kingdom impact investing
Each of the components of this definition deserves attention. First, the idea that we are intentionally placing capital means that Kingdom Impact Investing goes beyond negative screens. This includes biblically or socially responsible investing, where one avoids placing money in “sin stocks” like gambling or in companies that are known environmental polluters. Next, measurement needs to play a key role in assessing impact. When it does, we will better understand whether individual investments, as well as the Kingdom Impact Investing marketplace overall, lives up to expectations. Finally, financial return must be present in an investment portfolio, although individual performance may vary for a portion of capital returned to risk-adjusted market rate returns, as the chart below explains.
Read more in our Kingdom Impact Investing white paper.
Without a common and clear definition, Kingdom Impact Investing will struggle to gain traction. Thus we back up to reiterate and examine the concept. Kingdom Impact Investing means
intentionally placing capital to achieve a measurable social/environmental and spiritual gain alongside financial return
All enterprises, regardless of tax status, can produce both social and financial results on a spectrum from positive to negative. Therefore, these investments can be in nonprofits, private companies, venture funds, or private equity funds, and may be structured as debt, equity, or a blend of the two.
what do these words mean?
An Impact Account is a donor advised fund at Impact Foundation and all moneys in a Fund are legally owned by the foundation. We allow donors to advise on how their Impact Funds will be invested within the parameters of the foundation's Investment Policy. This means a donor can select the companies in which it wants to invest. When those investments liquidate, the donor can choose to invest in another Impact Company or grant the money to another charity.
According to the Global Impact Investing Network, impact investments are "investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. See more at this page.
An Impact Company is one that (1) earns financial profit, (2) has measurable, positive social/environmental change, and (3) regularly works toward Kingdom impact. These companies may be organized as LLC's, corporations, partnerships, or one of the fancy new corporate forms like "L3C" or "B Corporation".
Program-Related Investment (PRI)
A term of art, program-related investments are codified in the Internal Revenue Code section 4944. A PRI is an investment "the primary purpose of which is to accomplish one or more of the [charitable] purposes, and no significant purpose of which is the production of income or the appreciation of property, shall not be considered as investments which jeopardize the carrying out of exempt purposes."
Mission-Related Investment (MRI)
The IRS defines Mission Related Investments in Notice 2015-62 as "investments that are made by private foundations for [charitable] purposes described, but are not program-related investments (PRIs) as defined in section 4944(c) and the regulations thereunder".
Charity Enterprise is a profit-making endeavor that funds and complements a charitable purpose. It’s not just a business that uses only its profits to fund ministry work. The business itself advances the mission. This model blurs the lines between ministry and business, creating social impact, while making a profit at the same time.
Why combine charity and investment?
Impact Foundation didn’t invent the idea of blending charitable impact with investment disciplines. In fact Forbes recently named it as the top trend in philanthropy. So why do so many people find it compelling? Why not simply make a grant to charity?
Charity needs the discipline, financial profitability, and job creation of impact companies.
Fundraising is getting tougher and charities need new ways to fund their missions (Check out this blog post on demographics to find out more). A profitable business can do that. Furthermore, certain missions can be accelerated by pairing charity with business. If you want access to the power brokers of a society, you earn that right by creating jobs and building the economy. If you want to lift a society out of poverty, then help them build successful businesses.
Business needs the heart of charity to reclaim its purpose as a significant contributor to human flourishing.
God designed his economy - from the beginning, before the Fall - to include man's work as part of His plan. As Eventide points out, "God chooses to do his great work of provision in a sort of quiet partnership with a very specific group of people — those in business." (I suggest reading the whole article). This means that business has a critically important role in the world beyond simple financial increase. Scripture makes clear that "wealth" extends well beyond economics to include all of human flourishing - access to beauty, rest, friendship, family, healthy community, meaningful work.
But by making the increase of shareholder value the only measure of a successful business, we've lost the true soul of business. Certainly profit is central; without it, there can be no flourishing. It's simply not the only thing that matters. Pairing the other's-focused, missional aspects of charity with wealth creation, we can reclaim the best of what business was intended to be.
Investments in impact companies get a 40% “bonus” with a charitable contribution deduction and potentially multiply your giving impact.
Consider an example. Steve has $100,000 to invest and is choosing between an impact company and a traditional private equity play. Both companies have similar risk profiles and similar potential for return. By investing charitably in the impact company, Steve can get 40% of his capital back right away in the form of a tax deduction. That means Steve contributes his $100,000 to a charity that uses the money to invest in the impact company. This creates a $100,000 charitable deduction, meaning Steve pays $40,000 less tax this year. That’s $40,000 extra for charitable giving or more impact investing. When the Impact Company distributes profits or the charity sells its ownership, the Foundation transfers the proceeds back to Steve's charitable Impact Fund. Steve now has even more dollars to once again invest in an Impact Company or simply grant to charity. (See the diagram on this link for a visual representation).
Plus, an investment in an Impact Company means that Steve's money is creating social and eternal impact while it is invested. In traditional private equity, Steve would have to wait years for the company to become profitable and liquidate his ownership before he could use those proceeds to give charitably. But an Impact Company works to complement charitable purposes while growing invested capital.
Ready to get started?
Maclellan whitepaper - a primer on impact investing and story about Maclellan Foundation's experiences with it
Co-investing issues - description of excess business holdings and excess benefit transaction rules that come into play when a donor advised fund is investing in the same deal as a donor
Terms of Service - the terms of how we govern Impact Accounts
Funding Instructions - wire instructions, where to mail checks
Investment Policy Statement - the principles we use to guide our investing and grant-making
Unrelated Business Income Tax Primer - why and when would a charity have to pay income tax?
Spiritual Integration and Investing - Jeff Johns and Aimee Minnich's white paper from Christian Economic Forum introducing the concept of Kingdom impact investing.