Written by Jeffrey D. Byrne, Co-Founder + CEO, Byrne Pelofsky + Associates
Foundations and nonprofit organizations have been engaging in impact investing since the 1960s. Only in the last decade has the nonprofit sector started adopting a more strategic approach to incorporating impact investing into fundraising. By aligning endowments, investment portfolios, and cash management tools with mission-centered work, organizations are putting mission related social impact ahead of traditional rates of return on investments.
For foundations and nonprofits, impact investing – also referred to as mission-related investing or program-related investing – represents a set of impactful tools used by nonprofits to make a difference in the communities they serve. By investing in ways that generate social and environmental benefit AND a financial return, impact investing helps organizations further their mission and make the most of their assets.
The world has changed drastically in the past three years. Our decisions as consumers, investors, philanthropists, and citizens can have both positive and negative impacts. We can make decisions in ways that align our personal values with an organizational mission. Thanks to better data, transparency, and other tools, we have an expanded ability to demonstrate our values through our assets. Through impact investing, foundations and nonprofits can shift their portfolios away from investments that can have a negative impact on the communities they serve, and move towards investments that positively impact their targeted communities.
Impact investing is a powerful tool that is reshaping how philanthropy defines its operating models. Consumers and donors are calling on corporations and organizations alike to take a closer look at all aspects of their business models and encourage them to optimize their social and environmental impact while maintaining sustainable financial practices. Many nonprofit organizations are rising to the occasion to creatively address these systemic global challenges and are realizing effective change through impact investing.
Many small to mid-size organizations don’t know where to begin and/or don’t have a clear understanding of how to manage an impact investment portfolio. While many organizations rely on third party asset and portfolio managers to handle organizational investments, there is a lack of broad understanding on how to begin impact investing. If your organization hasn’t started to explore avenues for impact investing, now is an opportune time to take the steps to further align your community impact and financial investments, demonstrate to your stakeholders the power of their investments and their ability to influence significant systemic change.
Here are a couple of steps that your organization can take if impact investing is new to you:
Goal Setting: Start by having a conversation with your board of directors and finance and investment committees to identify your organization’s goals and priorities in building a more impact aligned investment portfolio. Your organization does not need to move your entire asset portfolio into impact investments. Perhaps start with a goal of 25% of your assets aligned with impact and mission-related investments. If your organization uses a third party to manage your assets, involve your asset or portfolio managers in conversations to better understand their experience and the resources available to help advance your impact investing goals.
Cash Management: One way to begin impact investing is to consider investing your organizational reserves or cash into underserved communities through a Community Development Financial Institution, where you can identify specific geographic areas of interest or support. One company, CNote is a leading impact investing technology platform that provides a variety of impact investment products, and cash management solutions for institutional investors. CNote’s Impact Cash solution seamlessly allows for the deployment of cash into BIPOC and underserved communities, growing the deposit base, and supporting lending and other community development activities like low-income housing, child welfare, health care and poverty alleviation, when and where investments are most needed. Impact Cash investments allow for secure, insured investments that are having real time impact in local communities.
The impact investing field continues to grow exponentially and provides a critical tool for fulfilling philanthropy’s role in society – from addressing low-income housing needs, supporting behavioral health, or alleviating poverty through economic development. Without impact investing, the kind of systems change we need to solve the deeply persistent challenges and inequities of our time will continue to elude us.