US Foundation Pledges $150 Million to Fix Gaps in Impact Investing
15 March 2019 at 4:39 pm
A leading US foundation is launching a new initiative to help fund impact investments deemed too risky for conventional financing.
The MacArthur Foundation this week unveiled the Catalytic Capital Consortium, bringing together leading impact investors who believe that greater use of catalytic capital is essential to achieving the Sustainable Development Goals (SDGs).
Catalytic capital is defined as debt, equity, guarantees, and other high risk investments that accept lower market returns than conventional investments in order to generate positive impact.
MacArthur is partnering with leading impact investors The Rockefeller Foundation and Omidyar Network, who will add their expertise and financial resources to the consortium.
It has committed US$150 million (A$212 Million) to invest on a matching basis in around five funds or intermediaries that demonstrate a “powerful use” of catalytic capital across different sectors and geographies.
Its first investment is $30 million to expand and accelerate The Rockefeller Foundation’s Zero Gap innovative finance portfolio, matched by $30 million from The Rockefeller Foundation.
Managed by The Rockefeller Foundation’s new impact investment management platform, these funds will tap into mainstream markets and investors, scaling up investments into new finance vehicles to help close a reported $5-7 trillion SDG financing gap.
MacArthur president Julia Stasch, who announced the consortium at the Global Impact Investing Network Investors’ Council Annual Meeting, said catalytic capital is needed for impact investing to realise its full potential.
“While impact investing is growing rapidly, much of the attention focuses on market-rate returns, leaving a serious gap in financing opportunities for many promising impact enterprises and funds that could help address critical social challenges,” Stasch said.
“The Catalytic Capital Consortium will help more investors appreciate the importance of this type of capital in yielding deeper, more sustainable impact for people and the planet.”
According to a report released this week, catalytic capital is an essential component to achieving the SDGs, helping meet the demand for more capital, and complementing and paving the way for conventional investment.
Dr Rajiv Shah, president of The Rockefeller Foundation, said the need for innovative financing solutions for impact investing was clear.
“The cost of solving the world’s most critical problems runs into the trillions of dollars. Currently, more than $200 trillion in private capital is invested in global financial markets,” Shah said.
“Together, we must find innovative and catalytic solutions to mobilise private capital to close this widening gap between those with hope and prosperity, and those without… Closing this financing gap is our urgent task.”
MacArthur, The Rockefeller Foundation and Omidyar Network are also dedicating $10 million over three years to grants that promote how catalytic capital can be most effective and what additional tools and practices are needed for impact investors.
Mike Kubzansky, managing partner at Omidyar Network, said we needed to reimagine capitalism and shift how people thought about the role of capital in our economy and society.
“Investors need a greater understanding of the range of capital across the returns continuum,” Kubzansky said.
“This initiative has the potential to help investors better target catalytic capital to where it can have the greatest impact – ultimately helping to pioneer new innovations, drive sector-level change, and unlock larger sums of investment to build more equitable economies.”
A 2017 report from the Australian Advisory Board on Impact Investing said attracting sources of catalytic capital was one lever for growth in Australia’s impact investment market.
It said a gap in catalytic capital was reflected in market benchmarking data that showed 24 per cent of active Australian investors were prepared to take a sub-market return compared to 34 per cent globally.
The report noted that governments and philanthropy needed to act as providers for catalytic capital to help mobilise and unlock private sector capital and activity.