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Debra Schwartz, Managing Director of Impact Investments, writes about growing collaboration to unlock investment to address global challenges.
As 2024 begins, our world is threatened, divided, and broken. The climate is in crisis; wars and violence are worsening; inequality, injustice, and poverty persist; and democracy is at risk.
But somehow, hope persists: without it, we cannot imagine or fight for a better future.
The flourishing field of impact investing gives me hope even at this challenging time. In particular, I find great hope in the growing community of leaders who embrace the power of catalytic capital to fuel social and environmental progress worldwide.
What is Catalytic Capital?
Catalytic capital leads with impact and flexibility to deliver patient, risk-tolerant financing solutions to mission-driven businesses, social enterprises, and nonprofits worldwide. This makes it possible to jumpstart new solutions, enterprises, and innovative models. It also can work to reduce risk and build more investable opportunities for a wider market of impact-oriented and values-aligned investors. Ultimately, catalytic capital helps to fuel progress on the world’s most pressing challenges by unlocking additional investment that would not otherwise be possible.
Examples of catalytic capital in action abound. Care Academy, a U.S. for-profit company helping home health care workers build their skills and income while improving quality of life for the people they serve; Finkativa, a company in Latin America expanding access to credit for small and medium-sized enterprises; the Afterglow Climate Justice Fund, recently launched by Candide with support from a group of foundations, family offices, and impact intermediaries to invest in equitable climate solutions; and the Women in Safe Homes Fund, which offers a new way to support women and their families with complex needs due to domestic abuse, homelessness, justice-system involvement, and other challenges—all relied on catalytic capital to make additional investment possible.
A Global Community on the Rise
Today’s growing community of catalytic capital champions includes foundations, family offices, fund managers, academic institutions, corporations, consultants, and others. Through investments, they seed, scale, and sustain diverse, mission-driven ventures and funds around the world and enable additional investments that would not otherwise be possible. To strengthen and expand the practice of catalytic capital, they are generating new resources and tools, creating a peer-to-peer learning community, and introducing new investment opportunities, initiatives, and commitments.
Overall, we see rising momentum and promise for the future, including:
Researchers, Learners, and Teachers
Hundreds of organizations from more than 30 countries responded to calls for proposals from the $10 million Catalytic Capital Consortium (C3) grantmaking program, which launched in 2021 in partnership with The Rockefeller Foundation and Omidyar Network. To date, C3 grantees and partners have generated more than 40 reports, online courses, toolkits, and practitioner guides to inform and support catalytic capital investing across a range of impact themes and markets. The C3 website provides access to this growing compendium of catalytic capital resources. In addition, over 500 news stories about catalytic capital can be found at Impact Alpha, the online impact investing journal. Impact Alpha is partnering with C3 to provide coverage of catalytic capital, which its readers consistently rank as a top area of interest.
A Community for Catalytic Capital Practice
Building on a series of dynamic Learning Labs hosted by C3, a new community of practice for catalytic capital and impact-first investors is forming. Leading impact investors committed to growing the reach and effectiveness of catalytic capital are generously facilitating this new community and are bringing together experienced impact investors from diverse sectors, regions, and organizations. As it moves forward, we expect dozens of impact investors will be able to strengthen their investment practice, spark creative solutions, and find support from peers.
New Commitments, Initiatives, and Funds
Research we commissioned this year reveals encouraging signs that catalytic capital may be poised for significant expansion over the decade ahead. A fast-growing number of catalytic capital champions—which includes family offices, wealth advisors, corporations, development finance institutions, and, of course, foundations of many kinds—have begun at least 40 catalytic capital initiatives, programs, and funds over the past few years with collective potential to deploy $17 billion or more in new catalytic capital.
Harnessing the Full Spectrum of Capital
Although the term of catalytic capital did not take hold until four or five years ago, investing with a goal to generate impact and investment that would not otherwise be possible is a practice that dates back decades. Indeed, this way of working has been core to the MacArthur Foundation’s impact investing practice for forty years, guiding nearly $1 billion of capital deployed in the U.S. and globally, including loans, equity investments, and guarantees.
Collaboration across the full spectrum of capital, from commercial to catalytic, is so key.
Of course, neither impact investing nor catalytic capital represent singular, stand-alone solutions. And neither represents nearly sufficient flows of capital for the challenges we face. This is why collaboration across the full spectrum of capital, from commercial to catalytic, is so key.
The Power of Collaboration
The recently launched $1.1 billion SDG Loan Fund demonstrates the power of catalytic capital coupled with cross-sector collaboration. MacArthur worked closely with Allianz Global Investors and the Dutch development bank, FMO, to co-create this new fund and successfully mobilize over $1 billion from multiple institutional investors. Now fully committed and operational, the fund is financing loans to intermediaries and projects across three sectors in emerging and frontier markets: financial inclusion, agribusiness, and renewable energy.
While I remain deeply concerned about our world and all the challenges we face, I am grateful for the growing community of catalytic capital champions and the dynamic impact investment field around the world. By working collaboratively, creatively, and with determination, we will continue to unlock investment and positive impact for the people, places, and purposes that need it most. And, we will help fulfill our shared hope and intention to build a better future for all.
