to understanding how to apply impact investing in the best way for their missions. To continue the conversation, email us to join MIE’s Community Foundation listserv.
Below are 5 impact investing themes that emerged in the discussion.

1) Scaling Practice—Efficiently, Rapidly, and Effectively

“You can be advanced in one area of impact investing and just starting out in another,” noted several participants. How do community foundations efficiently manage evolution in their practice, at every stage? Foundations also noted the challenges of managing due diligence and impact measurement.
Key questions
  • How do we reduce due diligence costs or increase financial efficiency? Several participants noted the significant resources it takes to conduct due diligence, especially in direct investments.
  • How can we better understand impact—and affordably measure and manage it? Participants discussed the challenges of understanding impact and how with a small staff to effectively approach measurement.

2) Fostering Place-Based Impact Investing Collaboration

Many community foundations walked away from sessions inspired by the possibilities of collaborative place-based impact investing. “There’s a need to create place-based pools of funding, and be intentional about the role of a community foundation in a larger ecosystem,” noted one participant.
Key questions
  • Can we partner with CDFIs, build CDFI infrastructure, and collaborate to bring CDFIs to underserved areas? Participants repeatedly observed that CDFIs are critical to delivering local impact. How can place-based organizations “grow the CDFI ecosystem, and how can community foundations lead or join the effort?” asked one participant.
  • Are we partnering enough with city, state, and other regional entities? “Are we looking beyond the usual suspects and including banks, local economic development offices, neighborhood associations, and port authorities in the conversation?” asked one participant, while emphasizing the importance of these community partners in generating deal flow and developing impact investing strategies.
Read a recent report by the Urban Institute on collaborative place-based impact investing entitled Investing Together: Emerging Approaches in Collaborative Place-Based Impact Investing. This report is part of a set of resources and activities being developed through collaboration between the Urban Institute, the John D. and Catherine T. MacArthur Foundation, and Mission Investors Exchange to advance the development and exchange of knowledge on the practice of place-based impact investing.

3) Shaping Opportunity Zone Programs

Several participants spoke about the potential impact of Opportunity Zones, a recently-developed tax incentive strategy that allows investors to receive a tax benefit for placing unrealized capital gains into funds that invest in designated low income census tracts. (See MIE's resource page on the program for further detail.) The discussion echoed the Day 2 Plenary remarks by Dr. Rajiv Shah, President of Rockefeller Foundation, who emphasized both the opportunities and risks associated with Opportunity Zones.
Key questions
  • Are we prepared to leverage capital inflows and tackle the challenges? Many community foundation participants indicated they are not well versed on how the OZ program works and are concerned about the possibilities for low impact or negative impact (e.g., inequitable gentrification and displacement) and the urgency to get up to speed. “[Community foundations] need to get involved in Opportunity Zones,” noted one participant, “because of its potential detriment to our communities.”
  • How do we get involved in a substantive way? “How do we assess the program’s impact?” asked one participant, brainstorming ways to engage in the process and monitor results. Other ideas for community foundation action include convening local stakeholders, coordinating cross-sector—such as connecting investors to on-ground communities—and becoming active investors themselves.

4) Addressing Racial Equity

“As we look to grow our impact investing practice, how do we align our PRIs with a racial equity lens?” asked one participant, discussing the position of privilege that foundations hold in their communities and expressing appreciation for a workshop on unconscious bias at the conference, led by W.K. Kellogg Foundation. This timely session was designed to bring conference participants together in a spirit of humility, generosity and authenticity to help individuals understand systemic racism and the nature of bias.
Key questions
  • How do we put concepts into practice? “How do we apply [what we have learned] in our work?” asked one participant, recognizing that more work needed to be done to bring awareness of unconscious bias to all that we do—and change behavior. View our Plenary 3 recording and summary for examples of actions that foundations have taken to begin addressing these issues in their work.

5) Engaging Organizational Culture & Addressing Human Capital Concerns

Several participants observed that building effective relationships and educating staff, board, and the broader community about impact investing are necessary ingredients of growth. “How do I bridge the ‘haters and hypers’ by demonstrating [what actually works]?” asked one participant, raising observations from the session “How to Make Lemonade: Pivots and Lessons Learned.” This sentiment was also mirrored in the session “Tearing Down Walls,” which focused on removing silos in organizations and the field.
Key questions
  • What does it take to bring the naysayers to the table? Topics raised included board engagement, donor education, drawing on behavioral economics research to craft marketing strategies, and more.
  • What does it take to bring impact investing into the organization’s DNA? Some participants were able to begin making impact investments without broad organizational buy-in. In order to grow, however, they need to engage their organizations as a whole, starting with the board and committees and ultimately embedding impact investing in the organization’s culture.
  • How do we effectively educate donors? Community foundations are accountable to their community and donors. Participants noted the importance of educating the public and leveraging impact investing through a variety of fund types that community foundations may steward.
  • What is the best model for staffing and outside expertise? “Are our human resources aligned to our impact investing needs?” asked one participant, raising the importance of accessing the right internal and consulting resources. Others also noted the importance of inclusive, cross-departmental working groups, such as expanding the organization’s finance committee to include programs and leadership.

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