Bridging two worlds at the 2nd Vatican conference on impact investing

Originally posted on by John Kohler 29 July 2016

St. Peter's Square, the plaza in front of St. Peter's Basilica in Vatican City. Photo by: Bill Bereza / CC BY-NC-ND

St. Peter's Square, the plaza in front of St. Peter's Basilica in Vatican City. Photo by: Bill Bereza / CC BY-NC-ND

It’s not often that discussions of earned income share space with discussions of faith-based missions to help the poor. Yet bridging the worlds of impact investing and Catholic social ministries was the goal of the recent second Vatican Impact Investing Conference. And while that linkage and the entire field of impact investing are still evolving, this conference demonstrated that some real progress is being made.

The VIIC was preceded by a two-and-a-half day pre-conference workshop designed to help top-level Catholic Church leaders become steeped in the language (i.e., jargon) and concepts of impact investing, social enterprises, and business in general. So, when the VIIC itself began, it was easier for all the participants to delve more deeply into impact investing details as they related to the conference theme: celebrating the Extraordinary Year of Mercy.

Catholic social ministries often already operate as businesses

What may come as a surprise to some, is that Catholic bishops, cardinals and nuns know considerably more about business concepts than they are given credit for, according to a survey of pre-conference attendees designed by conference hosts Catholic Relief Services and the Pontifical Council for Justice and Peace. They might not know how to define working capital or what free cash flow means, but they were mostly aware of basic accounting principles such as profit and loss statements.

The survey also revealed that many organizations operating as Catholic social ministries could also be considered businesses, though they sometimes operate in disguise. Their stated purpose is to administer social teachings on the ground, but in fact they often are engaged in profit-generating activities that are financially self-sustaining.

For example, one bishop from the Middle East described how he had bought a sewing machine, given it to a woman, taught her to sew, and hired her to provide sewing services in the community. The woman received a regular livelihood, fulfilling the Catholic social mission of helping the poor and empowering women — and the bishop’s mission generated enough profit to buy another sewing machine and add another woman to the operation. They continue to add more profit, and more women to their sewing services operation. By any definition, this is a social enterprise.

Social ministries find common ground with impact investing

Traditionally, Catholic social ministries have taken the view that their contributed income donor models are fundamentally incompatible with business-based approaches and earned income.

But impact investing, which means investments that consider social and environmental impact alongside financial return, engenders considerable enthusiasm within the Catholic Church. In an audience with VIIC participants, Pope Francis praised the idea of impact investing.

“The logic underlying these innovative forms of intervention is one which acknowledges the ultimate connection between profit and solidarity, the virtuous circle existing between profit and gift,” Pope Francis said.

Church leaders also discovered common ground with impact investing in the metrics they use to measure social impact. Beneficial outcomes ascribed to Catholic social ministries map closely to the IRIS index, the catalog of generally accepted performance metrics used by impact investors to measure social, environmental, and financial performance.

From there, it’s a small sidestep to see ways to apply IRIS metrics to Catholic social ministries in the field. Both address the same needs — poverty, advancement of women, and environmental challenges, particularly the negative effects of climate change — and measure beneficial outcomes in terms of favorable social and environmental impacts.

It’s still a work in process

Despite the recognition that the objectives of the Catholic Church’s social ministries and of impact investors are more convergent than divergent, one of the things not discussed at VIIC is the largely unspoken friction between purpose and profit.

As Mike Quinn, the Group CEO of African financial technology business Zoona said at the conference: “Purpose and profit are not opposing forces, but purpose must come first.” Or at least, it should come first if Catholic social ministries and impact investors are to work together effectively to serve the poor.

Catholic social ministries need to learn more about the ways in which impact investing can not only can be compatible with their missions, but can also fuel their effectiveness. And the impact investing field — which is still in its infancy — needs to clarify the balance between purpose, or the positive social and environmental outcomes they are measuring, and profit, which is necessary to sustain any viable business enterprise.

Progress will not be easy. Obviously, most people working in Catholic and other faith-based social ministries throughout the world did not attend the Vatican conference. Reaching them with these new ideas will take time and concerted effort.

One next step is to identify social ministries that could potentially benefit from impact investing. CRS, the Pontifical Council for Justice and Peace, Santa Clara University’s Miller Center for Social Entrepreneurship, and many other organizations are working to do that.

Looking at each of the thousands of social ministries, we can ask: Is this something that could move from contributed income to earned, sustainable income? Can it grow — and does it want to grow? Would it benefit from impact investment, or is it happy being a bakeshop in a local village and providing income to a handful of women?

These are all important questions that I hope will be raised at future conferences and discussions between the Catholic Church and impact investing communities. We’ve begun to build the bridge, but it’s still shrouded in a kind of mist. Our task is to dispel the mist as we continue to build and strengthen the bridge.

Join Devex to network with peers, discover talent and forge new partnerships in international development — it’s free. Then sign up for the Devex Impact newsletter to receive cutting-edge news and analysis at the intersection of business and development.