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May 2, 2017 / WRAG

Impact Investing in the DC Region: One Foundation’s Journey to Identify Peers and Uncover Best Practices

by Kate Lasso
Director of Finance and Administration
Consumer Health Foundation

As the finance director for the Consumer Health Foundation (CHF), my responsibilities include supporting the management of our endowment and how it is invested. CHF works at the intersection of health equity, racial equity and economic justice and we have been engaged in socially responsible investing (i.e. using positive and negative screens on our endowment) for several years. Recently, we began exploring impact investing as a way to further our mission and positive impact in the region. As part of that exploration, between February and March 2017, I interviewed representatives from 22 DC area foundations to learn about their experiences with impact investing. The questions included:

(1) current level of engagement in impact investing
(2) preference of Mission Related Investments (MRIs) or Program Related Investments (PRIs),
(3) which characteristics of impact investing were more important to them
(4) which social sectors were priority areas for investing for them
(5) what were barriers to engaging in impact investing in the DC region and
(6) how did they find out more about impact investing.

Below is a summary of what I learned.

Barriers and Challenges

The top cited barriers to engaging in impact investing included organizational culture, internal readiness, convincing the board, and lack of education/knowledge. Another challenge, especially related to impact investing in the DC area, was the inability to identify viable investment opportunities. Several respondents expressed reluctance to turn to individuals or groups who had a vested interest in impact investing, usually because they had an investment opportunity or product to promote. Respondents were seeking ways to find information and advice from an honest broker who could help them better understand the impact investing space and identify potential investment opportunities without being “pitched.”

Ideas and Solutions

The need for education about impact investing was a recurring theme, especially for foundation trustees and senior leadership. Increased knowledge and understanding about impact investing could directly address a number of the top-cited barriers including convincing the board to engage in impact investing and improving internal readiness.

Other field-building work that could enhance impact investing in the DC region includes supporting non-profits to help build their capacity as PRI recipients and, related to this, creating an information bank for foundations wishing to engage in impact investing, but who do not know how to find viable opportunities for themselves.

Several respondents noted that their expertise in impact investing came not just from educational opportunities but also from their experience. While trial and error was an effective form of professional development for some, a number of other respondents were looking to learn from the experiences of their peers prior to jumping in. Respondents also indicated that a report on impact investing strategies and opportunities in the DC region, describing both successes and the failures, would be useful in their learning journeys and convincing their foundations to engage.

Another suggested route to creating receptivity on the Board level, especially in family foundations, was to engage the next generation of family members, since the younger generation was often already expressing interest in impact investing.

Developing a clear strategy for impact investing, including clear Board guidance and determining the amount of funds available, were highlighted by respondents as essential to the process.

The final point worth noting is the fact that a majority of respondents were willing to accept a lower financial return on their impact investments in exchange for the opportunity for higher social return.

Conclusion

It’s important to remember that impact investing is a new field which is still developing its term definitions, business practices and relationships with both investors and investee organizations. In addition, measuring social returns is still a work in process, with few reliable indicators for social priorities such as racial equity, for example. But there is foundation interest in understanding and experimenting with impact investments, provided they can be supported in this process by a network of like-minded experts and peers.

Given the potential that impact investing has as a financial tool for the philanthropic sector, I look forward to working with WRAG and others who care about the DC region to engage more fully in this important work.

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