Inside Philanthropy

A blog on philanthropy and nonprofit news and issues. A publication of Philanthropy Journal.

December 12, 2011

Foundations, business adapt for impact

By Todd Cohen

Foundations and corporations increasingly are recognizing they can have a bigger impact on causes they care about if they make full use of their assets.

That is good news because the social economy needs to grow to address social and global problems that are accelerating in the face of escalating economic, political and environmental crises.

Foundations, which can be maddeningly slow to adapt to economic and social change, and pig-headedly resistant to changing the way they do business, increasingly are moving beyond making grants and also making loans and investing in capital markets.

And corporations, which in recent years have tried to align their philanthropy with their business strategy, now are beginning to look at ways to use all their assets to invest in causes that will help address social and global problems that also represent big obstacles to their own bottom line.

‘Mission investing’

With the model for using private assets for public good evolving quickly, a growing number of foundations are pursuing “mission investing” to achieve a social benefit.

Private foundations are required by law to pay out at least 5 percent of their assets each year in grants and overhead costs.

In a healthy economy, foundations typically count on income they earn from investing their assets to cover that payout.

And they scream bloody murder when anyone suggests they be required to pay out a bigger share of their assets.

But with gloom and doom in the economy, more foundations seem to understand they can better advance the causes they care about by using more of their assets.

A recent report by the Foundation Center found that, among nearly 1,200 foundations that responded to a survey, 168 foundations with a total of over $119 billion in assets engage in some form of mission investing.

Half of those foundations, for example, hold “program-related investments,” or PRIs, often in the form of loans, loan guarantees or equity investments.

Those PRIs are derived from a foundation’s assets but count toward their 5 percent payout requirement.

Another 22 percent of responding foundations hold market-rate “mission-related investments,” or MRIs, that broadly support the foundations’ programmatic goals but do not count toward their required payout.

And 28 percent invest in both PRIs and MRIs.

‘Sustainable value creation’

A report earlier this year from Accenture and the Committee Encouraging Corporate Philanthropy called on corporations to do more to integrate social change into their business models to improve both their business and society.

Using a strategy known as “sustainable value creation,” the report urged companies to identify social and global problems that serve as obstacles to their business, and then take the same approach to addressing those problems that they take in addressing business problems, using all their corporate assets and smarts.

In the process, corporate social investing becomes a way to benefit society while also improving the company’s bottom line.

In the face of rising expectations from shareholders, growing demand for greater transparency, and the need for new sources of growth, the report said, companies should move quickly to find ways to combine their own interests with those of society.

Impact investing

With the wounded economy compounding social needs, prompting cuts in social spending by government, and creating fear and uncertainty on the part of donors and funders, the charitable marketplace needs to find ways to grow and tap private assets that are not being used for public good.

By moving beyond grantmaking and investing more of their assets to address critical social and global problems, foundations and corporations are helping to expand the social economy by looking for new ways to put private resources to public good.

That kind of innovation is critical to help make the social economy more productive in serving people and places in need.Link


  • At 6:42 AM, Blogger Joe said…

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