Laying the Groundwork to Respond to Crisis
February 1, 2021 | Perspectives | Impact Investments

John Balbach, Director, Impact Investments, reflects on the years of groundwork and preparation that enabled the impact investing field to rapidly respond to crisis.


As we continue to grapple with intersecting crises—the COVID-19 pandemic, a long-overdue reckoning on racial equity, and an assault on our democracy—the MacArthur Impact Investments team has been thinking about what response means. What does response entail for the long recovery ahead, as well as for the next crisis, and the one after that?

Certainly, a just response to any major crisis requires swift, equitable action. And while government assistance and grant funding often provide the most effective form of emergency relief, impact investors mobilized in new, rapid, and creative ways over the last year. Many demonstrated exceptional flexibility with their portfolios by extending loan payments and reporting deadlines, along with providing other accommodations to ensure that existing investees could manage the disruptions and changing landscapes.

Impact investors mobilized in new, rapid, and creative ways over the last year.

Ceniarth and the David and Lucile Packard Foundation, among many others, led with urgency by enhancing and accelerating the ability of community development financial institutions (CDFIs) to deliver Paycheck Protection Program capital loans to chronically underserved rural communities. Place-based, public-private efforts, such as the City of Chicago’s Small Business Resiliency Fund, the New York Forward Loan Fund, and many others also responded to the acute needs of hard-hit enterprises, especially in Black, Latinx, and immigrant communities. And MacArthur and several other major U.S. private foundations broke new ground by issuing social bonds, tapping into rising Environmental, Social, and Corporate Governance (ESG) investment demand among institutional investors to expand their charitable giving dramatically.

But this ability to rapidly and effectively respond to crisis draws upon many years of groundwork and preparation. In 2020, we saw how catalytic capital, deployed decades ago, played an essential role in enabling the fast mobilization of resources to address urgent needs. In fact, much of the infrastructure for this powerful and swift response was built through many years of patient, flexible, risk-tolerant impact investments.

For example, MacArthur along with the Ford Foundation helped seed and grow the field of CDFIs beginning in the mid-1980s. This helped build the capacity of CDFIs to serve and empower communities of color, revitalize struggling regions of the country, and extend the reach of the financial system to increase opportunity in low- and moderate-income communities. These enterprise-level investments, aided greatly by important policies such as the Community Reinvestment Act and the establishment of the CDFI Fund at the U.S. Department of Treasury, helped develop what is now a robust sector. CDFIs have raised and deployed billions of philanthropic, governmental, and private dollars for economic development, health, education, affordable housing, and other needs. They have become financial first responders, and this proved vital in 2020.

This ability to rapidly and effectively respond to crisis draws upon many years of groundwork and preparation.

Even as we deal with today’s enormous challenges, impact investors must continue applying this lesson from 2020—that  field-building efforts over the course of decades pay off in moments of crisis. And while many future crises remain unknown, we know for certain that global climate change poses an immediate, grave threat. The world’s climate ambition needs to accelerate exponentially as our window to avoid the worst effects is closing rapidly. Because of this, MacArthur has followed the leadership of longstanding environmental impact investors, like the Jeremy and Hannelore Grantham Environmental Trust among many others, and made significant investments across a range of climate-focused efforts, including the Prime Impact Fund, Terra Silva Investments, and Encourage Solar Finance. However, so much more is needed from the broader impact investing community to prepare for and help to mitigate this imminent challenge.

The Catalytic Capital Consortium (C3) is another way we are leaning into this lesson to build stronger foundations to help tackle both existing and future social, economic, and environmental challenges around the world. Recent C3 investments, like Impact America Fund and ALIVE Ventures, are helping mobilize hundreds of millions of dollars across the initiative’s portfolio for vital efforts. And our C3 grantmaking collaboration with The Rockefeller Foundation and the Omidyar Network will help build a body of research and best practices to inform the wider market, better positioning us to meet the next crisis as well as those unforeseen challenges that remain just off the horizon.

We will face many difficult days ahead as the world continues to contend with the heartbreak and loss of the tumultuous past year. Still, we are encouraged by and proud to support the continued growth of the impact investing field. And we remain confident that our collective efforts can help build a stronger, more resilient, and more equitable world.

 

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