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How impact investing is changing philanthropy

Leaders of four big foundations discussed how a new form of providing money is requiring a hard look at their own ways of doing business.

Foundation presidents speak on a panel at #MIE16. (Photo by Stephen Babcock)

Impact investing can lead to new strategies for entrepreneurs and mission-driven businesses. That means room for new people to receive investment.
“It cannot just be about the elites. It really has to include everyone,” said Case Foundation President Jean Case, echoing a core belief that’s reflected both in the foundation’s work and the message of her husband, AOL cofounder Steve Case. She made the remarks during a panel of foundation presidents at the Mission Investors Exchange conference this week in Baltimore.
(But what’s impact investing, you ask? Check out this Harvard Business Review piece highlighted by Technical.ly sister site Generocity.org for the term’s many definitions.)

But as the idea of providing investments that are as much about social good as financial return gains steam, it’s worth remembering that the form is also bringing change to the institutions that dole out the money.
For the leaders of large foundations, the rise of impact investing is providing a reason to look inward as much as it is to consider the landscape of potential recipients of their money.
“We are in a historic moment in this country and in philanthropy, and if we believe that our old behaviors and old ways of doing things will continue to make us relevant and important, then we are kidding ourselves,” said Ford Foundation President Darren Walker. “We must interrogate our own behaviors, our own practices and internal policies.”

For Ford, which under Walker is taking aim at the root causes of inequality, that requires addressing how those structural issues are reflected in the organization itself. For instance, while preparing to lead a “ban the box” initiative meant to counteract prejudice against returning citizens, Walker said he found that the Ford Foundation itself had a box.
“We’re really good at the Ford Foundation at putting out really good rhetoric, but we have to earn that rhetoric and align our actions with that rhetoric, and we’re going to be challenged to do that,” he said.
Impact investing itself has to be reflected throughout the organization, as well. As the Kresge Foundation made strategic investments and brought together stakeholders to help Detroit’s recovery, president Rip Rapson said energy from the staff that the board could then see was key to taking the new approach. “If you simply superimpose it from the top, it ends up getting tied up on the rocks,” he said.

Although it’s different from the grantmaking and other tools that philanthropists have used for years, Walker said impact investing can’t be framed “as oppositional to our core endowment investment.”
“As long as we allow that to be the way this is framed, interpreted and discussed, we will fail at scaling and taking this to the kind of adaptation we need to have real impact,” he said.
To MacArthur Foundation President Julia Stasch, who is part of the $100 million Benefit Chicago collaboration rolled out last month, impact investing already fits into philanthropy’s role. While foundations won’t supplant the public-sector dollars invested in cities, the funding can serve as a sign of confidence in areas where other investors may perceive risk.

Companies: MacArthur Foundation

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