Impact investing gets a boost from Obama administration

Executive branch wants to spur more impact investing by encouraging collaboration between government and private investors and by improving regulations

Jun 25, 2014 @ 12:35 pm

By Liz Skinner

The White House said Wednesday it wants to spur more impact investing by encouraging collaboration between government and private investors and by improving regulations.

The Obama administration's steps include some of the suggestions from a new report that concluded government changes and additional support could help boost impact investing beyond its current 0.02% of the $210 trillion in global financial markets.

As part of the efforts, the Internal Revenue Service plans to clarify that foundations can invest in certain mission-related businesses that further charitable goals without fearing they will jeopardize their tax-exempt status, according to specifics provided by the White House.

The report by the U.S. National Advisory Board on Impact Investing, released Wednesday at the White House, concluded that such a change could boost foundation support of impact investing, which targets companies and projects that generate economic value as well as measurable social and environmental benefits.

“Innovative strategies by government can unlock new sources of capital and significantly advance the impact investing sector,” said Tracy Palandjian, co-chair of the advisory board and CEO of Social Finance US.

The report said impact investing “is not yet living up to its potential — which many believe to be 10 or even 20 times its current size.”

Geri Pell, president of Pell Wealth Partners, said Wednesday's announcements will help educate many about impact investing.

“We are starting to see a tipping point in terms of awareness of impact investing,” Ms. Pell said. “Now we need more easily understood investments, access to the investments and consistent or expected rates of return.”

The board also suggested federal incentives for new private impact investments, such as helping to ease concerns about risk and a lack of reliable information about some impact investments, especially in early funding rounds.

Specifically, the board said the Overseas Private Investment Corp. and USAID's Development Credit Authority should consider offering “modest, first-lost guarantees for impact investments.”

During the same event in Washington, Prudential Financial committed to $1 billion in impact investments by 2020 and Capricorn Investment Group agreed to invest $100 million over three years in sustainable real assets such as renewable energy and energy efficiency.

“We’re helping to establish the precedent that the impact investing sector is maturing and can handle institutional investors,” said Ommeed Sathe, vice president of Impact Investments at Prudential. “We’re validating that this is real.”

Ms. Pell agreed that large commitments like the one from Prudential are important.

“We need more money to go into impact investing and then everyone will start piling on.”

Additionally, about $184 million in impact investments were pledged by the Omidyar Network, the Case Foundation, the MacArthur Foundation and the Ford Foundation.

“This is a breakthrough moment for impact investing — and will help unleash the huge potential of markets to effect social change,” said Darren Walker, president of the Ford Foundation.

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