Ensuring a Resilient Financial Future
By Lisa Hall, President and CEO, Calvert Foundation
At Calvert Foundation, we envision a future where it is possible for all investors to be impact investors. We believe that empowering “everyday people” to invest in their own communities is a key step in ensuring a resilient and sustainable economic future. With the substantial decrease in state and local budgets since 2008 and the recent federal budget sequestration, reduced public spending is a reality in the foreseeable future. Other traditional sources of capital for community development including lending from banks motivated by the Community Reinvestment Act and grant dollars from private foundations are also increasingly scarce. These trends contribute to an uncertain environment, leaving the social sector with tough questions to answer. Where will local community organizations turn to fulfill their financing needs? How will we protect the commitments we’ve made as a society to build strong communities with equitable access to education, housing, healthcare, credit, and most importantly, opportunity?
Calvert Foundation makes it easy for individuals who want to invest in their own communities through initiatives focused on women’s empowerment and place-based efforts, so that anyone can participate in the economic recovery. In contrast to other sources of funding, which are subject to bureaucratic and unpredictable decision making, these diversified pools of private capital from individual investors are much more “sticky.” They are less likely to diminish quickly at the whim of one decision-making body. There is no replacement for public funding, corporate philanthropy, and private grant making, which are all critical to the sustainability of the social sector; but as a society we must think creatively about other mechanisms to augment and leverage these traditional sources of funding.
Calvert Foundation connects private sources of capital to Community Development Financial Institutions (CDFIs) that provide a range of financing options for small businesses, childcare centers, healthy food retailers, community healthcare clinics, charter schools, and affordable housing providers – the core elements of stable communities. With the prospect of reduced public funding for traditional nonprofits and direct services organizations, CDFIs remain well positioned based on their ability to attract private capital. To date, our investors and supporters have helped us build or rehabilitate over 17,000 homes, create 430,000 jobs in the U.S. and in developing countries, and finance over 25,000 cooperatives, social enterprises and community facilities.
Last year, in partnership with several organizations, we identified a $650 billion market opportunity for financial advisors and investors to invest for impact in a research study entitled Gateways to Impact. Impact investing presents an opportunity to build a financial future for low-income communities that is far less reliant on variable funding sources. But, there remains a great deal of work to be done in building the infrastructure to realize this opportunity. Among other things, we need to improve our ability to evaluate social impact, build more reliable distribution channels for impact products, and establish more of a track record.
Calvert Foundation has a unique role to play in connecting CDFIs to sources of private capital. Through our Community Investment Note, people can invest in our loan portfolio which directly supports CDFIs and other high impact organizations across the United States. Over the years we’ve built new partnerships that have allowed us to create a more inclusive approach to impact investing. Our partnership with Incapital has enabled us to offer our Community Investment Notes through traditional brokerage platforms, resulting in more than $175 million in new investments to benefit community development organizations across the United States. Through our collaboration with MicroPlace, we’ve reduced transaction costs and lowered our minimum investment to just $20 online, making impact investing a possibility for millions of people who never would have considered it before.
The $650 billion impact investing market can help to improve low income communities and reduce the social sector’s reliance on unpredictable funding sources. To be sure, accessing capital at this scale will require further financial innovation, collaboration, and efficiency in impact investing markets. And, while we recognize that private capital will never be a perfect substitute for public funding, the prospect of a mature impact investing industry is transformative – for investors, for the nonprofit community, and for government. Laying the groundwork for access to private capital at scale will mitigate the long term risks posed to our vulnerable communities by financial uncertainty and market volatility.