And so the story goes…

Once upon a time, there was a bunch of nuns with a problem.  Some of the nuns were getting very old and were in need of financial assistance. However, having taken vows of poverty, the nuns were reluctant to spend money on themselves because they felt compelled to help others who were suffering.  A solution was suggested:  the nuns could invest their money.  But instead of investing in companies, the sisters would give loans to organizations that fought poverty by building affordable housing or starting small businesses.  Although these organizations benefited society, they also had solid balance sheets and the capacity to repay loans with interest.  Cash flows from these repayments could be reinvested in the community or used to assist older nuns.  The sisters decided to try this idea… and it worked!  And it was from their desire to maximize the impact of limited capital both financially and socially that “impact investing” was born.   And they all lived happily ever after…

The End

 

Someone once told me that the IRS invented impact investing…  True or not, this is a much better story… I especially like that aging plays a central role in this story, as it does in my work to support vulnerable older adults at AARP Foundation…

Millard Fuller, the founder of Habitat for Humanity, once said, “Poor people don’t need charity.  They need capital.”  Impact investments, investments made with the expectation of positive social and financial returns, do just that, they drive capital to people and programs that are ignored or deemed too risky by traditional capital markets.  Despite their perceived risk, impact investing intermediaries like Enterprise Community Loan Fund and the National Housing Trust only write-off a small fraction of their investments annually, small enough that their loan-loss reserves have ensured they have never missed a repayment to their own investors.  In fact, during the downturn, many impact portfolios outperformed their conventional counterparts.

There are a large range options available in the impact investing sector.  These investments come in many different forms, including equity investments, cash deposits, and most commonly loans.  Returns on impact investments can also be designed to vary based on investor requirements, from a market rate of return to something lower.  Impact investments can be structured to suit various risk tolerances as well.  While large businesses, charities and foundations are the most active impact investors, opportunities are available to fit smaller organizations down to individuals.  It is truly a diverse market.

Seeing the results of impact investments first-hand always inspires me.  I love meeting the entrepreneurs who have opened small businesses that become sources of stability in their lives and communities.  It’s heartening to visit affordable housing complexes that have been so beautifully designed that no one would guess that many of the people living there were recently homeless.  And overwhelmingly, these investments are meeting the financial and social expectations set forth by their investors.

I was honored recently to speak on a panel at the Aspen Institute regarding the ease with which organizations, like my own, have started impact investing in affordable housing.  It was a great conversation, and I posted the video below.  Throughout the discussion, it was emphasized that many resources exist and are easily accessible to take the first steps toward impact investing.  Most importantly though,  the conversation highlighted the potential for impact investing to transform lives and build communities, opportunities that should interest us all, not just nuns.

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