What is Social Investing?

Posted April 10, 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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