How Many Birds Can MacArthur Kill With One Impact Investment?

The MacArthur Foundation recently committed $25 million to increasing energy efficiency financing programs targeted at multifamily housing across the United States. If it succeeds, this big initiative will be a clever “threefer,” promising to cut carbon emissions, make housing more affordable for low-income people, and yield a financial return that could further swell MacArthur’s already formidable endowment.

Energy efficiency has been moving to the forefront of climate funding work for very good reasons. The American Council for an Energy-Efficient Economy estimates that a 15 to 30 percent reduction in energy use within multifamily dwellings could save 50 million tons of carbon emissions each year.

And, in music to the ears of owners and renters in these buildings, it could also produce annual financial savings of about $3.4 billion. That’s important at a time when many Americans, especially those lower on income ladder, are being squeezed by rising rents.

Because the MacArthur Foundation works both to mitigate climate change globally and reduce economic hardship in the U.S., among many other issues, you can see why this initiative would emerge from the foundation. Oh, and let’s not forget that MacArthur’s also been a leader in program-related investing going back to the 1980s.

This work on increasing the energy efficiency of multifamily housing is not totally new for the foundation. In the past two years, it made $5 million worth of grants going toward development of new financing models as well as research, outreach and efforts to improve policy in the area. What’s new here is that now Mac’s placing a much bigger bet on this work.

The foundation’s Director of program-related investments, Debra Schwartz, cites a growing number of creative models that could increase both efficiency and affordability, with gains for low-income families, seniors, veterans, and others.  

Examples include the promotion or creation of new service providers that can help owners of multifamily buildings to explore options for making them more energy- and cost-efficient.

There is also the option of alternative repayment mechanisms that give building owners new ways of financing retrofits.

Perhaps the most interesting of all suggestions mentioned in MacArthur’s statement on the new initiative is a national “pay for success” demonstration product, which would enable the U.S. Department of Housing and Urban Development to harness future savings in paying for the upfront costs of energy and water-efficiency upgrades.

MacArthur has estimated that this option could produce huge savings across the federally subsidized multifamily housing stock—somewhere in the range of $1 billion or more each year.

In fact, work on this option is already under way by three parties—Stewards of Affordable Housing for the Future, Enterprise Community Partners, and the Low Income Investment Fund.

All of this is pretty fascinating to us, especially in light of the bigger movement around impact investing, which accelerated last week when the White House announced impact investments of $1.5 billion by a number of foundations and private investors, as we wrote about here. MacArthur’s initiative was rolled out in the context of that larger announcement.

Earlier this year, MacArthur kicked in $5 million in PRI funds to contribute to a loan pool aimed at preventing foreclosures in Chicago.

This is a funder who isn't afraid to make some bold bets.