You may hear the words “impact investing” this week. It’s fast becoming the way a new generation of wealthy are choosing to invest in society. Chronicle of Philanthropy editor Stacy Palmer explains.
Transcript
LYNN NEARY, HOST:
It’s time once again for our regular segment, Words You’ll Hear. That’s where we try to understand stories we’ll be hearing about by parsing some of the words associated with those stories. This time, we’re looking at a phrase you’ll be hearing more about in the coming months – impact investing. That’s a new twist on philanthropy for the next generation of wealthy, including Facebook CEO Mark Zuckerberg. Here to talk about it is Stacy Palmer, she’s the editor of The Chronicle of Philanthropy. Welcome to the show, Stacy.
STACY PALMER: Happy to join you.
NEARY: So what exactly is this impact investing, and how is Facebook CEO Mark Zuckerberg using it?
PALMER: Impact investing is exactly what it sounds like. It’s investing, and the impact part is to say can we get some social good out of our investments?
NEARY: All right. And how is that different from what we think of as charitable giving or traditional charitable giving?
PALMER: It used to be that wealthy people would set up a foundation and most of the money would come out in grants. And because of federal law, they would end up giving about 5 percent of their assets every year to charities and 95 percent of their assets would be invested in anything that maximized returns. Now people started saying that 95 percent of money that’s being invested might not be invested in very good things, so let’s focus there, and let’s look at how we make sure that our investments are doing good.
NEARY: In reading about this, I came across some other, I thought, very intriguing descriptions of the way young entrepreneurs are approaching charitable giving – hacker philanthropy was one and philanthrocapitalism was another. Is there a real sea change going on?
PALMER: There’s an important change happening. And one of the things that’s been part of this conversation is how can we use the market to better advantage, and does it make sense to have nonprofits so separate from the market? Now, there are people who don’t think this is a great idea and are very concerned about it because they said the whole reason philanthropy and nonprofits exist is to correct what the market does wrong. But it’s for sure changing the way philanthropy works and thinks.
NEARY: And there are a lot of tax implications here too. What’s the IRS take on this?
PALMER: The IRS told foundations that we understand that there’s this big change going on. And it had a very strict standard that you really had to maximize your financial investments. So that IRS ruling saying we’re not going to take this strict stance was seen as a really big deal.
NEARY: And there are also critics who are saying that this is a way to protect wealth, and that if it is protected from taxation, there’s less money for government programs. Is there truth to that or?
PALMER: Absolutely. That’s a big concern that people have when they saw this Zuckerberg money that it just means less taxes. But it’s not necessarily sure that’s the case. A lot of it is going to be how it plays out and how it’s structured. It could well be that they pay traditional taxes. And as a matter of fact, they made a statement saying that they would be paying taxes just like everybody else.
NEARY: Are there any other examples of some of the nation’s most wealthy people who are doing similar kinds of philanthropic giving?
PALMER: Very much so. Pierre Omidyar is considered sort of the father of this idea, and he’s the founder of eBay. Laurene Powell Jobs is using her money this way. So it’s really become a very popular area. And all of us will be able to put our money into impact investments as well because a lot of financial companies are developing products that will be affordable for people to get with as little as $20 in an investment. So we’re all going to be hearing about impact investing for a long time.
NEARY: That was Stacy Palmer. She’s the editor of The Chronicle of Philanthropy. Thanks so much for joining us, Stacy.
PALMER: Happy to be here.
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