Home / Impact Economy / Blended Finance & Philanthropy / It’s Time to Put the ‘Impact’ in Impact Investing

It’s Time to Put the ‘Impact’ in Impact Investing

Expanding philanthropy's toolbox

America’s charitable giving coffers are deeper than they’ve ever been. Between donor-advised funds (DAFs) and private foundations, a staggering $1.8 trillion sits at our fingertips, earmarked for impact.

Meanwhile, growing social and environmental challenges demand our attention. Despite today’s notable philanthropic account balances, many of the most promising solutions to these challenges — especially those led by and serving people of color, women, and other marginalized groups — remain undercapitalized.

The traditional philanthropic paradigm fuels this gap. Donors who want to drive impact often feel like they have only two tools in their toolbox: they can deploy dollars today through grants, and they can use traditional investments to grow their pool of capital for future grantmaking.

Colorful arrows pointing up

If we really want to address the social and environmental challenges we’re facing, we need to think outside the box. There’s a whole spectrum of ways to deploy capital between traditional investing and grantmaking — methods that offer the opportunity to “recycle” capital to get additional bang for each philanthropic buck. These include low-interest loans to jumpstart and grow small businesses, grants to seed workforce training programs that get “re-filled” by employers when workers get hired, and more. Donors who work across this entire spectrum of impact and returns not only grow and accelerate their impact; they provide critical capital, without which we could never address today’s challenges at any kind of scale.

Paper boat with plant on water

The work being done by the Jewish Communal Fund (JCF), in partnership with the Hebrew Free Loan Society, provides a great example of what this can look like. The two entities are partnering to offer an impact loan program to JCF’s DAF holders. Through this partnership, donors can recommend that a portion of their charitable assets be used to provide zero-interest loans to New Yorkers in need. Unlike a traditional grant, this model is “recycling”: funds are returned to the DAF as recipients repay their loans, allowing the capital to be redeployed for additional impact down the line. The loans offer no financial return, but their social impact is notable. Loan recipients have used the money to pay off debilitating high-interest credit card debt, bridge precarious life transitions, invest in new career pathways, and more.

If we really want to address the social and environmental challenges we’re facing, we need to think outside the box.

Mainstreaming approaches in the middle

Across the country, more and more DAF sponsors are shifting the paradigm for philanthropic giving with their own innovative approaches. The Baltimore Community Foundation, The Chicago Community Trust, The San Francisco Foundation, and Vermont Community Foundation, for example, have implemented default allocations to place-based, impact-first investing. The process is automated for their donors, who don’t have to lift a finger to deploy otherwise passive capital toward those who need it the most. Like JCF’s partnership with the Hebrew Free Loan Society, these efforts are powerful because they are accessible: The administrative hurdles are taken care of by the DAF sponsor, making it easier than ever to move capital out the door.\

Collage of hands reaching toward each otherSocial Finance is doing our part to help donors expand their philanthropic toolbox. Our Impact First Fund makes it possible for individuals (including DAF account holders), family offices, and private foundations to pool their capital into a diversified portfolio of impact-first investments. We do the heavy lifting: we source and vet impact-first opportunities through our established networks; lower the financial and legal barriers to entry; and prioritize measurable, meaningful impact in our approach to manager selection, portfolio construction, investment exits, and impact measurement and reporting.

To date, the Fund has made investments in portfolio companies pioneering scalable solutions to our nation’s housing and climate challenges. One example: our investment in Blackstar Stability, a Black-owned and -led real estate investment fund helping low- and middle-income homeowners refinance predatory home loans and build equity and wealth.

At the same time, we know the Fund’s pooled capital is just one piece of the puzzle. To truly get capital moving in these new and promising ways, stewards of philanthropic institutions and donors to those institutions must push one another to challenge the existing “grow-then-grant” paradigm under which they’ve traditionally operated. At the same time, we as a field need to create accessible, appropriate impact investing tools and products that make it possible for anyone to put philanthropic or investment capital to work. In the face of growing inequality and rising global temperatures, the urgency for embracing new methods that get more capital moving sooner has never been greater. Our global challenges, and our most promising solutions, cannot wait.

Jess Brooks is Vice President, Investor Relations at Social Finance. In this role, Jess helps individuals and organizations put their money to work creating meaningful outcomes for people and communities. She also partners with teams across Social Finance to create strategies, systems, and services that exceed investor expectations. Jess has ... Read more
NEIII Impact Investing Fellowship Fall 2024

Related Content

Comments

2 Comments

  1. Agnès Belaisch

    Interesting article on philanthropy approaches. However, impact investing is defined as being for profit, with the impact being rewarded financially when measured, if it meets the pre-agreed impact objective. I read nothing of this here. The incentive design is what makes impact so special and so attractive to those investors who do not need a return. So many definitions of impact dilute the impact and push investors away. Your title was misleading. Too bad.

    • Agnes B

      Typo: (..)attractive to those investors who do need a return

Submit a Comment

Impact Entrepreneur on YouTube - IETV

Deep Dives

RECENT

Editor's Picks

Webinars

News & Events

Subscribe to our newsletter.

Subscribe to our newsletter to receive updates about new Magazine content and upcoming webinars, deep dives, and events.

Access all of Impact Entrepreneur.

Become a Premium Member to access the full library of webinars and deep dives, exclusive membership portal, member directory, message board, and curated live chats.

ie frog
Impact Entrepreneur