Deal to Spread 'Socially Conscious' Investing

Incapital Brokerages Will Offer Calvert Foundation Notes to Finance Nonprofits

A Bethesda-based foundation that promotes what it calls socially conscious investments said yesterday that a global investment banking firm would begin marketing its investment notes, making them widely available around the country through hundreds of brokerages.

The Calvert Foundation's deal with Chicago-based Incapital LLC turns what has been a mostly niche investment option into an easy alternative that individual investors can include in their portfolios when looking for social returns as well as financial.

This type of investing, called community investing, topped $14 billion in 2003, according to the Social Investment Forum, which tracks and promotes such investments.

Most of the money is lent to nonprofit groups through community development banks and credit unions, which sell certificates of deposit and money market accounts.

The Calvert Foundation, a nonprofit organization started by the founders of the Calvert Group mutual fund company, has a different strategy. Since 1995, Calvert has sold what it calls Community Investment Notes, which resemble bonds, through a few brokers. Investors put up money in $1,000 increments, choose a term length of one to 10 years and an interest rate of 0 to 3 percent.

"The people who buy these notes know the cold, hard fact that on a rate of return basis, they could make more money in another investment," said Thomas S. Ricketts, chief executive of Incapital. "But there's lots of other people who get back more knowing that they put their money into something beneficial and that they are helping to promote great causes."

Calvert lends the money to nonprofit groups and social enterprises around the world at subprime rates. The organizations pay Calvert back, and the foundation returns the principal and interest to investors.

In the past decade, Calvert has lent more than $250 million, helping generate 19,000 jobs, 6,800 affordable homes, and 6,600 day-care centers, health clinics and schools, according to the foundation.

Potential investment opportunities are closely scrutinized, and organizations are reviewed annually to reevaluate financial risks and social impact, the foundation said. There has been just one partial default in 10 years, making the default rate 0.22 percent, and no investors have lost money, it said.

Calvert officials hope that selling the notes through Incapital's network of more than 400 brokerage houses will, over the next five years, triple the size of its portfolio, which now is $94 million.

"The Community Investment Notes show that you can invest capital in ways that have much more social and community benefits than investors ever thought was possible," said Shari Berenbach, the foundation's executive director. "This is a great breakthrough that this product will be available in more mainstream channels."

Calvert and Incapital officials stress that even small investments can make a difference in a low-income community. A $10,000 investment over a three-year term at 2 percent interest will net $600 for an investor, but could also finance dozens of $100 loans to entrepreneurs who make headgear in Kyrgyzstan.

Thomas Van Dyck, a senior consultant in Piper Jaffray & Co.'s philanthropic and social investment division, said he has been recommending Calvert's notes for several years.

"You're basically getting a money market return and doing something with a high degree of social impact," Van Dyck said. "We even have some clients who put in millions into this stuff."

Lots of investors forgo financial returns altogether. Out of Calvert's 2,400 active investors, 339 chose a significantly subprime interest rate: zero.