Abstract
Little scholarly research has systematically examined impact investing in the nonprofit realm. In the overview, the paper presents a case study of a U.S.-based private foundation that has transformed itself from a grant-maker to an impact investor, and the associated challenges of institutional entrepreneurial motivations, successful strategy for institutional adaptation, and the ensuing lessons for the field of impacting investing. The paper has two main objectives: to identify the motivation and enabling environment for such strategic change, and to analyze the issues and changes of the managerial model when evolving from traditional grant-making to impact investing. We argue that organizations that are mission-driven, entrepreneurial in spirit and structure, with embedded business/philanthropy principles acting as a source of change in the institutional field. However, it faces technical and legitimacy problems resulting from the new practice's lack of institutional saturation in the field.
TopBackground And Literature Review
The term, impact investing, was coined by the Rockefeller Foundation in 2007. The Global Impact Investing Network (GIIN) defines impact investing as investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return (GIIN, 2016). The notion of a financial return in addition to social and environmental impact is key because of the implied strategic consequence associated with such investment, which we will discuss below. The current size for this market amounts to $60 billion and is expected to grow in the next two decades (Etzel, 2015).
Long before the term impact investment became popular, some organizations could arguably be identified as prototypes for impact investors. The most renowned example is most likely Ashoka. Since its establishment in 1980 by Bill Drayton, a former McKinsey Consultant, Ashoka has been involved in identifying and incubating leading social entrepreneurs associated with traditional nonprofits, which hold social mission as its central focus. More recently, an increasing number of organizations have extended support, through provision of financial capital for social enterprises, consisting of both nonprofit and for-profit organizations that aim to mitigate, through business ventures, a social problem or market failure (Atler, 2016).
Key Terms in this Chapter
Institutionalization: A process that reinforces an established social norm, value, belief, or practice.
Program-Related Investing (PRI): An investment created or carried by private foundations with the primary purpose of accomplishing charitable, religious, scientific, literary, educational or other tax-exempt purposes. For example, low-interest or interest-free loans to needy students or nonprofits.
Private Foundation: A type of U.S. 501(c)3 nonprofit organization that is voluntarily established by wealthy private individuals, corporations, or families to primarily pursue the public good. It is a tax-exempt nonprofit organization that does not raise money from general public and is required to pay out a mandatory 5 percent of its annual assets.
Institutional Entrepreneurship: A behavior carried by an agent embedded in a preexisting institutional environment to break through the old structure and create a new structure through its resource mobilization.
Impact Investing: Direct investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. The investment can be made in the form of loans, equity, debts, cash and cash equivalents.
Grant-Making: Foundations make grants to qualified nonprofit organizations to carry out its mission.
Institution Diffusion: An act of reproducing an established norm, value or practice.
Mission-Related Investing (MRI): Financial investments with the intention of advancing a foundation’s mission and recovering the principal invested or earning financial returns across all asset classes with both market rate and below market rate.