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How a Business DAF Can Supercharge Your Impact

Corporate donor-advised funds are an easy-to-manage charitable vehicle that can amplify giving effectiveness

Equal Exchange customers often ask if they can donate to the company to support its economic justice and environmental work. As a for-profit venture, the purveyor of organic, fair-trade coffee, chocolate, tea, and other foods used to turn them down. Not anymore. 

Five years ago, Equal Exchange opened a donor-advised fund to streamline grantmaking to its supplier community and open up opportunities for collaborative giving. The company contributes most of the money in its DAF, but customer donations swell the fund.

“The way we work with our community of cooperative farmers is multifaceted, going beyond just a purchase order for their products. We take a more holistic approach, exploring ways to support rural livelihoods and nurture agricultural lands,” Kim Coburn, then green coffee buyer at Equal Exchange, explained in an article for the RSF Social Finance newsletter. “With the DAF, we now welcome contributions that help to support our broader mission.”

Hand holding compass

Many impact-focused businesses are in a similar position — especially companies with fair-trade supply chains, those working to solve systemic problems, and enterprises with intensive community commitments like training second-chance workers. The calculus is different for every business, but if you’re investing in impact initiatives that don’t yield a financial return, such as education, improving conditions in your supply chain, and community building, shifting funding for those efforts to a DAF can be a way to optimize your finances and boost your impact. A corporate DAF is also a great way for a company and its founders to make sure their values and mission continue to guide the organization after an initial public offering or sale of the business.

A DAF can give your company 360-degree impact.

For business leaders considering these issues, a corporate foundation is usually the solution that comes to mind — but it’s often not the best option. I’ve experienced firsthand and heard from other impact CEOs that for small to midsize companies, running a foundation can become a staffing, administrative, and compliance nightmare. A corporate DAF is a much simpler and more flexible way to put money to work for the mission while optimizing the timing and tax benefits of donations.

When and why to open a corporate DAF

If you’re making donations just now and then or you don’t have much of a budget for philanthropy, sticking with the informal approach makes sense. If you’re engaged in substantial (multiple millions of dollars) and ongoing corporate giving, then investing the resources required to create and run a foundation effectively may be worthwhile. But if you have the ability to periodically put funds aside for your company’s strategic impact work and you’re not interested in the complexity and cost of running a foundation, a DAF is your best match.

Walkway in wildernessLike a foundation, a corporate DAF can support a company’s mission and strategy in several ways: through corporate giving, recoverable grants (which work like trust-based loans), and direct (impact) investing, with any gains returning to the DAF.

A DAF is administered by a nonprofit sponsor set up to manage gift money on behalf of organizations, families, and individuals. Donors make a charitable contribution, receive an immediate tax deduction, and recommend grants from the fund on their own timeline. Every corporation has the option to make tax-deductible contributions to a DAF. Depending on the type of corporation (C, S or LLC), companies can make annual contributions as high as 20% to 60% of taxable income. A tax accountant will need to advise on the specific IRS limits that apply in each situation.

Setting up a DAF is straightforward: Just fill out a short form and make an initial deposit (usually a minimum of $5,000), and then contribute a significant amount at once or add to the DAF periodically, based on the company’s financial situation. After that, operations are fully outsourced. The sponsor performs due diligence on grant recipients and issues and manages grants as directed by company-appointed DAF advisers. Some companies also use their DAF as an employee engagement tool by tapping their team to source grant recipients or set priorities.

Three key factors to consider

While opening a DAF is simple, you’ll get the most value from it if you first develop a strategy that can help you evaluate potential sponsors for compatibility, provide focus for your giving, and set impact goals. Following are three key factors to consider.

What’s your purpose? Do you want to support your supplier communities? You might look for a sponsor that has expertise in working with fair-trade supply chains. Are you looking to drive business activism in your sector or fund collaborative, nonproprietary projects that don’t yield direct financial returns? You might structure your DAF as a field of interest fund, which supports work in a specific area based on your criteria. Do you want to respond to local community crises or needs? A community foundation might be a good home for your DAF.

How will your assets be invested? To maximize impact, consider how the sponsors you’re considering will invest your DAF assets before they are granted out. Nearly $160 billion is held in DAFs, and the vast majority is invested in conventional Wall Street products, many of which will run counter to your values and goals. But it is possible to invest in funds and financial institutions that contribute to social and environmental progress while maintaining liquidity for grantmaking, as impact-centric sponsors have proved.

Arrows marking walking path

How creative do you want to be? You can do more than conventional grant making with your DAF if you apply a regenerative finance approach, integrating various types of capital — investments, loans, grants and more — to accelerate the success of the initiatives you support. Options include recoverable grants, which circulate money back into the DAF so that it can be reused to support other promising social enterprises or initiatives, and loan guarantees and participation deals, which leverage DAF assets as risk mitigation for major funders that otherwise would not invest in potentially system-changing projects. If you’re interested in using catalytic capital tools like these, make sure your DAF sponsor is set up to handle them and can bring you such opportunities.

When set up and used optimally, a DAF can give your company 360-degree impact: the impact the business creates directly for its beneficiaries, the impact it supports by working with values-aligned partners, and the impact its gift money creates by funding the kinds of noncommercial initiatives that play a critical role in transformative change.

Jasper van Brakel is CEO of RSF Social Finance, a lending, giving and investing innovator based in San Francisco. @RSFSocFinance.

This article was produced in collaboration with the Magazine's Content Partners.

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