As we predicted last year, impact investing (making investments into companies, organizations, and funds with the intention of generating both measurable social and environmental impact along with a financial return) has been trending as a topic of conversation at not only national conferences for social entrepreneurs, such as SoCap, but now at state and local conferences geared toward nonprofits. Our founder, Suzanne Smith, served on a panel on impact investing at the Texas Association of Community Development Corporations (TACDC) and got a great question – How can nonprofits leverage this momentum? – from TrendSpotter Sarah Ellinor of Texas Affordable Housing Corporation. In this post, we will outline what we shared with the TACDC audience and would love your feedback.

Impact investing is a growth industry, which is why many nonprofits are paying attention to it as a possible avenue for future funding for impactful programs, especially in certain issue areas. In a recent survey by the World Economic Forum while only 6 percent of U.S.-based pension funds have made an impact investment, 64 percent expect to make this type of investment in the future. The Monitor Group predicted that it could be a $500 billion industry in the next decade. Closer to home for many nonprofits, the Foundation Center predicted that 14 percent of foundations engage in mission investing.

While much has been written about the development of the capital market, little has been done to stimulate the growth of the investments among the traditional U.S.-based nonprofit sector. This makes the question raised at the TACDC conference so interesting to us. If we could prepare the nonprofit sector to meet the opportunity of impact investing, we could bring a great deal of capital to the sector to solve some of our most intractable social issues. It got us thinking – could impact investing be the social sector’s lottery ticket?

In order to prepare for the possible opportunity, we recommend the following steps:

  • Review existing programs and services for impact using the lean-start up model and uncover which ones are the most relevant and impactful. Impact is the first driver of impact investment. If you are not sure about your impact, begin an impact measurement project. If you have established impact, be sure you are publicizing it and consider options for scaling your work.
  • Evaluate existing programs and services for return using return on investment models. Financial return is the second driver of impact investment. You have two options for investment. One is a pure financial return if you can monetize your project using conventional means. Think about social enterprise as a possible model. Another is a new form of investment using a social return on investment calculation, which eventually saves society money, through a social impact bond.
  • Consider augmenting your board with entrepreneurs and non-traditional finance experts (e.g., venture capital). They will be able to help you translate your offerings (a.k.a., programs and services) into deals that will be attractive to impact investors.
  • Monitor and encourage growth through education and advocacy of other nonprofits as well as elected officials and foundation executives. Share this blog and other resources with them. Everyone is looking for new ways to do good better and being at the forefront of this change will be advantageous to your organization and community.

Impact investing is an exciting development for the social sector with a lot of potential. It will favor the prepared and those social sector organizations that are achieving impact and scale. It is not a lottery ticket, but a gamble worth taking. We’d love to get your thoughts on this important topic as well as any questions you’d like us to answer in the future.

Sign up to receive the Social TrendSpotter e-newsletter

Facebook Twitter Linkedin Email