There are many terms used to describe investments that generate both a social/environmental and a financial return. We use the term “mission investments” to describe investments made by foundations and other mission-based organizations to further their philanthropic goals.
Mission investments cover two distinct categories of investments: market-rate mission-related investments (MRIs) that have a positive social impact while contributing to the foundation’s long-term financial stability and growth; and program-related investments (PRIs) that are designed to achieve specific program objectives while earning a below-market rate return.
- MRIs are market-rate investments that support the mission of the foundation by generating a positive social or environmental impact.
- MRIs can be made in investments that in the wider investment community are referred to as socially responsible investments, investing in emerging domestic markets, double/triple bottom line investing, green investing, or impact investing.
- An MRI is fundamentally a financial investment, and must meet applicable prudent investor standards just like more conventional investments.
- MRI opportunities exist across asset classes in cash, fixed income, public equity, private equity and venture capital, and real estate.
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- PRIs are below-market rate investments that are made with a targeted program objective.
- PRIs are defined by the IRS tax code, and they are eligible to count against the 5% payout that foundations are required to make each year to retain their tax-exempt status. PRIs must:
- be made primarily to further the foundation’s charitable purpose;
- lack any significant investment purpose; and
- they may not being used for electioneering or lobbying.
- PRIs may be made in the form of loans, loan guarantees, cash deposits, equity investments and other investments made for a specific purpose such as affordable, workforce housing, and community development facilities.
- Foundations vary in their approach to PRIs—they may include PRIs as part of their grant budget, or choose to view PRIs within the context of their endowment investment allocation.
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