Catalytic Capital Consortium Meets SDG Funding Gap
By Sunny Lewis
CHICAGO, Illinois, March 12, 2019 (Maximpact.com News) – The John D. and Catherine T. MacArthur Foundation today launched the Catalytic Capital Consortium, allocating US$150 million to help address financing gaps in impact investing, targeted to funds and intermediaries not suitable for conventional investment.
MacArthur is joined in the Catalytic Capital Consortium by impact investors The Rockefeller Foundation and the Omidyar Network, the philanthropic investment firm of eBay founder Pierre Omidyar.
“Catalytic capital is needed for impact investing to realize its full potential,” said MacArthur President Julia Stasch, who announced the Consortium at the Global Impact Investing Network Investors’ Council Annual Meeting, alongside the leaders of The Rockefeller Foundation and the Omidyar Network.
“While impact investing is growing rapidly, much of the attention focuses on market-rate returns, leaving a serious gap in financing opportunities for many promising impact enterprises and funds that could help address critical social challenges,” said Stasch. “The Catalytic Capital Consortium will help more investors appreciate the importance of this type of capital in yielding deeper, more sustainable impact for people and the planet.”
MacArthur defines catalytic capital as, “investment capital that is patient, risk-tolerant, concessionary, and flexible in ways that differ from conventional investment.”
MacArthur’s first investment is US$30 million to expand and accelerate The Rockefeller Foundation’s Zero Gap innovative finance portfolio, matched by $30 million from The Rockefeller Foundation.
Since it was launched in 2015, The Rockefeller Foundation’s Zero Gap grant portfolio has grown to nearly 50 unique financial structures in 28 countries.
MacArthur’s matching investment in Zero Gap marks a unique impact investing collaboration between two foundations, where each will invest $30 million with the aim of catalyzing at least $1 billion in new capital to help meet the costs of achieving the United Nations Sustainable Development Goals (SDGs).
These funds will be managed by The Rockefeller Foundation’s new impact investment management platform, Rockefeller Foundation Impact Investment Management, which aims to tap into mainstream markets and investors, scaling up investments into promising new finance vehicles that help to close the SDG funding gap.
The balance of MacArthur’s $150 million catalytic capital allocation will provide matching investments to a select cohort of funds and other intermediaries that demonstrate a powerful use of catalytic capital with the potential for significant impact addressing the Sustainable Development Goals.
MacArthur has invited proposals from impact investment efforts across emerging and developed markets to apply for its matching capital commitments.
These funds address a wide range of issues aligned with the SDGs, such as forest conservation, sustainable agriculture, inclusive entrepreneurship, education, reproductive health, energy access, and refugee finance.
MacArthur will announce additional specific investments later this year.
Over the next decade, the UN estimates that implementing the Sustainable Development Goals will cost between $50 trillion and $70 trillion; the Paris Climate Agreement will cost over $12 trillion over 25 years. How can these expenses be covered?
“The answer,” states the Rockefeller Foundation, “is to leverage innovative finance mechanisms that can tap into the over $200 trillion in private capital invested in global financial markets and ensure that capital is deployed effectively towards development efforts.”
Dr. Rajiv Shah, president of The Rockefeller Foundation, said, “The math is simple: The cost of solving the world’s most critical problems runs into the trillions of dollars. Currently, more than $200 trillion in private capital is invested in global financial markets. Together, we must find innovative and catalytic solutions to mobilize private capital to close this widening gap between those with hope and prosperity, and those without.”
“Closing this financing gap is our urgent task, and we’re deeply humbled to manage this significant investment by The MacArthur Foundation toward that essential end,” Shah said.
The Rockefeller Foundation has been involved in impact investing since the very beginning. In 2007, the term impact investing was coined at The Rockefeller Foundation’s Bellagio Center in Italy, defining investments made with the intention of generating both financial return and social and/or environmental impact.
“Catalytic Capital: Unlocking More Investment and Impact,” a new Tideline report supported by the MacArthur Foundation, explores the term catalytic capital and the ways it has been used by impact-oriented investors to fill financing gaps, enable third-party investment and generate impact.
The Tideline report offers a broad overview of existing research on catalytic capital and a foundation for investors of catalytic capital to expand and improve upon their use of this tool for achieving the Sustainable Development Goals.
The report introduces the Pathways to Impact framework, created to guide investors who deploy catalytic capital in a variety of contexts in clarifying the rationale for their catalytic investments.
“As the SDGs face an estimated annual $5 trillion to $7 trillion financing gap, catalytic capital can help meet the demand for more capital across the risk-return spectrum, complement and pave the way for conventional investment, and mobilize additional capital through a range of blended finance solutions,” the MacArthur Foundation said.
The UN estimates that we face an annual US$2.5 trillion funding gap until 2030 to achieve the SDGs in developing countries alone.
“The pressing challenges we face today, particularly rising inequality, require us to reimagine capitalism and shift how we think about the role of capital in our economy and society,” said Mike Kubzansky, managing partner at Omidyar Network.
“Investors need a greater understanding of the range of capital across the returns continuum,” Kubzansky said. “This initiative has the potential to help investors better target catalytic capital to where it can have the greatest impact – ultimately helping to pioneer new innovations, drive sector-level change, and unlock larger sums of investment to build more equitable economies.”
Additionally, The MacArthur Foundation, The Rockefeller Foundation, and Omidyar Network will dedicate $10 million over three years to grants that support learning and market development, showing when and how catalytic capital can be most effective and what additional tools and practices are needed for impact investors.
Before this collaboration, the three philanthropic groups have collectively deployed more than $900 million in catalytic capital as part of their broader impact investing.
The new Catalytic Capital Consortium intends to increase awareness, understanding, and use of catalytic capital as an investment tool, ultimately helping more enterprises secure the financial support they need to grow and scale social and environmental solutions that could improve millions of lives.
Featured Images: Yoly Gutierrez, Center for International Forestry Research (CIFOR) Communications Specialist for Latin America, hugs a Brazil nut tree. September 14, 2018 (Photo by CIFOR) Creative Commons license