What is Social Investing?

Posted April 9, 2013, By the Annie E. Casey Foundation

Social Investing, also referred to as “mission investing” in the philanthropic world, means placing assets into investments that provide a societal or mission-related benefit in addition to a financial return. The goal is to deliver a “double bottom line” – positive results for people and additional funds to channel back into doing good.

In its broadest sense, the term is often used to describe socially responsible investors who direct their assets to encourage corporate practices that serve the public good and also avoid entities that support harmful products. In philanthropy, social investment generally refers to foundations directing a portion of their endowments into projects and investments that further their social goals through activities that benefit their target population, rather than relying primarily on grant making to produce results.

What are the most common types of social investments?

Program-Related Investments

Program-Related Investments (PRIs) are designed to achieve specific program objectives aligned with an organization’s mission while earning a below-market rate return. PRIs often get below market rate returns because the social mission is the primary purpose of the investment. So the financial return is not the key reason for the investment.

PRIs are defined by the IRS tax code, and they are eligible to count against the 5% payout that foundations are required to make each year to retain their tax-exempt status. PRIs must:

  1. be made primarily to further the foundation’s charitable purpose;
  2. lack any significant investment purpose; and
  3. not be used for electioneering or lobbying.

PRIs may be made in the form of loans, loan guarantees, cash deposits, equity investments and other investments made for a specific purpose such as affordable workforce housing and community development facilities.

Mission-Related Investments

Mission-Related Investments (MRIs) are intended to provide a positive programmatic and social benefit while generating market rates of return and contributing to the foundation’s long-term financial stability and growth. They also include deposits made to federally insured institutions such as traditional banks, community development financial institutions (CDFIs), or credit unions. They can be structured as insured certificates of deposit or share certificates. CDFIs can also be unregulated loan funds that are not depository institutions.

MRIs can be made in investments that in the wider investment community are referred to as socially responsible investments, investing in emerging domestic markets, double/triple bottom line investing, green investing, or impact investing. An MRI is fundamentally a financial investment, and must meet applicable prudent investor standards just like more conventional investments.

Learn more about social investing

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