The Catholic Church's vision for impact investing
By Naki B. Mendoza 24 June 2016
Originally Posted On: Devex.com
When a nearly 2,000-year old institution with more than a billion followers says that it wants to apply market-based solutions to solve the world’s most intractable problems, influential leaders are bound to take notice.
That will indeed be the case next week when leaders from global business, finance and civil society flock to Rome for a summit convened by the Vatican that aims to deepen the Catholic Church’s role in impact investing.
The financial discipline of deploying private, profit-seeking capital to tackle challenges of global sustainability has been a growing trend in recent years and has drawn resources and funding from some of the world’s largest banks and foundations. Last year impact investors committed $15.2 billion, bringing the total amount of impact investing assets under management, by respondents in the Global Impact Investing Network’s 2016 annual impact investing survey, to $77.4 billion.
And it now has the attention of the world’s largest religious institution.
“This is very forward-thinking of the church,” said Randall Kempner, executive director of the Aspen Network of Development Entrepreneurs. “The alignment of the church’s social mission with impact investing makes perfect sense. Why shouldn’t they take a look at it?”
That mission, of course, stretches back to the founding days of the church. The message of tending to the poor, tired and huddled masses shapes much of the basis of Christianity, and virtually every other world religion through similar teachings. But while the Catholic Church has developed vast networks of charities and philanthropic organizations to adhere to those principles, the Vatican is now coming to the understanding that it can also pursue its mission by partnering with the groundswell of financiers who are investing for social impact.
The Vatican conference on impact investing, which will run from June 26 to June 28 will be the second time the Vatican has convened leaders in the industry to explore the church’s involvement in impact investment. The inaugural meeting in 2014 centered on the church as an impact investor — how it can channel its enormous financial resources into investments for social impact.
The upcoming conference, while still addressing that question, will also turn to the “demand side” of the issue — how charity-based church organizations doing aid and development work can open themselves up to investment capital and function more like social enterprises. It will be “exploratory” in nature, according to Cardinal Peter Turkson, president of the Pontifical Council for Justice and Peace, and will pair investors, fund managers, and commercial bankers with various heads of Catholic charities and aid-related missions.
“The purpose is to create an interface between Catholic communities that desire to have access to capital and an impact investing industry that already exists,” Turkson told Devex.
Much of the new strategy is attributed to Pope Francis, who has placed a strong emphasis on fighting extreme poverty during his time at the Vatican. He has designated 2016 as “the extraordinary year of mercy” — a theme for how the church and its followers should lead their lives. The conference is officially titled “Making the Year of Mercy a Year of Impact for the Poor.”
The church’s growing role as an impact investor and investee are both significant. Like other large institutional investors, an organization as old and well endowed as the church has the financial capacity to create large scale social change. The church’s involvement in impact investing can also influence other religious organizations to pursue similar strategies, Kempner said.
For the church itself, the more profound change would likely be the way that it conducts its affairs by re-orienting some of its work from charity-based to capital enterprise models. Today, most church enterprises are not financially sustainable and rely on donations to fund their operations.
“To transition from a charity-based model to one which is financially sustainable through scale and the proper use of capital and cost structures is not easy,” said Carolyn Woo, chief executive of Catholic Relief Services and the former dean of the University of Notre Dame’s Mendoza College of Business. “Once the church invites financiers, it involves a transition of mindset, a transition in competencies to develop as social entrepreneurs and a transition of governance.”
Yet despite those hurdles, many of the aid and relief organizations the church runs are already fitting targets for impact investment. Their focus on livelihood improvement, financial inclusion and public health align with the missions of many impact funds.
Church organizations also tend to reach deep into local communities. The real pulse of the church is in the local community parish, not the basilicas in Rome, Woo said.
“A successful social enterprise has to be where the people are. It has to understand that culture, have a retail distribution and a breadth and depth of coverage and reach,” she said, adding that the organizations the church supports are well-positioned to do so.
Impact investors place a particular premium on innovative and efficient distribution models. Social enterprise funders often say that even the most groundbreaking technologies are only as good as the models that distribute them to disparate communities in rural areas.
The global structure of church organizations also provides a form of risk mitigation for potential investors. Church enterprises are often backed by the funds and resources of peer organizations, both domestically and abroad, giving would-be investors a bit of a financial cushion.
The goal is to now reorient church organizations toward more commercial models.
Certain church initiatives should be able to recast themselves, said John Kohler, director of impact capital at Santa Clara University’s Miller Center for Social Entrepreneurship.
They can start by asking the question: “What is the church already doing, that, without too much radical change, would allow it to start to recast some of those programs or church-supported services to something that is [on] more of a business footing?”
A key issue for the conference to address, according to Woo, is the lack of skilled labor in church organizations to run commercial ventures.
“What many don’t have is financial acumen or enterprise skills,” she said. However, she added, it is much more likely that an organization develops financial literacy than a social justice mission, which the church has in abundance.
Other common questions to be explored, Woo said, include how a fund’s objectives relate to Catholic social teaching and when impact investing is the right funding model for a particular ministry.
Development finance has been referred to as a dating game that aims to match up socially driven ventures with purpose-fit capital. Church enterprises seeking investment that fits its mission would likely be no different.
The church also does not intend to entirely privatize all of its missions and organizations. There will continue to be philanthropy-funded church work, since charity and donation are core parts of Catholic doctrine, Woo said.
Instead, the types of church ventures that would seek impact capital, according to CRS, range from medical supply businesses in East Africa to dairy enterprises in India that purchase milk from smallholder farmers, to microfinance banks in South America and fair trade handicraft businesses in South Asia.
The future of those organizations may be changed in the course of discussions over the next week, as could the industry. Impact investing is a growing market that has the potential to produce transformative change by driving capital to enterprises with mission and meaning. Drawing in one of the world’s oldest, largest and most influential institutions could be a pivotal moment for the field as it scales up sustainable market-based solutions to combat global development challenges.