The strategy of ‘impact’ investing
Impact investing is a hot topic in foundation, investor and government circles. There is a Social Impact Investing Task Force involving the nations in the G8. JP Morgan Chase, Morgan Stanley and other leading financial firms are developing internal capacity to advise clients about it. And many national foundations — including Ford, MacArthur and F.B. Heron — have established track records in the field.
In Maine, impact investing is reflected in the work being done by community development finance institutions like CEI and the Finance Authority of Maine (FAME); Slow Money Maine, which connects investors with agriculture-related enterprises; and several foundations, including the Maine Community Foundation, which is expanding its use of loans and investments as a philanthropic strategy.
With all the buzz, however, confusion can arise, as the term describes a spectrum of investment activities being done by a growing number of entities. Broadly defined, impact investing is the use of below market- or market-rate loans or investments to achieve social and/or environmental goals as well as financial return.
From the start, choices and trade-offs exist for an impact investor: What goal are you trying to achieve and is impact investing the right tool for the task? Are you willing to accept a lower rate of return for opportunity to make a greater impact? Are you willing to invest directly in a company or project or do you prefer to work with and through an organization or firm? Clarity on impact and return expectations allows an impact investor to know up front what success will look like and how it will be measured.
Impact-investing capital is rarely deployed alone. To achieve the desired objective, it is often combined with technical assistance, grant support and, in many cases, conventional loan or investment capital from a bank or investment firm. Increasingly, foundations and investors are partnering with organizations or firms that have deep expertise in various fields.
Maine Community Foundation is approaching impact investing as a strategy to achieve programmatic objectives in partnership with its donors. Economic development is at the center of the foundation's strategic priorities. We believe greater access to lower cost capital will allow entrepreneurs and innovators from both the nonprofit and for-profit world to grow enterprises and expand projects that build off Maine's natural assets, revitalize its downtowns and strengthen its economy.
To make that happen, the foundation is partnering with its donors to build two new impact-investing pools that will focus first on impact and second on generating returns. The Farms, Fisheries and Food pool is improving access to capital for entrepreneurs and organizations working in agriculture- and fisheries-related businesses and projects. The Downtown and Business Development pool is directing capital to businesses and nonprofits, especially in underserved markets, to support enterprise development and improve downtown buildings.
In both cases, the foundation is partnering with organizations and firms with expertise in these fields and capacity to deploy the funds directly to projects and companies. These include CEI, which has recently made an investment in the Mayo Mill project in Dover-Foxcroft, and the Fair Food Fund, a new regional fund under the nationally recognized Fair Food Network, which has just announced an investment in Northern Girl, an Aroostook County-based company that processes and distributes root crops from Maine farmers to retail stores and institutions across New England.
In Maine, relationships matter and partnerships are easily formed. Impact investing is about relationships and is most effectively deployed through partnerships. That's why conditions in Maine are ideal for this type of philanthropy and investing. It's producing results now and holds even greater promise to expand the reach and impact of philanthropy in Maine.
Peter Taylor is vice president for program development and grantmaking services at the Maine Community Foundation. He can be reached at ptaylor@mainecf.org.
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