Giving Compass' Take:

• Authors assess four ways that businesses can learn from foundations as they try to expand into "opportunity zones."

• The authors worry that opportunity zone tax incentives will simply benefit businesses who make investments into areas that already have them. Can foundations share knowledge that would encourage businesses to make investments that would help under-resourced communities?

• To learn about five ways to build business ideas that could change the world, click here.

The Opportunity Zone tax incentive–passed in amended form as part of the Tax Cuts and Jobs Act of 2017–is a potentially powerful new tool for helping low-income communities. By providing breaks for certain investments in distressed areas, it has already led to the creation of nearly $1 billion in new funds. Officials from the Treasury Department expect $100 billion in private capital will be deployed through the incentive.

But the policy may fail to achieve its goals unless foundations guide investments in the right direction. Their deep experience in struggling local communities around the nation prepares them for the challenge.

Lawmakers passed this policy with the belief that investors don't pay enough attention to the breadth of good financial opportunities available across the United States. But investors may still worry that low-income neighborhoods present more risk than other areas. And they may only use the Opportunity Zone tax break to enhance investments they would have undertaken anyway, rather than pursue potentially lower-return projects that truly help local communities.

Fortunately, foundations already know how to serve as the connective tissue that channels investment to marginalized regions and nascent economic ecosystems. Here are their four proven approaches:

  1. Support Independent Transaction Advisors
  2. Support Policy-Aligned Fund Managers
  3. Be Hyper-Local
  4. Develop and Track Success Metrics

Read the full article about the Opportunity Zone by Cody Evans and Agnes Dasewicz at Stanford Social Innovation Review.