We’ve also been willing to accept low returns which has proven quite important to the program’s success. Someone needed to test the theory, and MacArthur started with a million-dollar investment, taking the risk ourselves. So, while everyone agreed it was a potential-and probable-win/win, someone had to take the risk. Often the properties have multiple mortgages on them, and there wasn’t any real data out there to show retrofit financing could come from energy savings. Banks were being reasonable in why they couldn’t finance the effort, even if they wanted to. The reason this example is so emblematic of the promise of catalytic capital is that we had this idea that there is a way to finance the retrofit of small- to medium-sized older buildings from energy savings. In turn, this stabilizes incomes for small-shop property owners, keeps rents affordable, and ensures a steady repayment stream for investors. Since its launch, Energy Savers has provided $25 million in loans and grants for energy upgrades to more than 42,000 apartments, saving owners 25-30 percent on their utility bills. These funds, in turn, helped pave the way for other investors. Upgrades to older buildings can help these owners reduce utility costs, thereby allowing them to maintain affordability and reduce carbon footprints.Įarly on, MacArthur provided a $1 million program related investment loan with limited recourse, followed by another $5 million later on. It’s called Energy Savers and provides energy audits at no-cost to the owner and a revolving loan fund to finance retrofits for owners of aging multi-family housing developments. In 2007, Community Investment Corporation in Chicago launched an innovative program in collaboration with Elevate Energy. I’ll offer a CDFI example, and there are many others. What is an example of catalytic capital at work? We also know it was used in a prominent report issued by GIIN about first loss capital. We know that Jed Emerson, Cathy Clark, and Ben Thornley delve into catalytic capital in their 2015 book The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism.
We’ve done a little bit of research, although not an exhaustive inquiry by far. We will continue to explore different facets of the definition as we learn how it resonates with everyone. Part of the Consortium’s aim is to advance knowledge and understanding about the concept. This definition isn’t a be-all-and-end-all. It’s important to note that our use of the term is also the start of a conversation. The report defines catalytic capital as “debt, equity, guarantees, and other investments that accept disproportionate risk and/or concessionary returns relative to a conventional investment in order to generate positive impact and enable third-party investment that otherwise would not be possible.” MacArthur recently supported research by Tideline, an impact investing consulting and research firm, that takes a deep look at what catalytic capital is and how it’s best used. Risk tolerance is the most critical hallmark of catalytic capital, but other factors can include being concessionary from a return perspective and flexible regarding key investment terms.
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It is a subset of a full continuum of capital, from grants to completely commercial risk-adjusted capital. What is “catalytic capital?” How is it distinguished from flexible, long-term capital? Or is it the same?įor sure there is an overlap-patient, flexible capital is a form of catalytic capital-but catalytic capital is broader. OFN spoke with Debra Schwartz, Managing Director of Impact Investments at MacArthur, about catalytic capital and the Consortium: what it means, where it works, to whom it’s geared, and where CDFIs fit in.
Additionally, MacArthur, The Rockefeller Foundation, and Omidyar Network will dedicate $10 million over three years to grants that fuel learning and market development. MacArthur has dedicated $150 million to the Consortium to provide matching investments to intermediaries demonstrating powerful uses of catalytic capital, with potential for significantly addressing the UN Sustainable Development Goals (SDGs).
MacArthur Foundation launched the Catalytic Capital Consortium with partners The Rockefeller Foundation and Omidyar Network.Ĭonceived of and led by MacArthur, the Consortium is an investment, learning, and market development initiative promoting greater, more effective use of catalytic capital in realizing the full potential of impact investing. Voices Catalytic Capital: Q&A with MacArthur Foundation’s Debra Schwartz
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