A Major $100 Million Infusion of Social Benefit Investing for Chicago Area

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April 27, 2016; Curbed Chicago

This week, the John D. and Catherine T. MacArthur Foundation and the Chicago Community Trust joined with the Calvert Foundation to launch “Benefit Chicago.” Their collaboration aims to generate $100 million in new impact investments for nonprofits and social enterprises in the Chicago region.

According to Benefit Chicago’s web site, this new funding pool will be available for “loans and other investments to eligible nonprofits and social enterprises that help meet significant community needs in the Chicago region, such as education and child care, access to healthy food, quality affordable housing, energy conservation, job training, and more.”

Research commissioned by MacArthur and the CCT identified a need for more than $100 million in new funding over the next five years. It also found there were many individuals and institutions that, while interested in using their resources for social good, did not want to make traditional philanthropic gifts; rather, they desired to protect their capital and perhaps earn a small gain over time. Benefit Chicago hopes to tap into this trend by “bridg[ing] the gap between these two sides of the region’s nascent impact investment marketplace, unlocking new financial resources for organizations whose work benefits the communities and people that need them most.”

Half of the $100 million targeted by this new effort will be raised by the Calvert Foundation, which provides investment opportunities for social-interested investors. They will be issuing up to $50 million of their Community Investment Notes, with proceeds targeted for Benefit Chicago. The Chicago Community Trust has already stepped up with an initial investment of $15 million, hoping to stimulate others to pick up the remaining notes. The MacArthur Foundation will be creating a new $50 million special purpose fund to provide the second half of Benefit Chicago’s funding.

Benefit Chicago will seek to use these funds to support the efforts of both nonprofit and for-profit organizations that they believe will improve the area’s quality of life. According to Curbed Chicago:

The money distributed by Benefit Chicago will not only yield a modest financial returns for investors, but also produce social and environmental benefits in areas that have been historically starved for capital infusion…yield[ing] a diverse array of community dividends in the form of new small businesses, grocery stores, health clinics, affordable housing, transit-oriented real estate developments, educational programs, community gardens, green infrastructure, and sustainability improvements.

With the Illinois budget still in limbo and many human services nonprofits struggling to replace missing state funds, Benefit Chicago represents a ray of needed hope. More money to do more good things will be warmly welcomed. Impact investing is not foreign to Chicago, but this partnership significantly raises its role and can significantly rebalance the philanthropic environment in the area. By throwing this pebble into the pond, there are ripples that will need to be understood as Benefit Chicago matures.

  • Will the $100 million in Benefit Chicago investments be new money? If by providing an opportunity to both invest and do good, Benefit Chicago attracts funds and sources that are new to the world of philanthropy, it will be a true success. But if a significant portion of the funding it generates represents a repositioning of existing donations, it will have only added new cost and burden to the already tight reality of Chicago area nonprofits.
  • To the extent that the loans provided by Benefit Chicago replace higher cost financing that would be used by the organizations they support, there will be real benefit. But if loans, even low cost loans, replace traditional philanthropic funding, how organizations manage to provide the returns investors expect will be interesting to follow. Will it force shifts of resources from direct services to the cost of funding?
  • Benefit Chicago envisions producing the desired community benefits through investments in both nonprofit and for-profit organizations. What will this mean for the nonprofit community, which has traditionally shouldered much of the burden of serving the community’s neediest? Increased competition can provide increased efficiency, but does not guarantee it; it can stimulate increased effectiveness but can also drive toward the lower, less expensive levels of service.

Only time will help us see how this plays out in practice. The answers that emerge will show us how the promise is fulfilled.—Martin Levine