Sep 5, 2014
IMPACT INVESTING: Does your Foundation put Capital to the Service of Mission?
Readers of this blog space may know that I am currently chair of the Laidlaw Foundation. Like many foundations, Laidlaw invests the proceeds of its capital on its programs (in our case, work intended to promote youth engagement) and the balance through an advisor in traditional financial vehicles. Laidlaw sees both program expenditure and traditional investing as “investment”. In one case, we require social return and no financial return; in the other financial return is the target.
Since the market meltdown in 2008, foundations have been looking for a middle ground – investments that carry both financial and social return (and which are not necessarily connected to the general market). Foundations such as McConnell in Canada and the MacArthur Foundation in the United States have been among the leaders in this field, leveraging their financial resources through guarantees, direct loans and equity investments in businesses and not for profits whose success helps them achieve their missions. By way of example, to promote a micro-lending, MacArthur put up funds as security to back stop bank loans to small businesses in a poor area. As a result, their money has gone much further than it would have had they simply made grants to businesses. Alternatively, some investment is done through intermediaries such as the Community Forward Fund – a Canadian Organization which makes loans to charities and non profits. It provides a return to investing foundations which it generates through its lending operation.
Last week I had the chance to spend two days at a retreat hosted by the BMW Foundation the Mars Centre for Impact Investing on Wasan Island in Muskoka. For Laidlaw, the meeting was invaluable. We are keenly interested in putting some of our capital at the service of our mission. The session will provide a true launch point for us to set an investment policy which does just that.
However, the opportunity to make impactful investments extends to all foundations seeking to do more with their capital. Before creating a new investment policy, any foundation will have to consider both the objectives it wishes to achieve, and the legislative framework within which the investments are being made. The relationship between these investments and the Foundation’s charitable purpose is important and impacts how the investment is treated from a tax perspective. The Canada Revenue Agency has set out some of these rules in its statement entitled “Community Economic Development Activities and Charitable Registration. (http://www.cra-arc.gc.ca/chrts-gvng/chrts/plcy/cgd/cmtycnmcdvpmt-eng.html). For example, whether a loss can be consider part of the foundations minimum disbursement quota is related to the nature of the investment.
If you are considering Impact Investments, consider giving us a call to work through these implications. We can also direct you to resources at Mars and elsewhere.
My own view is that liberating funds to serve charitable ends is a very positive development, and I encourage foundations to consider doing so.
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