Impact investments are investments made with the intention to generate positive, measurable, social and environmental impact alongside a financial return (Global Impact Investing Network).
At its core, impact investing means aligning your investments with your values. In doing so, you can advance solutions to the causes you care about – from affordable housing and income inequality to climate change mitigation and sustainable agriculture. The United Nation’s Sustainable Development Goals are a great starting point for learning about the different issue areas that impact investing addresses.
Examples of impact investing include:
For public investments
Using negative screening – avoiding investments in specific industries that the investor views as causing harm, such as fossil fuels or weapons.
Using positive screening – incorporating Environmental, Social, and Governance (ESG) criteria into investment decision-making.
For private investments
Investing in private funds whose investment thesis focuses on companies improving the lives of people in their communities and beyond.
Investing directly in companies, nonprofits, and organizations whose mission and business activities drive solutions to social and environmental challenges.
A donor advised fund (DAF) is like a private foundation, but more accessible to the average person and without the costs and overhead of a foundation. An individual contributes to their DAF and receives an immediate tax deduction, then makes recommendations on where to invest and grant out their funds. DAFs are similar to a “charitable savings account” in that they house charitable donations that are waiting to be granted out. The entity hosting the donor advised fund is called the sponsoring organization, or “provider.”
Most of the larger financial institutions and community foundations offer DAFs. The provider manages the donor advised fund account, its investments, and its grantmaking – the latter two based on the donor’s recommendations. With over $121 billion in DAFs in the U.S., they are a popular way to make charitable gifts and, increasingly, impact investments.
While a donor’s funds are sitting in a donor advised fund waiting to be granted out, they are invested, typically into traditional investments such as ETFs and the money market.
At CapShift, we believe that, by aligning investable assets – i.e., those not yet earmarked for grants – with the donor’s overall mission, DAFs are positioned to create catalytic change even before the first dollar is donated.
Impact investment opportunities exist that meet every donor’s needs – from market-rate public funds focused on ESG factors, for donors who seek high liquidity so they always have funds available for grantmaking, to high-impact private investments, for donors who want their investments to be as impactful as their grants.
Activating DAFs for impact investing offers donors the exciting opportunity to multiply their DAF’s impact while using the returns for even further philanthropic activity.