Opportunity Zones

Why impact data and transparency are keys to the success of opportunity zones

This article was originally posted to ImpactAlpha. Follow their coverage of Opportunity Zones to stay informed about how impact investors are using this powerful new community development tool.

Assets in impact investing continue to surge, buoyed by increasing investor interest in aligning financial goals with social and environmental objectives. Today such assets represent as much as one in five of all U.S. assets under professional management.

How do we know this? We have the data to back it up.

Data is integral to the success of any program, product or policy, and to the continued functioning of the financial markets. Data shows us where capital is flowing and how that capital is being used; it tells us a story about where there are structural barriers and where there are opportunities. Data allows all stakeholders—from fund managers and investors to community members and policymakers—to have a shared understanding about what works and what doesn’t.

It is with this vision in mind that the U.S. Impact Investing Alliance today wrote Secretary Mnuchin to urge the Treasury Department to make collection of basic opportunity fund data and metrics a priority as they roll out proposed regulations for opportunity zones—the latest piece of legislation designed to drive private capital towards investments in distressed U.S. communities.

Our letter highlighted several metrics that we believe should be reported to Treasury, at a minimum, on an annual basis, including information about the size, location and nature of investments into opportunity zones. We also encouraged the collection of additional impact-oriented data points, such as the number of jobs created, the number of people lifted out of poverty or the number of new businesses started, to more accurately assess the impact of each opportunity zone investment.

There is already a groundswell of excitement around opportunity zones, with many investors beginning to analyze designated communities for potential investible opportunities. At the same time, the people who live and work in these communities are trying to understand how they should be engaged for opportunity zones to succeed as both investments and as public policy.

Fostering and facilitating that engagement will require a common framework for understanding the impact of opportunity zone investments. Communities and investors alike will need such tools to evaluate both the financial and impact prospects of any potential opportunity fund investment

A significant number of industry leaders and advocates have already come out strongly in support of impact transparency in opportunity zones. These leaders include the heads of the Economic Innovation Group, Enterprise Community Partners and LISC, prominent impact investors like Jim Sorenson, and private philanthropies like the Kresge and Rockefeller Foundations.

And in a recent meeting co-hosted by the U.S. Impact Investing Alliance with the New York Federal Reserve and Beeck Center at Georgetown, attendees from policy shops, universities, community development finance institutions, foundations and fund managers underscored how important transparent data is to a well-functioning market. Our comment letter today builds on this ongoing conversation. The common-sense reporting that we are asking for will help communities, investors and policymakers work together to build this market.

The impact investing movement owes its growth and success to industry leaders reporting data and sharing best practices. For opportunity zones to experience a similar surge in interest and capital, and to generate the kind of transformative impact in low-income communities that its creators envisioned, it is vital that Treasury embrace basic data reporting and transparency for opportunity zones.

Opportunity Zones: Moving Toward a Shared Impact Framework

The tax bill passed in 2017 includes a provision creating various benefits for investors that move capital gains into designated low-income census tracts, known as Opportunity Zones, through special investment vehicles known as Opportunity Funds.

This tax benefit has captured the attention of a wide range of stakeholders — from investors attracted by a new tax incentive to community development practitioners drawn by the promise of increased investment in low-income areas.

Many elements of this new investment tool are uncertain, including if and how Opportunity Funds will manage and report on the social and environmental impact of their investments. Yet even amid this uncertainty, investors are looking to take advantage of the benefit.

What is certain is that Opportunity Funds are another tool in the community development tool kit — primarily for state and local players — and they underscore the importance of place-based investment. The tax benefit will drive capital to the nation’s most distressed areas, but the activities that capital supports must be rooted in a local context.

Ensuring that these investments result in meaningful and inclusive economic development will require a coordinated effort by a diverse consortium of leaders. With that in mind, on July 19, the U.S. Impact Investing Alliance, the Beeck Center, and the New York Fed convened a roundtable of community development investors, researchers, and practitioners to discuss the future of Opportunity Zones.

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