Robynn Steffen and Kelsey King
PRI Announcement Paves Way for Risk Capital
Last week, the White House announced that the US Treasury Department and the IRS finalized new regulations that make it easier for foundations to use Program-Related Investments (PRIs) to advance their missions.
This is the latest in a series of exciting steps the Obama Administration has taken to unlock additional capital to solve urgent societal problems. Last September, the US Treasury Department announced new guidelines for mission-related investments, sending a strong, positive signal to foundations that wish to leverage their endowments to advance their charitable goals. Just one month later, the Department of Labor repealed the 2008 ERISA guidance that prevented impact investing by pension funds, thereby unshackling trillions in investment capital.
The most recent announcement made clear the many contexts in which foundations can use PRIs to advance their charitable goals. The new regulations feature updated examples showcasing the wide array of investments – across sectors, geographies, and financing methods - that might qualify as PRIs, helping to remove confusion, dispel misconceptions, and reduce friction to foundations maximizing the potential of this underutilized tool.
This is good news for not only foundations, but for the entire field of impact investing.
As tax-advantaged, mission-driven dollars, PRIs are uniquely positioned to lead where commercial capital is scarce. In the pursuit of outsized impact, PRIs can be more risk-tolerant, patient, and creative – characteristics that are critical to de-risk new business models, open up game-changing sectors, and crowd in commercial capital. By making it even easier for foundations to make PRIs, the Obama Administration is further opening the spigot for this all-too-scarce risk capital.
This milestone represents the latest data point that impact investing is truly taking off – as found by recent media analysis – and underscores the critical role government plays in advancing the field. We applaud the efforts of the US Treasury Department, the IRS, and the numerous other organizations that helped to bring about this important change.