Thinking About EB-5 as an Impact Investing Tool

Written by David Wood, Ph.D, Director, Initiative for a Responsible Investment

On July 1st the Initiative for Responsible Investment (IRI) co-hosted a meeting with the ICIC to explore the potential role of the EB-5 program to increase economic opportunity in distressed communities. The EB-5 Immigrant Investor Program, a relatively obscure and sometimes controversial program was introduced in 1990 to attract foreign investment in U.S. markets. The program links investments that generate documented job creation to conditional permanent resident status for foreign investors and includes incentives for those foreign investors to invest in distressed communities.

The day-long event built on ICIC’s recent excellent report on the EB-5 programs impacts, strengths and challenges.  We concentrated not on the sources of the EB-5 investments – though that obviously came up! – but on how to maximize the social impact of those investments.

From the IRI’s perspective, this was a great opportunity to rethink how this program might be made more effective in promoting community investment. EB-5 is a frequent topic of discussion in the impact investment community because of its potential to provide flexible, patient, or risk-bearing capital from investors who are interested in  outcomes beyond their financial return. The day also opened up a discussion about the relationship between public policy and impact investment, a topic the IRI has been studying for some time.

Three things that the day’s conversation and ICIC’s research reinforced:

1. The need for transparency around impact investing policies and research into their impacts. The ICIC report does a great job gathering information about EB-5 projects  to give  a sense of where they have and haven’t been effective. But if policy is to link something as important as conditional permanent residency to investment, there should be much more transparent information available about the uses of that investment. Again, an obvious point, but it is worth reflecting on the political and structural reasons that mitigate against transparency, and what these mean for designing effective impact investing policy.
2. EB-5 presents a good opportunity to think through what we mean by the social impact of investments, and how policymakers can integrate such benefits into legislation and regulation. In particular, participants at the meeting raised the issue of better communication with the field of community investing, where there are a relatively established set of standards for identifying high impact investments and investment intermediaries. The EB-5 program concentrates on job creation as an end goal although in practice, the results are not always clear. As policymakers rethink EB-5, there may be opportunities to identify effective community investment standards that work in this policy and can be extended to others.
3. Discussions of impact investing often turn to the thorny issues of deal-sourcing and transaction costs for finding and executing on investments with outsized social benefits. The complexity of EB-5, and the skills it takes to navigate the process, presented yet another version of the “brain damage” work it takes to knit together many sources of financing to create good projects in distressed communities. The default to larger real estate deals that can absorb more investment is a symptom here as elsewhere.

I left the day thinking that there is a great deal to work on.  The ICIC has done a service both in publishing the report and in bringing together stakeholders from the public, private, nonprofit and philanthropic sectors with EB-5 practitioners as an important step towards raising the bar on the social value of the program.

David Wood directs the IRI’s research and field-building work on responsible investment across asset classes, and currently manages projects on RI strategy with pension fund trustees, mission investing by foundations, the changing landscape of community investing in the US, and impact investing and public policy. Prior to joining the IRI he taught the History of Ethics, including the History of Economic Thought and Human Rights, at Boston University. He holds a Ph.D. in History from The Johns Hopkins University.