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Impact Investing

Legal Counsel for Philanthropy and the Nonprofit Sector

Information and resources on nonprofit law & regulation

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Impact Investing

Many opportunities exist for private foundations’ and public charities' investments to enhance their charitable goals. In addition to furthering an organization’s mission, properly thought-out “impact investments” can increase capital to the organization when returns on the investments are later used toward the organization’s charitable programs. An organization interested in impact investing should become well-versed in the strategies known as program-related investments (PRIs), mission-related investments (MRIs) and socially responsible investments (SRIs).

Program Related Investments

This type of investment may be used to achieve the 5% payout in grants that private foundations are required to make each year. The main motivation for the investment is not the financial payout but the charitable purpose. In fact, it is acceptable for a PRI to not generate a return as these types of investments are exempted from prudent investor standards. Often, PRIs will take the form of a below-market loan, but they are not limited to this type of investment.

Mission-Related Investments

Unlike PRIs, MRIs cannot be applied to the foundation’s annual payout requirement. The purpose of an MRI is both to contribute to the foundation’s charitable mission and to achieve an effective financial return. Prudent investor standards apply to these types of investments, but the investment need not offer the highest rate of return so long as ordinary business care is exercised at the time the investment is made.

Socially Responsible Investments

Socially responsible investments involve screening the organization’s investments to ensure that they do not contravene the organization’s mission. For example, an organization may wish to invest only in clean energy companies or to avoid investments in big tobacco. Prudent investment standards apply to this type of investment.

Impact Investing Comparative Chart

Refer to our comparative chart for a brief overview of the similarities and differences among PRIs, MRIs, and SRIs. It should be noted that this summary is necessarily oversimplified, and a foundation wishing to engage in one of these investment strategies should carefully consider the practical and tax implications. Private operating foundations, in particular, should proceed cautiously when seeking to characterize specific impact investments as PRIs or MRIs because PRIs may affect an organization’s ability to qualify as a private operating foundation. Please do not hesitate to contact us if you have any questions about these various distinctions. 

Additional Resources

IRS Website on Program Related Investments: https://www.irs.gov/charities-non-profits/private-foundations/program-related-investments

National Center for Family Philanthropy: Program Related Investments: Why Aren’t More Foundations Using Them?

Stanford Social Innovation Review: Investing for Impact with Program Related Investments

Foundation Center: Key Facts on Mission Investing

MacArthur Foundation: Mission-Related Investing

Council on Foundations: Impact Investing

The Forum for Sustainable and Responsible Investment: https://www.ussif.org/


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