Giving Compass’ Take:
• The authors at the MacArthur Foundation discuss philanthropy’s ability to provide catalytic capital to drive profit and impact for enterprises in need.
• Catalytic capital is an investment that takes on more risk, is a flexible way to invest, and replaces traditional grantmaking. How can individual donors utilize catalytic capital for social good?
• Learn more about catalytic philanthropy.
Philanthropic organizations can play a critical role in bridging that gap with “catalytic capital.” Catalytic capital is neither a grant nor a profit-maximizing investment. Instead, it is an investment structured to be more patient, take on more risk, accept a lower return, or be flexible in other ways that differ from conventional capital.
Without sufficient catalytic capital, investors will be left on the sidelines, enterprises and funds will not receive the capital they need to succeed, and the global impact-investment market cannot realize its potential. This includes missing the opportunity to make significant progress on the Sustainable Development Goals, a collection of 17 urgent calls to action adopted by all United Nations member states to achieve peace and prosperity for people and the planet by 2030.
Think about the other solutions—and entire industries—that could take off if they had the proper runway to grow. Already, catalytic capital has been critical to the success of some of today’s most mature impact-investing spheres, including affordable housing, microfinance, and affordable, reliable, clean energy. This success has been fueled by foundations and corporate investors such as the Bill & Melinda Gates, Ford, Kresge, and Packard foundations as well as Prudential Financial and others that have used catalytic capital to drive innovation, build track records, attract additional investment, signal impact potential, and advance important social missions.
To be sure, catalytic capital is not for all investors. Rather, it is one of a range of financial tools needed to supplement traditional grant making and conventional investing.
But catalytic capital must be part of the solution if we are to address the Sustainable Development Goals’ massive funding gap, which is estimated at $5 trillion to $7 trillion. To achieve the goals, a collaborative approach to investing is critical, one that embraces more types of capital.
Read the full article about investing catalytic capital by Michael Kubzansky, Rajiv J. Shah, and Julia Stasch, at the MacArthur Foundation.
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