Insights

Positive Social Impact + Financial Return

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Historically, The Chicago Community Trust has focused on placing grant money in the hands of nonprofit organizations to do good in our region and beyond. In the universe of investments, those grants are considered a 100 percent “loss.” We do not expect nor want those dollars back. We give the grants away so nonprofit organizations can fulfill their social missions. Before we distribute those grants, however, endowment and other assets are invested for financial return. Traditional investing seeks the highest return – investing in an asset allocation between stocks and bonds to maximize upside potential and minimize downside risk – without regard to the social impact those investments have within our community, region, country, world. When doing good in our defined location, the Trust is among many philanthropic institutions that are increasingly recognizing our changemaker responsibilities through both grants and financial investments.

Social impact investing – sometimes termed impact-first investing – encompasses many kinds of investing. ESG (Environmental, Social, Governance) has received significant attention lately from investment firms of all types. Many investors, including public charities like the Trust, are asking their asset managers to audit the companies within their portfolios for their commitment to environmental and social considerations. Since 1969, private foundations have had the ability through federal law to make program-related investments (PRIs) – “investments” made to nonprofits or for-profit companies that can be forgiven as loans, and thus qualify as grants per IRS regulations. While the Trust is a public charity, not a private foundation, we have benefited from focused efforts of PRIs within the industry. Expanding on the concept, high net worth households and philanthropic institutions are considering how their financial investments can align with their missions or overall program goals, creating what is often referred to as mission-related investing.

Advancing social priorities through our investments can be an outsized influencer. As a sponsor of donor advised funds (DAFs), the Trust plays an interesting role relative to social impact return. The Trust advocates for all DAF holders to make annual grants, plus we offer ways for DAF dollars to make a positive social impact prior to grantmaking. For well over a decade, our growth pool has intentionally sought out diverse asset managers, defined by us as women and minority-owned or managed asset managers. To provide context, only 2 percent of all asset managers nationwide are women or minority-owned or managed. As of the writing of this article, approximately 25 percent of the asset managers in our growth pool are diverse, creating an outsized impact.

In 2016, we launched Benefit Chicago, in partnership with the MacArthur Foundation and Calvert Impact Capital, to provide financial investment capital to efforts advancing social returns, including wealth building, job creation, and job readiness in communities of color. We allocated a portion of our growth pool to Benefit Chicago, enabling all DAF holders with assets in our growth pool to have a small piece of Benefit Chicago in their portfolio. Our latest offering for DAF holders with funds exceeding $250,000 consists of a menu of impact-first investments through our impact investing program. Donor advisors view a variety of investment offerings and recommend investing in those that align with their own social impact goals – essentially doubling the opportunity for dollars to make a difference.

The Trust is committed to closing the Chicago region’s racial and ethnic wealth gap. Of course, this means making grants to organizations that are working in communities historically overlooked by private, public and philanthropic investment. As the manager of more than $3 billion in donor funds, by deliberately considering how dollars are invested, we can catalyze both the social and financial impact of our investments.