Cleveland Foundation announces social impact investing goal

Foundation approves $150 million program by the end of 2022

Release Date: 5.7.2019

CLEVELAND – The Cleveland Foundation today announced that it will allocate $150 million in capital for social impact investing by the end of 2022. The foundation defines social impact investments as opportunities that align social good with financial return to bring about social change.

This commitment positions the Cleveland Foundation as one of the largest social impact investors in the country among community foundations. Importantly, social impact investing does not replace or diminish the traditional grantmaking efforts of the Cleveland Foundation, which last year granted more than $100 million to nonprofit organizations. The expansion of this program will add to the foundation’s efforts to strengthen the community.  

“Today represents a significant moment in our organization’s history and a proud point in time for community philanthropy to demonstrate fiscal leadership while taking innovative steps to meet the growing needs in our local community,” said Cleveland Foundation Senior Vice President and Chief Financial Officer Rosanne Potter. “When combined with our traditional grantmaking efforts, the social impact investing program amplifies our place-based impact in Greater Cleveland and invites new partners to join us in creating an environment for success for everyone we collectively serve.”

The foundation has been at the forefront of social impact investing for nearly 40 years – becoming the first community foundation to deploy a program related investment (PRI) when it advanced nearly $4 million to help save Cleveland’s Playhouse Square in 1982. Today, Playhouse Square is the country’s second-largest performing arts center, second only to New York City.

The foundation’s social impact investing program consists of four primary vehicles:

  • Recoverable grants are extended to nonprofit organizations and paid back without interest over a period of time – usually less than five years. They can provide fast and flexible capital, while encouraging an organization to consider multi-year planning. Unlike loans, they are forgivable if needed, and from the foundation’s perspective, provide a source of recyclable capital that compliments traditional grantmaking.
  • Program Related Investments (PRIs) are below market-rate loans, equity investments, and bank deposits or debt guarantees that are used to fill capital gaps and address community issues. As regulated by the IRS, PRIs must be made for the primary purpose of accomplishing a charitable outcome and not primarily for financial gain. These outlays can be extended to nonprofit organizations and community development financial institutions and typically carry an interest rate of 2-3% over no more than seven years.
  • Mission Related Investments (MRIs) provide a vehicle to support early-stage private equity and venture capital, Benefit Corporations, and public or private companies that are mission-aligned. The foundation’s MRIs frequently center on job creation, economic development, research, and technology advancements that will provide impact for the community. Additionally, the foundation also looks for environmental and sustainable impact investments, housing development investments, and financing for entrepreneur start-up capital.
  • The Socially Responsible Investment (SRI) Pool is designed for Cleveland Foundation donor advised and organization funds. The SRI Pool consists of fossil fuel-free public equities screened for social and environmental responsibility and gender diversity and has a place-based emphasis on Cleveland corporations. The foundation’s SRI Pool has grown from just $500,000 in 2017 to $44 million at the end of the first quarter of this year. It has been the best performing pool at the foundation for the past two fiscal years.

“We felt it was extremely important to align our Socially Responsible Investment Pool with the mission and values of the foundation,” said Potter. “Equally as important was our move to look at the racial and gender composition of both the company boards and investment managers that are partners in the stewardship of our philanthropy.”

To that end, to be included in the SRI Pool’s diversity allocation, the company board and executive team must include female and minority representation. In addition, the foundation actively seeks investment managers that are at least 50% women and/or minority owned.

The Cleveland Foundation allocated $83.5 million for social impact investing in 2018, with 85% of that coming in the form of PRIs and the SRI Pool. As part of the overall impact investment goal of $150 million, the foundation also hopes to more than double the amount it invests in MRIs and recoverable grants by 2022.

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