Giving Compass' Take:

• Kristina Wahl and Paige Chapel explain that mission-aligned investment opportunities can come in the form of funding community development financial institutions and investing in local social enterprises. 

• How is mission-aligned investment altering the current landscape of philanthropy and the broader sector? What are the benefits? Potential hurdles? 

• Read about foundations that are participating in mission-aligned investing.

On average, like most private foundations, Exponent Philanthropy members give away approximately 5% of their assets each year. But what about the other 95% that are invested in return-generating financial instruments? Where does that cash “sleep” at night? In the local community where it can benefit people and places? Or on Wall Street?

These days, impact investing or mission-aligned investing are hot topics, but to many it is not always clear how to get started. We suggest taking a look at mission-aligned investment opportunities in your own backyard: investing in CDFIs and supporting a local social enterprise.

CDFIs are private financial institutions with a 100% impact focus. They finance affordable housing, small businesses, and a range of community facilities—from schools, to health clinics, to arts venues.

The Barra Foundation discovered a great onramp to local investing in a loan fund managed by Philadelphia’s Reinvestment Fund, an Aeris-rated CDFI.  Individual and institutional investors like Barra loan money to Reinvestment Fund, which in turn uses those dollars to finance socially and environmentally responsible development projects that benefit low-income communities.

What about investing directly into a social enterprise? In some cases, a pilot or test can be a great way to get started with mission investing while limiting your risk exposure. For example, a program-related investment (PRI) or recoverable grant can help orient investment decisionmakers to a new way of thinking about deploying financial resources. Some foundations have taken a first step by making a low-interest loan to a nonprofit or other entity they already know well.

Mission-aligned investing often does not happen overnight. It requires some staff and board education. Barra staff began to learn through resources like Mission Investors Exchange and from like-minded foundations.

Read the full article about ways for philanthropists to invest by Kristina Wahl and Paige Chapel at Exponent Philanthropy.