What business does a community foundation have hawking for-profit deals to its donors and other community members? How does it improve the quality of life in their community? How does it promote the spirit and practice of philanthropy and service? Well it turns out, some community foundations think that it has plenty of relevance to both goals.
TPI, along with our partner Lisa Richter of GPS Capital Partners, has been working nationally and regionally to help community foundations figure out what role "impact investing" should play in their own investment portfolio, their social impact strategy and, notably, their relationship with donors. For those of you who have not have kept up with the revolving alphabet soup lexicon, "impact investing" is the expression au courant for investment activities that produce a social (including environmental) and financial return. It includes financial investments in for-profit companies, hybrids (L3Css and B-corps) and nonprofit organizations. It includes loans, equity, credit enhancements and other instruments. It includes market rate investment returns and below-market rate returns, such as in Program Related Investments. Impact investors have financed charter school construction, green energy companies, medical homes, low income housing and organic dairy farms. Internationally, micro-enterprise has been the poster child for investments that provide both social and financial return.
So last week, Lisa and I found ourselves inside the Round Barn Inn in Waitsfield Vermont, talking with about 15 donors about what the Vermont Community Foundation should do going forward with impact investing. Mind you, VCF was a pioneer back in 2001 when it made the radical decision to put 5% of its endowment into some enterprises that benefit Vermont including low-interest community development loans, high-quality bonds made up of low-income mortgages, and start-up business ventures. There's always been an independence streak in Vermont (think Bernie Sanders), but this was a mighty unusual move for an investment committee to make. Fast forward 11 years and VCF is wondering whether its donors want something more. The Maine Community Foundation (which has already offered donors the chance to co-invest in a sustainable farmland investment) and the New Hampshire Charitable Foundation (which has made a number of investments with the New Hampshire Loan Fund) are wondering the same. These three community foundations are part of a regional collaborative exploration of the demand and supply for impact investing, helped in this effort by GPS Capital Partners and TPI. And they aren't the only ones. Since September 2011, the Greater Cincinnati Community Foundation has been offering donors the opportunity to invest in about a half dozen individual "deals" such as CincyTech, a venture fund for bio-tech companies. Other community foundations that have treaded boldly into this space include many west coasters such as Seattle, San Francisco, Marin and Silicon Valley.
But why? Don't Community Foundations have enough to do supporting the many nonprofits in their communities who need grants more than ever to provide core support to the disadvantaged? And helping donors do the same? Why don’t they leave the “investing” world to those who make it their business? The answers are multifold.
They believe they can have a deeper and more sustained impact in their communities by adding this tool to the toolbox, particularly for some issue areas such as housing, sustainable economic development, healthy lifestyles (think local food), etc. They are compelled by the opportunity to “recycle” philanthropic dollars and augment the amount of capital committed to social change. And they believe that a broader group of social investors will be attracted to this approach for community improvement than their traditional cadre of donors.
Could community foundations become standard bearers for impact investing? Could they play an educational, brokering or even leadership role for donor investors and the recipient organizations? There are plenty of barriers to realizing the full potential of this evolving form of social investment; but my bet is that community foundations could – if they choose – play a key role.