Cindy Willard of Full Potential Philanthropy says that socially-minded investing has power to impact Denver in more ways than one.
Denver is known as a place for innovation and entrepreneurship, and most often when we hear this, we think technology. However, there is great innovation taking place in other parts of the community, sometimes in places we least expect it. Enter impact investing.
In the past, most philanthropic capital has gone out in the form of contributions to nonprofit organizations. These can have high social return, but no financial return. And traditional investments often have high financial return and questionable social and environmental impact.
Impact investing combines the best parts of philanthropy and investing to create new avenues to support positive work in communities. Broadly defined, impact investing is the intentional placement of capital for both financial return and positive social, environmental or community impact.
Shifting paradigms are paving the way for the expansion of impact investing by individuals and philanthropists. No longer is it the sole realm for nonprofit organizations to tackle social problems; social enterprises and businesses are proving capable as well.
More and more, investors no longer separate social and financial return when looking at how to best deploy their dollars. Women and Millennials, the inheritors of significant wealth transfer in the coming decades, believe that business and investments should benefit communities right alongside increasing earnings.
In response to these shifts in thinking, there are additional philanthropic tools that can leverage change and employ impact investing to help communities thrive. One such tool that is now being implemented in Denver, and in cities across the country, is Pay for Success (PFS) or Social Impact Bonds. PFS models use private capital for upfront investment in social programs where a governmental or other entity agrees to pay for specific measurable results after they are achieved.
This money is the bridge financing or working capital that allows prevention programs to prove their worth in saving government funds by using investor dollars. Denver's Housing and Health initiative is raising $8 million and will provide supportive housing and services for 300 people who are chronically homeless, while at the same time reducing expenses for many city services.
Another way philanthropic capital can be used is through Program-Related Investments (PRI), a tool that foundations can use to support both nonprofit and for-profit organizations. These are investments, mostly below-market rate loans, made by a foundation in support of charitable purposes, with the explicit understanding that those investments will first focus on the social, environmental or community impact and secondarily on financial return.
The PRI option can save organizations thousands of dollars in interest payments, when replacing high interest debt, while offering access to capital that might otherwise not be available. In Denver, the Alliance Center received a PRI from a donor-advised fund at The Denver Foundation that will save the organization $4 million in interest over the life of the loan, providing more dollars for the organization to accomplish their mission instead of paying interest. The original capital of $7.5 million will be paid back and used again for future investments.
Direct impact investments are also being used more broadly, obtaining equity in companies that can demonstrate strong financial capacity as well as evaluating their positive impacts on communities. An example of this is a $3 million equity investment by the Colorado Impact Fund into Bhakti Chai for business expansion. As a certified B Corp, the company uses sustainably sourced, fair trade, non-GMO ingredients and practices zero waste environmental standards. With plans to grow, Bhakti Chai is adding employment opportunities in Colorado.
There is a lot of excitement and energy surrounding all of these tools to advance social change, and rightly so. These tools can allow for additional dollars to address big issues, to support organizations that prove their impact and to advance several goals at once.
As Colorado is a leader in impact investing, CO Impact Days is bringing together investors and investees. CO Impact Days is a project of the Impact Finance Center, a partnership between Daniels College of Business at the University of Denver and the Sustainable Endowments Institute, a special project of Rockefeller Philanthropy Advisors.
The flagship event, planned for March 3-4, 2016 in Denver, is the first event devoted entirely to assessing and expanding the impact investment opportunities in for-profit and nonprofit ventures in the state. It is intended to engage new impact investors and philanthropists and to drive new capital into the local market by generating knowledge and facilitating connections between investors and investees.
To learn more and to get involved visit www.coimpactdays.org.
Cindy Willard is a philanthropic advisor through her Full Potential Philanthropy consulting business as well as a Senior Advisor to the Impact Finance Center.
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