I am often asked how individuals can invest in the work that organizations like CRF do in low-income communities. Individuals know they want to invest in socially responsible and impactful businesses and organizations, but they don’t know how. With the rise of environmental, social and governance (ESG) as key factors for investment decisions, individuals are increasingly looking for ways to put their money to work for the betterment of the climate and society. As it has become known, ESG investing requires an understanding of the impacts that companies and organizations have on these three factors. While the capital markets are responding to investor demand for environmentally beneficial investment vehicles including exchange traded funds, mutual funds and individual stocks, the market is less developed for investment vehicles focused on social factors such as reducing the racial wealth gap, financing small businesses owned by women or people of color, or affordable housing.
That said, there is a growing number of opportunities for individual impact investors to participate in socially beneficial investment strategies—particularly as lenders. Large, publicly-trade corporations are increasingly disclosing information on their ESG performance that is available to investors seeking to put their money into socially beneficial companies. While these companies may have huge impacts in their markets, the information they disclose on the ”S” in ESD is often limited or missing altogether—particularly their impact in low-income communities.
Community Development Financial Institutions (CDFIs) may be ideal vehicles for impact investments that focus on social impacts. CDFIs are certified by the US Treasury and must have a primary mission of benefiting low-income people or communities. There are more than 1,300 CDFIs throughout the United States, and many of them offer notes that can be funded by socially motivated individuals and institutions. Several national CDFIs have been rated by Standard&Poors and have issued more than $100 million in interest-bearing notes. By receiving investment-grade ratings, these notes may be suitable to hold in brokerage accounts or within IRAs. These organizations include: the Local Initiatives Support Corporation (LISC), Capital Impact Partners (now Momentus Capital) and the Reinvestment Fund among others. These CDFIs use the proceeds of these bond offerings to fund their balance sheets and, in turn, make loans and investments in low-income communities.
Another model for individual investors is the Calvert Note, which has been available to individuals for more than a decade. Calvert Impact Capital, a national nonprofit CDFI, pioneered offering investment notes to individuals through brokerage platforms. These notes generally carry below-market interest rates and varying terms. They have been approved for individual investors in all 50 states. They are also available directly from Calvert’s website. Calvert uses the proceeds of these notes to invest in other CDFIs, thus spreading the benefit across many local institutions. Not all issuers are CDFIs, however. C-Note is a public benefit corporation that offers notes, as well. While CRF doesn’t offer notes to the public directly, individuals have made investments through their registered investment advisors, or through separately managed accounts. This may be an option for some individuals seeking to invest in CRF’s activities or those of other CDFIs.
Some CDFIs also sponsor limited partnerships available to accredited institutions and individuals. Many of these partnerships invest in affordable housing or small businesses in low-income areas.
For further information on CDFIs contact the CDFI Fund at:www.cdfifund.gov.