Impact Investing as a Tool for COVID-19 Economic Recovery
April 2020 Blog Post • By Jennifer Oertel, CMF Impact Investing Expert in Residence
In making the case for impact investing, we always mention the “billions to trillions gap” – the fact that the billions of dollars of philanthropic capital available annually on a worldwide basis is not enough to bridge the trillions of dollars of need each year. Capturing a portion of the trillions of dollars of investable assets to bridge that gap through impact investing is one way to do that. This is why impact investing is widely touted as a tool by which to reach the UN’s Sustainable Development Goals.
The COVID-19 pandemic is already a vivid example of why we need to maximize our philanthropy dollars, and we don’t even yet know the full effects it will have in Michigan and around the world. For those who can increase their grantmaking – keeping in mind not only short-term, but also mid-term and long-term needs of the communities they serve – impact investing can be a powerful tool. Impact investing, such as low-interest and patient capital loans, can get even more capital to individuals and businesses in need to help them bridge this crisis. As opposed to the -100% financial return of a grant, lenders can expect a return of, and on, their money and we know that on an overall basis, such loan programs typically have very high repayment rates.
The recent work of Michigan Women Forward (MWF), a CMF member, is a powerful local example of a thoughtful response to this crisis using impact investing. MWF has a mission to accelerate Michigan’s progress by advancing equality and opportunity for women and girls. One of the many ways it advances its mission is through its Women Up program. MWF is both an investee and an investor, raising funds from various investors through loans and in return loaning those funds to small, mainly women-owned businesses. Carolyn Cassin, CEO of MWF and a member of CMF’s Impact Investing Committee, shared that MWF’s focus includes doing everything possible to support the women they serve by helping them and their businesses survive the crisis, and doing everything possible to make sure MWF is there for women and girls after the crisis.
MWF has reached out to each of its investees to proactively offer support and ask what they need, offering support such as no-penalty loan extensions and relief from payments for the next 90 days (to be re-evaluated depending upon length of the stay-at-home mandate). MWF also created an online assistance program to serve its target population virtually. MWF’s supporters have been generous in their contributions to support this outreach. A local corporation even granted computers to MWF employees to help enable them to work from home. CMF recently highlighted MWF’s COVID-19 Entrepreneur Assistance Project in The Download.
The Midland Area Community Foundation (MACF) is raising donations to support its “COVID-19 Impact Investing Project Fund.” The fund offers 0% loans to small businesses in Midland County that are in jeopardy due to the pandemic to provide them immediate short-term assistance. Through the loan fund, coupled with a COVID-19 Response Fund (providing donations), MACF has pledged $1 million in COVID-19 relief, including $250,000 in matching funds. In addition, it has convened a coalition of philanthropy, government, educational and business partners to provide a collective response to COVID-19 in Midland County.
Building upon its positive experience with several impact investing transactions, the Ann Arbor Area Community Foundation (AAACF) launched a short-term cash flow loan program that is providing short-term (up to 180 days) cash flow loans of $5,000 - $50,000 to charities based in, or primarily serving, Washtenaw County. The loans will be made on a rolling basis from a revolving fund of $500,000. This impact investing initiative complements the community foundation’s grantmaking to support COVID-19 response, relief and recovery efforts. AAACF reports it has funded grants totaling over $475,000 to local nonprofits.
In developing the impact investing portion of its relief program, AAACF, having successfully made loans to charities in the past, tested the program ideas during a 48-hour feedback window. Over 40 local charities responded, and the community foundation modified its program to be responsive to those comments and reported needs. AAACF expects that in many cases this program will bridge recipients to the receipt of federal CARES Act funds.
Impact investors are stepping up on a national level, as well. By the end of the second quarter of 2020, investments made through the ImpactAssets donor advised fund are approximated to exceed $143 million, more than total investments made by the fund all of last year. Most of these investments are intended to expedite public health research and response – including funding a COVID-19 vaccine – as well as supporting fledgling social enterprises and charities during the crisis. They’ve also provided bridge loans to existing investees to help them through the economic crisis.
We caught up with CMF partner Mission Investors Exchange on what they’re seeing at a national level. They report a lot of innovative donative activity, such as corporations using their purchasing power to secure bulk personal protection equipment (PPE) to donate to state procurement officials and factories retooling to produce needed PPE, with states and donors aiding efforts by chipping in for shipping costs or raw supplies. Companies are also providing technical assistance to organizations seeking and applying for assistance (including navigating the CARES Act benefits and determining which loan options to pursue), and many funds have launched to provide loans and grants to small businesses and charities. MIE maintains an ongoing list of community sourced ideas to meet the COVID-19 crisis with impact investing.
WE WANT TO HEAR FROM YOU! Share with us how you’ve used impact investing to respond to the COVID-19 crisis. We can all use some good news during these times and we want to share your ideas with others to support our collective impact in Michigan and beyond (respecting anonymity if you wish). If you need ideas or technical assistance for impact investing, please reach out.
Wishing you, your loved ones and your colleagues physical and mental health during these difficult times.
Jennifer Miller Oertel is CMF's Impact Investing Expert-in-Residence and a shareholder in the law firm of Bodman PLC, where she leads the firm’s Tax-exempt Organizations and Impact Investing Group. With a background in securities law, private equity and mergers & acquisitions, Jennifer utilizes her corporate law and governance skills to assist family and corporate foundations, community foundations, public charities, regional associations, trade and labor associations, chambers of commerce, religious organizations and other tax-exempt organizations as well as impact investors, impact funds, and social enterprises, in all aspects of their business.