Week 6 - Vocab Flashcards
SRI
Socially
Responsible
Investments
Traditionally, these are funds invested in publicly traded securities, screened in or screened out by specific area
ESG (screened in)
Environment
Society
Governance
Generally, funds in this style are in publicly traded investments
ESG is a newer term and does not carry the progressive implications that the earlier SRI funds had
Mission Related Investing
A foundation or other entity consciously aligns its investment portfolio with its mission
If the goals of a foundation is women’s issues, for example, it might align the portfolio to favor firms that have significant participation by women at the board and leadership levels.
PRI or Program Related Investments
If IRS Rules are followed, foundations can use PRI to make high-risk, low-return investments in for-profits or nonprofits. (part of their 5% payout rates)
Forms: loans, equity investments, bank deposits, and guarantees
IRS Rules:
1. The primary purpose is to accomplish one or more of the foundation’s exempt purposes,
2. Production of income or appreciation of property is not a significant purpose, and
3. Influencing legislation or taking part in political campaigns on behalf of candidates is not a purpose
Examples of PRI:
1. low interest or interest-free loans to needy students
2. High risk investments in nonprofit low-income housing projects
3. Low interest loans to small businesses owned by member of economically disadvantaged groups, where commercial funds at reasonable interest rates are not readily available.
4. Investments in businesses in low-income areas (both domestic and foreign) under a plan to improve the economy of the area by providing employment or training for unemployed residents
5. Investment in nonprofit organizations combating community deterioration.
PRI as Grants
- can be used to satisfy grantmaking requirement (5%) for foundations
- Money coming back in from the PRI must go out again (complex formula)
Social Agnostic
Social entrepreneurs believe in doing good through market means, but look upon choice of legal form as less important
They feel they can do good in variety of ways, though all kinds of traditional or new forms
Social Impact Bonds - SIB
SIB isn’t actually a bond. It is an arrangement in which funders are “paid for success”
Launched in 2010 to finance prisoner rehab program in the UK
NYC and Massachusetts now use SIBs to reduce recidivism and chronic homelessness
Investors get paid as savings accrue to the government if a program succeeds
Microfinance
Capital is scarce and has a high cost in developing countries, making it hard for a local entrepreneur to start a business
Microloans can buy tools for a carpenter, seeds for a farmer, or a sewing machine for a dressmaker
Rates of return - some funders charge very low interest; some charge competitive rates.
Loan Guarantees
Foundations have the assets
Charities have a need for capital
Can the charity borrow the capital and have the foundation backstop the loan with guarantee? Could this create better access to capital? Lower rates?
Social Entrepreneur
The actors who do the work
Entrepreneurial
Often innovative and disruptive of established ways of doing things
Younger crowd - 20-somethings, often with MBAs from places like Duke, Harvard or Stanford
Social Enterprises
The organizational forms tat are used
Social Innovation
The theory of change that guides the process
Social Impact
The end result that is achieved
Impact Investing
Seed stage, funded first by family and friends
Sustainable enterprises: angel investors
Beyond that, the capital market for such new ventures is still a work in progress
Social Venture
Generally, a profit-making organization that seeks to have more than one bottom line
L3C
New business form created under state law specifically to qualify, under IRS rules, as PRI
A growing number of state now allow these
The form is meant to give comfort to foundations who seek to invest in a PRI.
Hybrids for the For-Profit Owning Nonprofit
Hybrid with Nonprofit Owning For-Profit
