Opportunity Zones Investors Receive Needed Guidance For Measurable Impact
This post was originally produced for Forbes.
The Tax Cuts and Jobs Act of 2017 created a new investment incentive for low-income communities called Opportunity Zones. Under the new rules, capital gains can be sheltered from tax when invested in Qualified Opportunity Funds.
According to the IRS, low-income community must be nominated by the state and approved by the U.S. Treasury to become an Opportunity Zone. Thousands of communities have already been approved. See the list here.
The IRS simply defines Qualified Opportunity Funds as “an investment vehicle that is set up as either a partnership or corporation for investing in eligible property that is located in a Qualified Opportunity Zone.”
Fran Seegull, CREDIT: IMPACT ASSETS
The law does not specifically require that the investment have a measurable social impact—or any social impact—for that matter, apparently presuming that all investment in Opportunity Zones is a good investment.
The U.S. Impact Investing Alliance and Beeck Center for Social Impact + Innovation at Georgetown University, fearing that not all investments have a positive impact on the communities have developed a framework for Opportunity Zone investing and impact measurement.
“Opportunity Zones represent a once-in-a-generation opportunity to spur private investment into America’s distressed communities. However, in order for us to achieve the transformational impact we hope for, such as equitable growth and economic opportunity, it is important that those entering this market remain committed to transparency and community engagement,” said Fran Seegull, executive director of the U.S. Impact Investing Alliance.
The Framework has three principal parts: guiding principles, reporting framework and guidelines for measuring impact and outcomes.
The framework document offers five guiding principles:
Community Engagement: Opportunity Fund investors should request that fund managers integrate the needs of local communities into the formation and implementation of the funds, reaching low‐income and underinvested communities with attention to diversity.
Equity: Opportunity Fund investments should seek to generate equitable community benefits, leverage other incentives and aim for responsible exits.
Transparency: Opportunity Fund investors should be transparent and hold themselves accountable, with processes and practices that remain fair and clear.
Measurement: Opportunity Fund investors should voluntarily monitor, measure and track progress against specific impact objectives, identifying key outcome measures and allowing for continuous improvement.
Outcomes: Opportunity Fund metrics should track real change, with an understanding that both quantitative and qualitative measures are valuable indicators of progress.
The reporting framework is intended to apply across a wide range of investors and audiences. The document says, “The Opportunity Zones Reporting Framework contains criteria that represent the shared, common and collective metrics that should be utilized by all stakeholders across the Opportunity Zones landscape.”
The impact and outcomes measurement is defined as a shared objective and suggests that funds define their intended impact up front and measure the corresponding outcomes. For instance, a fund that seeks to invest in entrepreneurs based in the Opportunity Zone should, of course, measure and report on the number of new ventures within it over time.
“The only way we will know if the Opportunity Zones policy is effective is by continuously measuring and proactively evaluating the long-term outcomes,” said Lisa Hall, Fellow in Residence at the Beeck Center. “To truly be successful, we should see measurable evidence of social and economic benefits that accrue to the people who live and work in the Opportunity Zones. This framework is meant to guide investors, fund managers and community stakeholders to make sure that they are contributing to that shared goal.”
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