Impact investing — deploying capital with the explicit intention of generating social or environmental outcomes alongside financial returns — is an emerging complement to philanthropic grants in New Zealand. Where grants provide capital without expectation of financial return, impact investing provides capital that expects to be repaid (with or without market-rate return), while requiring demonstrated social impact. Understanding impact investing, its applications, and its relationship to traditional philanthropy helps foundations explore the full range of capital tools available to them.
Grants
At one end of the capital spectrum: grants. No financial return expected; maximum social-mission orientation; no recovery of capital. Traditional philanthropy.
Program Related Investments (PRIs)
PRIs are below-market-rate loans or equity investments made by foundations to further their charitable purposes. The investment is made at concessionary rates (lower interest, longer terms, more flexible conditions) because the social return justifies accepting lower financial return. PRIs allow foundations to recover capital for reinvestment.
Social impact bonds
Social impact bonds (SIBs) — known in some contexts as "social investment bonds" — are structured instruments where private investors finance social programmes; government pays back investors if predefined social outcomes are achieved. If outcomes aren't achieved, investors lose their capital. This transfers programme outcome risk from government to investors.
New Zealand has explored SIBs in areas including reducing reoffending, improving educational outcomes for at-risk youth, and child welfare.
Responsible investment
Responsible investment — incorporating ESG (environmental, social, governance) factors into investment decisions — is not strictly impact investing (it doesn't directly generate social outcomes) but is increasingly important to foundations managing endowments. Aligning investment portfolios with social mission — avoiding investments in industries inconsistent with philanthropic purpose — is foundational responsible investment.
Market-rate impact investment
At the market-rate end: investment funds that target market-rate returns while demonstrating positive social or environmental impact. These compete for investment dollars with conventional funds and must demonstrate both financial and social performance.
The Social Investment Agency
The Social Investment Agency (SIA) — a government agency — leads New Zealand's social investment approach: using data and evidence to direct government investment toward interventions that produce long-term social outcomes, particularly for high-need populations. SIA has been important in developing the evidence and data infrastructure for social investment.
Social Wellbeing Bond programme
New Zealand has piloted Social Wellbeing Bonds — instruments where government contracts with private investors to finance social interventions and pays back investors if specified outcomes are achieved. Early pilots have focused on child and family wellbeing.
Community finance
Community finance institutions — providing affordable financial services to low-income individuals and communities — operate at the intersection of social enterprise and impact investment. Good Shepherd New Zealand, for example, provides no-interest loans (NILs) to low-income households. These models require both philanthropic grants and concessionary capital to operate.
Responsible investment for foundations
Many New Zealand foundations — community trusts and philanthropic trusts — are reviewing their endowment investment policies to incorporate responsible investment principles. Negative screening (avoiding fossil fuels, tobacco, gambling), ESG integration, and some thematic impact investment are all part of responsible endowment management.
Recycling capital
A foundation that makes a PRI — a below-market loan to a community housing provider — recovers the capital when the loan is repaid and can redeploy it to another investment. This capital recycling extends the reach of philanthropic resources beyond what grants alone achieve.
Appropriate capital for different needs
Different social challenges require different capital types. A community housing project might need: a grant for community consultation and planning (grant capital appropriate — no financial return expected); a below-market loan for construction financing (PRI appropriate — capital recoverable); and a market-rate loan from a bank for refinancing once the project is operational (commercial capital appropriate). Philanthropic foundations can provide the early-stage, higher-risk capital that commercial lenders won't provide.
Market development
In some areas — community finance, social enterprise financing — there is no mature commercial market for appropriate capital. Philanthropic capital that demonstrates the viability of new financing models can catalyse commercial investment at scale. This market development function is a distinctive contribution of philanthropic impact investors.
Additionality
Impact investment is most valuable when it provides capital that would not otherwise be available — "additional" to what commercial markets provide. Impact investment that simply replaces grants for programmes that could be grant-funded doesn't add value.
Outcome measurement complexity
Social impact bonds require rigorous outcome measurement — agreed metrics, independent verification, and contractual linkage between outcomes and payment. This is expensive and complex; it's appropriate for high-cost programmes with clear, measurable outcomes (like reduced reoffending) but may not be appropriate for complex social interventions.
Risk allocation
Impact investing transfers risk from government or philanthropic funders to investors. This is attractive in theory but requires investors to accept genuine risk, which limits the pool of willing impact investors.
Tahua's grants management platform supports foundations exploring impact investing alongside traditional grantmaking — with investment tracking, outcome measurement, and portfolio management tools that span the full range of philanthropic capital.