With many religious institutions looking for ways to promote their values with their financial resources, impact investing is drawing interest from a variety of faiths. One major player in Catholic impact investing is Catholic Relief Services (CRS), an organization dedicated to alleviating suffering and promoting human development. “It’s an exciting time in impact investing,” says CRS president and CEO Sean Callahan. “But it is important that we all remember that the point is not to make investors feel good, it is to catalyze resources to empower those in need—to have an impact on the lives of others.”
Beth Collins, managing director of impact investing at CRS, adds, “At the core of what CRS does is work in partnership and in support of the most poor and vulnerable around the world.”
CRS’s work is informed by its guiding principles, including respect for human dignity, pursuing the common good, and subsidiarity, which teaches that local communities should take the lead as much as possible in creating solutions to their local challenges. CRS also follows the framework of integral human development, a Catholic social philosophy of improving people’s lives holistically while taking into account social, personal, cultural, spiritual, and material needs. “Part of that,” Collins says, “is creating jobs, giving them economic security and financial sustainability.”
Helping Communities Become Self-Sustaining
When exploring ways to achieve sustainable livelihoods for people in need, Collins says that CRS asks several questions: “Is there a private sector actor that could help address those problems? What are the constraints that that private sector actor might be facing? And how can CRS and the local community address those constraints, so that then when the project per se is over, that private sector actor is still there working with that community?”
In many cases, empowering local entrepreneurs to scale their businesses creates a virtuous circle in which local ventures benefit their communities while becoming self-sustaining. “Investing in local enterprises, channelizing the private sector in these local communities is critical to achieve development outcomes today,” Collins says.
“To truly break the cycle of poverty requires focused and collective effort to drive systems-level change,” adds Callahan. “Impact investing presents an important opportunity to bring further innovation, scale and sustainable solutions to programs that can lift the poor out of poverty. For example, a major part of our work in agriculture—the largest employment sector in the world—is helping poor farmers improve production, find markets, and strengthen their communities. Investing in enterprises along the agriculture value chain can help provide long-lasting sustainable livelihoods.”
In Madagascar, CRS worked with USAID, Root Capital, and a private Catholic foundation to support smallholder vanilla farmers. The initiative provided funding for ethically sourced vanilla supplier LAFAZA. “We were able to go in and provide them with a loan to purchase the vanilla so they could turn around and sell it on the international market,” Collins explains. According to CRS, the loan allowed LAFAZA to buy vanilla from 2,000 farmers and to hire 50 teams of vanilla curers, and LAFAZA reports that the local economy received an infusion of $4 million thanks to the initiative.
In another success story, CRS used blended finance in El Salvador to increase the availability of water and sanitation services in underserved areas. Together with the Inter-American Development Bank’s Multilateral Investment Fund, it spearheaded Azure, an initiative that provides technical support and funding to water service providers. “It is catalyzing access to water for El Salvador,” Collins says. “It’s a US entity that’s investing through a local trust in El Salvador to lend to local community water service providers, with the intent to go across Latin America and expand to other regions as it grows.” Azure’s goal is to improve access to water and sanitation services for 500,000 people through 2020.
Complementary Approaches to Helping the Poor
Collins argues that because impact investing alone cannot meet all of a community’s needs, the blended finance model is key. “Philanthropy is never going to go away,” she says, and she believes charitable aid can play a crucial role in “working with these poor and vulnerable communities to get them ready to access different kinds of capital.”
“Humanitarian assistance meets the immediate needs of people in times of disaster. Development aid begins to build resilience in a community, and a solid foundation for private sector investment,” says Callahan. “By providing a combination of private and philanthropic capital, CRS can further advance development outcomes. Blended finance solutions like Azure are a critical piece in enabling civil society and the private sector to play a role in driving capital toward the poorest and most vulnerable.”
“We could not lend any money without also having a complementary technical assistance component to this. With Azure, we partner with a local El Salvadoran company that works with those community water service providers to help get them credit ready and also gives engineering support and technical advice on the expansion of their system to get more water access points to the local communities or the households that they’re trying to reach,” Collins continues. “So it’s a blended finance model. And the way we talk about blended finance is that you have this philanthropic piece that provides the technical assistance, married to this financing vehicle. So the technical assistance de-risks the financing component.”
Impact investing, according to Collins, is “another tool in the toolbox.” She explains: “I would never say it’s the answer, because with the kind of work that CRS does, including humanitarian relief, there will always be a need for philanthropy. All forms of capital are needed to achieve development outcomes.” CRS’s Pathway to Prosperity model illustrates how impact investing can complement other forms of assistance. The pathway follows a community in distress from the emergency stage through recovery, building, and growth. Philanthropy may be the main approach in the recovery stage, but by the time a community reaches the growth stage, impact investing can be used to mobilize private capital.
The participation of impact investors in helping underserved communities is crucial at this stage because philanthropy and governments fall short of providing the funding required to lift all communities out of poverty. Collins points out that the United Nation Conference on Trade and Development estimates an additional $2.5 trillion is needed annually to meet the UN’s Sustainable Development Goals. “So there is no way in the world to achieve the Sustainable Development Goals without engaging the private sector.”
Raising Awareness of Impact Investing
Catholic impact investing has benefited from the support of Vatican leaders, including Cardinal Turkson and Pope Francis. In a statement on sustainable finance and impact investing, Pope Francis said, “It is important that ethics once again play its due part in the world of finance and that markets serve the interests of peoples and the common good of humanity.” The Vatican has so far held three conferences on impact investing; the third took place in 2018 and was co-hosted by CRS.
“We profiled vehicles and enterprises across the returns continuum in different areas of importance to CRS and the Church,” Collins says. Conference sessions focused on migrants and refugees, youth, climate, and health. Attendees “really are able to have solid conversations across the two days and form connections,” she adds.
In particular, Collins believes the issue of refugees is important because “more people are on the move now than ever before in human history. And those people end up spending decades, if not the rest of their lives, in whatever new community they find themselves in.” For Collins, a highlight of the conference is that it’s spurred people to continue discussing these issues. For example, following the conference, “both ANDE [Aspen Network of Development Entrepreneurs] and the GIIN [Global Impact Investing Network] added migrant and refugee discussions to their meetings.” Many other participants committed to speak about impact investing within their organizations or to spread the word in their communities.
In addition to Catholic impact investors, the conference drew participants from other faiths, and Collins sees great potential for interfaith collaboration through impact investing. She believes diverse faith-based investors working together can inspire others to join in creating solutions to the world’s problems. “I think that the different faiths working together could provide an example for how that impact can happen.”