The LankellyChase Foundation, the Joseph Rowntree Charitable Trust and h2oPE

Why mission-connected investment is increasingly important to funders

Mission-connected investment as a funding model is moving gradually into the funding mainstream, with increasing numbers of grant-makers and foundations starting to explore ways of offering charities loans and other investment products.

Some specialists are also arguing that mission-connected investment is particularly appropriate at the moment because of ethical issues generated by the current financial climate.

"I think very few foundations have thought about how their money is generated," says Stephen Pittam, trust secretary at the Joseph Rowntree Charitable Trust. "The current economic and financial crisis has raised it as a more pressing issue."

However, progress has so far been slow, and some investors have good reasons for being cautious about the new developments. "We're neither for nor against mission-connected investment," says James Brooke-Turner, finance director of the Nuffield Foundation. "It can be a useful tool, as long as you are aware of the return you'd get in other circumstances."

Brooke-Turner is not convinced by the argument that mission-connected investment usually provides the same level of financial return as other forms of investment.

However, the LankellyChase Foundation - which has joined the Joseph Rowntree Foundation in signing up to the UN Principles for Responsible Investment - is very excited about the opportunities.

"We've been spending a lot of time thinking about this issue," says Peter Kilgarriff, chief executive of the foundation. "It could mean that we could double our benefit to our areas of need because it is additional to our grantmaking - it is using money from our endowment, not our income, to replace more orthodox investment.

"In the long term, there is no reason why we should lose out if we can get the model right," he says. "It's well worth us doing it."

CASE STUDY - Joseph Rowntree Charitable Trust

The Joseph Rowntree Charitable Trust has invested £155,000 in Yorkshire-based social enterprise h2oPE, a community interest company that renovates abandoned river weirs to generate electricity.

"Because we are a social enterprise, we share important values with the trust," says Steve Welsh, managing director of h2oPE. "The investment is spread over three years, with various trigger points to release funding."

Both sides are very clear that this is not a grant; it is an investment that will enable the organisation to employ 2.5 additional core staff. "It's not for life," says Welsh. "They want the money back in year 10, with an additional payment. By that point we will be financially sustainable.

"Obviously grants are crucial to us, but there is a sense of faith in the venture when someone invests in you," he adds. "Having a body with such a profile investing in us is a gesture of faith in us as a company and makes it possible to sell ourselves to the wider funding environment."

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