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Impact investing: Catalyzing systemic change 

A man joyfully holding a balloon in the shape of a dollar sign.

Once the preserve of large foundations and mega-donors, impact investing is growing in popularity, including among women and younger generations. More than 40% of millennials report engaging in impact investing, compared with 20% of baby boomers.  

What is impact investing? According to Fidelity Charitable, it’s “the act of purposefully making investments that help achieve certain social and environmental benefits while generating financial returns.” Of course, whether we’re writing checks to local charities, endowing a scholarship at our alma mater, or establishing a family foundation, we’re investing for impact. And every philanthropist or foundation chooses how to frame that impact, directing funds to one cause over another. So what’s different about impact investing? 

Impact investing is a way for foundations to leverage their assets—beyond grantmaking—to achieve their missions. In 2023 alone, U.S. foundations were projected to provide almost $90 billion in grants in support of 1.5 million nonprofit organizations, causes, and movements. But foundations typically distribute just 5% of their assets annually. Were even a modest portion of the untapped 95%—of assets totaling an estimated $1 trillion—to be invested for impact, it could create a sea change in how philanthropy invests in the future.  

How does impact investing differ from program-related and mission-related investing?

Impact investing is only the latest iteration of how foundations can use their assets for the public good. Before impact investing became a buzzword for innovation in philanthropy, foundations were looking for ways to use assets to do more than generate profit for grantmaking.  

Program-related investments (PRIs) are a class of investment that allows foundations to direct their assets—typically as low- or no-interest loans—to organizations whose work aligns with the foundation’s mission. The intent of a PRI is not financial gain but to provide loans where they might not be otherwise accessible. Examples of PRIs include investments in community development financial institutions, which make loans to small businesses owned by members of economically disadvantaged groups in underinvested communities.  

Since foundations are required to distribute 5% of their assets annually, if their investments made no profit at all, they would effectively spend out in two decades. To ensure that their values-aligned investments also generate profit, foundations often turn to mission-related investments (MRIs). MRIs are not an IRS-recognized class of investments but a publicly stated practice of aligning profit-making investments with broad organizational goals. The Heron Foundation, for example, works with mission-aligned, poverty-oriented investment managers to grow its assets. Over more than a quarter-century, it has distributed more than $400 million across “impact-screened” investments in municipal bonds, private equity, and exchange-traded funds—all of which continue to return market-rate profits. 

Impact investing represents the next stage in leveraging foundation assets. PRIs and MRIs are about investing in under-served businesses or aligning investments with values—within the current system. By contrast, impact investing is about investing with the intention of creating systemic change—evolving markets, elevating expectations for how companies do business, and helping de-risk investments, which, in turn, signals long-term opportunities for investors. One foundation looking to improve health outcomes in one country is a good thing. A coalition of funders—public, private, and philanthropic—investing in drug research, development, and clinical trials to defeat tuberculosis can collectively shape advances in medical science as well as global markets. Other examples of impact investing include creating markets for investments in water infrastructure and leveraging investments to increase gender equity on corporate boards. 

Ford and Rockefeller leading the way 

Few transformations in how foundations regard their assets have been as dramatic as the changes wrought by the Rockefeller Foundation and the Ford Foundation over the past decade. Both philanthropies owe their wealth to the industrial expansion of the late 19th and 20th centuries, which in no small part led to many of the global challenges that we face today—from climate change and environmental degradation to resource exploitation and underinvestment in rural communities. The Ford Foundation, under the leadership of Darren Walker, has not only changed its focus to address inequality—in the U.S. and globally—but also issued social bonds during the COVID-19 pandemic, divested from oil companies, invested in small business loans in Appalachia, and redeployed its endowment to MRIs. The Rockefeller Foundation has followed a similar trajectory, divesting from oil, investing in climate solutions, and leveraging public-private partnerships to facilitate multilateral investments and expand access to capital in Africa. 

The Global Impact Investing Network estimates the size of the worldwide impact investing market at $1.64 trillion, noting that investors cite broad progress across key indicators of market growth. As engagement with impact investing grows, so too will opportunities for foundations and individuals—and the organizations they support—to leverage capital. It’s one more tool that could help fulfill their missions—in a way that can transform industries, economies, and communities. 


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