Investing for Social Good: An Overview of Program-Related Investments

In summer 2024, PFC hosted Neila Selouani as our Loran Scholar summer policy intern. As part of her role, she was responsible for working with PFC staff to write a paper for the PFC network to provide an overview about program related investments as a tool for charitable foundations.

Introduction

Program-Related Investments (PRIs) offer a unique way for foundations and other charities to align their investment strategies with their charitable missions. This paper explores the concept of PRIs, their significance, and practical insights on how foundations can effectively utilize them.

What Are Impact Investments?

Impact investments are designed to generate positive social or environmental outcomes alongside financial returns. Unlike traditional investments that focus on financial gain, impact investments aim to address pressing societal issues while still providing a financial return on investment. This dual focus on profit and purpose makes impact investments a compelling option for charities looking to amplify their impact.

Defining Program-Related Investments (PRIs)

Program-Related Investments (PRIs) are a distinct form of impact investment employed by charities to further their charitable objectives. Unlike conventional impact investments, which are typically geared towards financial returns and some sort of social impact (that may or may not align directly the investing charity’s mission), PRIs are designed specifically to support a charity’s mission, leveraging its financial investment resources for public benefit. These investments can take several forms. Here are a few examples:

Charities might provide loans at below-market or zero-interest rates to projects that align with their mission, thus offering financial support where it is needed most.
Charities could guarantee loans to back a project that advances their charitable goals.
Charities could purchase shares in an organization that contributes to the charity’s mission.
Charities may engage in leasing arrangements, offering their own property at reduced rates to organizations that advance their cause.

By strategically utilizing their resources through PRIs, charities can achieve significant social impact. They do not necessarily need to ensure financial

returns, so this approach allows them to leverage their capital for broader purposes beyond merely investing for financial returns to fund grants.

Why PRIs Matter

PRIs are important for several reasons:

1. Mission Alignment: PRIs help charities align their investments with their mission, ensuring that more of their financial resources are used directly to support their goals.

2. Increased Impact: By leveraging investments, charities can extend their reach and enhance their effectiveness as charities, achieving more with their resources.

How Foundations Can Utilize PRIs

Foundations interested in Program-Related Investments (PRIs) need to adhere to several key guidelines outlined by the Canada Revenue Agency. This information is currently housed within broader guidelines on community economic development activities.

The guidelines are under review, due to recent legislative changes. New rules now allow foundations and other charities to make grants to non-qualified donees, which may influence how PRIs are structured and reported. Also, the disbursement quota for assets over $1 million has been raised to 5%, affecting how foundations allocate their funds. Because foundations must spend or grant out more of their assets on charitable activities, PRIs may be even more attractive, as PRIs can often be included in a charity’s disbursement quota.

As of the date of this paper’s publication, the following key criteria should be taken into account when considering PRIs, as outlined by the CRA in its latest guidelines (which may be updated soon):

First, PRIs must align with the charity’s charitable objectives. This alignment ensures that investments directly contribute to the foundation’s mission and goals.
Second, when PRIs involve non-qualified donees, the charity must maintain ongoing direction and control over how the investment is used. For a program over which the investor charity maintains ongoing direction and control, so that for all intents and purposes, the program is the investor charity’s “own activity.”
Third, clear exit strategies should be established for PRIs. This planning allows the charity to withdraw from investments or convert them to conventional investments if they no longer align with or support the charitable mission.
Lastly, it is critical that the PRI is structured in such a way as to minimize private benefit. PRIs cannot offer undue advantages to individuals or entities; any benefits derived must be incidental and consistent with the foundation’s charitable aims.

For complete information on CRA’s criteria for PRIs, charities should consult its most recent guidance.

PFC’s Role and Recommendations

Philanthropic Foundations Canada (PFC) is dedicated to supporting its members by providing valuable insights and facilitating discussions on critical topics such as PRIs. For example, PFC’s Investment Roundtable serves as a platform for members to share experiences, discuss challenges, and explore best practices related to all types of investing, including impact investing and PRIs.

To conclude, PRIs are a powerful tool for charities and foundations, enabling them to combine their investment activities with their mission-driven objectives. By understanding and implementing PRIs effectively, organizations can enhance their impact, optimize resource use, and achieve greater alignment between their investments and charitable purposes.

For further guidance on PRIs and how to incorporate them into your foundation’s strategy, consulting the Community Economic Development Activities and Charitable Registration guidance (CG-014) and staying updated on legislative changes is essential.