Finance & Investment
Social-Impact Investing:
5 Lessons from a Successful First Venture

When T. Rowe Price’s Black Leadership Council advocated for a social-impact investing program, we were both cautious and confident — cautious, because it was the first initiative of its kind in the investment-management industry and we knew other companies had struggled with getting social-impact money exactly where they wanted it to go; confident, because our thorough research and diligence process yielded support from internal stakeholders along with a mission-aligned partner that mitigated risk.

The Black Leadership Council, formed in 2020 to advise T. Rowe Price’s Management Committee and support engagement with Black/African American associates, began looking in 2021 at ways to leverage the firm’s investment-management expertise and business operations to strengthen communities. We saw the lack of access to capital for marginalized groups and communities, and believed an initiative addressing that problem would be a meaningful action in support of T. Rowe’s focus on access and opportunity.

The questions were largely around how to do it:

• How would we structure the capital investment?

• Aligning Value Management and Regenerative Practices

  Join us as Regenovate co-founders Chris Grantham and Adam Lusby lead an interactive workshop on how to rethink value in the context of regenerative innovation by linking value to the dividends and resilience that come to an organization from enhancing system health — Thurs, May 9, at Brand-Led Culture Change.

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  Where would the money sit and live?

• How would it get deployed?

• What would happen for the individuals who ultimately received the funding?

• What would happen if they didn’t deliver on their business? And what would the impact of that be?

The answers we turned up led to a commitment to deploy $50 million from the T. Rowe Price balance sheet to under-resourced community financial institutions through a partnership with CNote. A year-plus into the deployment, we’re seeing benefits for communities as well as the organization and have insights to share with others who are new to social-impact investing.

Finding the right path and partner: Scale, mission and security

For any company, $50 million is a lot of money; and this was a new investment venture for us. Consequently, the Black Leadership Council spent significant time on research to understand the landscape, evaluate alternatives and refine our requirements.

We started with a broad exploration of how our firm could support underrepresented communities through an investment of capital. This involved assessing a number of options for social-impact investing, including direct investments in businesses. We concluded that we could achieve the greatest impact by partnering with an organization that could make investments nationally at scale, shared our mission, and was able to place funds according to our targeted impact themes and regions.

We engaged the firm’s finance and treasury experts to get a sense of our balance sheet and the implications of investing in this way. We also brought in counsel to understand the legal aspects. After evaluating the options against our requirements, we decided to partner with CNote — a women-led technology platform that channels corporate cash into insured deposit products at impact-driven community financial institutions (CFIs).

Tracking results: Community and business impact

Part of what made us comfortable with CNote was the rich diligence the company does to screen the CFIs it works with and its focus on institutions that support small businesses, affordable housing, climate action and other economic drivers in low-income communities and communities of color. The results to date prove the value of these efforts. T. Rowe Price deposits are doing what we hoped they would: funding greater access to opportunity and building community resilience.

As of September 30th, 2023, T. Rowe Price funds have been deposited in 69 CFIs: 43 community development financial institutions (CDFIs), 28 minority depository institutions (MDIs), and 45 low-income-designated credit unions (LIDs). These institutions disbursed 55 percent of their loans in low- to moderate-income communities — with 44 percent of borrowers identifying as Black, Indigenous and people of color. In addition to funding loans to small businesses, T. Rowe Price’s deposits helped support $1.2 billion in home loans and affordable-housing financing.

Our social-impact investments have not only delivered tangible results; they’ve also enhanced goodwill in the communities we support and created a sense of pride among associates about how the firm is investing in communities. They have also opened a broader window of possibility: Through this initiative and others, the Black Leadership Council has had a significant impact on the firm in a relatively short period of time. And that success is inspiring other T. Rowe Price business groups to think differently and more creatively about ways we as a firm can lean into access and opportunity.

Lessons learned: Engagement and integration

Engage early with key internal stakeholders. Engaging key stakeholders early in the process drives awareness and commitment and ensures that you are addressing the right issues. T. Rowe Price’s Black Leadership Council comprises employees across different business units. Our employees knew how to engage legal and finance leaders in the conversation and connect the recommendation back to business priorities — because of this collaborative work, we were able to make a strong, fully supported recommendation to the firm’s CEO and CFO. That said, the group worked internally first and then brought in cross-functional partners. If we had engaged them a bit earlier, we probably would have asked different questions and been able to increase the pace.

Be thoughtful about internal messaging. Consider how to position social-impact investment inside the organization so that it won’t be misunderstood as philanthropy. This is not grantmaking; this is money the company receives back, with interest. It’s crucial that stakeholders understand this, especially in a down or volatile market.

Ask your provider to connect you with peer organizations. We talked to peers that had made social-impact investments to understand their experience: what worked, what didn’t and what they wished they had known. We also took questions to CNote and got access to companies that had partnered with them in the past, which helped us understand how we might navigate some of those seemingly tough early questions.

Integrate impact into your usual investment-evaluation process. Social-impact investments are investments; so our finance team applied the usual security, rigor, liquidity and yield considerations. The impact you’re trying to achieve adds another variable, however — and that can change the weight you allocate to each component.

Connect social-impact investing to your company’s business priorities. This kind of investment can drive your business in a meaningful way; so it’s worth exploring the potential effects from a comprehensive perspective: external and internal, present and future. Think about how your initiative can attract the next generation of employees and clients, make your business a valuable community member, and increase brand connection.

T. Rowe Price is still in the early stages of social-impact investing, but we are on track to meet our goals and already we are seeing broad benefits — not least from the work we did in forging a path to get here.