{"id":23004,"date":"2025-04-16T13:08:04","date_gmt":"2025-04-16T20:08:04","guid":{"rendered":"http:\/\/localhost:10053\/what-is-impact-investing\/"},"modified":"2025-05-23T13:03:50","modified_gmt":"2025-05-23T20:03:50","slug":"what-is-impact-investing","status":"publish","type":"post","link":"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-impact-investing","title":{"rendered":"What Is Impact Investing in Philanthropy?"},"content":{"rendered":"\n<div style=\"margin-bottom:2%\" class=\"wp-block-genesis-blocks-gb-container explainer-heading gb-block-container\"><div class=\"gb-container-inside\"><div class=\"gb-container-content\">\n<div class=\"wp-block-genesis-blocks-gb-columns gb-layout-columns-3 gb-3-col-equal\"><div class=\"gb-layout-column-wrap gb-block-layout-column-gap-2 gb-is-responsive-column\">\n<div class=\"wp-block-genesis-blocks-gb-column gb-block-layout-column gb-is-vertically-aligned-top\"><div class=\"gb-block-layout-column-inner\">\n<figure class=\"wp-block-image size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"400\" src=\"https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/learning-center-icon-new.png\" alt=\"\" class=\"wp-image-23311\" style=\"width:150px\" srcset=\"https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/learning-center-icon-new.png 500w, https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/learning-center-icon-new-300x240.png 300w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div><\/div>\n\n\n\n<div class=\"wp-block-genesis-blocks-gb-column gb-block-layout-column gb-is-vertically-aligned-top\"><div class=\"gb-block-layout-column-inner\"><div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"750\" height=\"381\" src=\"https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/explainer-logo-for-detail-page.png\" alt=\"\" class=\"wp-image-23078\" style=\"width:300px\" srcset=\"https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/explainer-logo-for-detail-page.png 750w, https:\/\/www.insidephilanthropy.com\/wp-content\/uploads\/2024\/03\/explainer-logo-for-detail-page-300x152.png 300w\" sizes=\"auto, (max-width: 750px) 100vw, 750px\" \/><\/figure><\/div><\/div><\/div>\n\n\n\n<div class=\"wp-block-genesis-blocks-gb-column gb-block-layout-column gb-is-vertically-aligned-top\"><div class=\"gb-block-layout-column-inner\" style=\"text-align:center\">\n<p><\/p>\n<\/div><\/div>\n<\/div><\/div>\n<\/div><\/div><\/div>\n\n\n\n<div class=\"wp-block-genesis-blocks-gb-container gb-block-container\"><div class=\"gb-container-inside\"><div class=\"gb-container-content\">\n<p>Impact investing is a catch-all term for putting money to work in ways that both make a positive social or environmental impact <em>and<\/em> generate a financial return for the investor. It\u2019s distinct from traditional investing, which is focused only on the financial return. Impact investing reflects a growing trend in philanthropy, as more foundations choose to invest their assets in ways that advance their missions.&nbsp;&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Investing to make a positive social or environmental impact <em>and<\/em> generate a return.<\/li>\n\n\n\n<li>Mission-related investing.<\/li>\n\n\n\n<li>A way for philanthropists to put more resources in the service of their mission.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What happens to money not paid out by foundations?<\/strong> <\/h2>\n\n\n\n<p><a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-a-private-foundation\" target=\"_blank\" rel=\"noreferrer noopener\">Private foundations<\/a> are created to use a significant amount of money for philanthropy. The founders make a tax-deductible contribution to establish the foundation\u2019s <a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-an-endowment\" target=\"_blank\" rel=\"noreferrer noopener\">endowment<\/a> (the pile of money), and then every year, the foundation is required to pay out at least 5% of the value of those assets in the form of grants and operating expenses. Some pay out more, but there is still a lot of money sitting in foundation endowments: U.S. foundations collectively pay out about <a href=\"https:\/\/givingusa.org\/5-takeaways-and-next-steps-from-the-giving-usa-2024-report\/\" target=\"_blank\" rel=\"noreferrer noopener\">$100 billion<\/a> a year, while sitting on more than <a href=\"https:\/\/www.foundationmark.com\/#\/\" target=\"_blank\" rel=\"noreferrer noopener\">$1.6 trillion<\/a> in assets.&nbsp;<\/p>\n\n\n\n<p>So what happens to all the foundation money that is not paid out in a given year? It\u2019s invested. That can mean anything from parking it in accounts at big banks to building elaborate investment portfolios.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How can a foundation have a financial impact beyond grantmaking? <\/strong><\/h2>\n\n\n\n<p>Grantmaking is far from the only way a foundation can have a financial impact. Given the numbers \u2014 that $1.6 trillion+ sitting in foundation endowments \u2014 impact investing represents a huge untapped potential. Options for <a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-a-donor-advised-fund\" target=\"_blank\" rel=\"noreferrer noopener\">donor-advised fund<\/a> holders to participate in impact investing represent another <a href=\"https:\/\/www.nptrust.org\/reports\/daf-report\/\" target=\"_blank\" rel=\"noreferrer noopener\">$250 billion+<\/a> in assets. Individual mega-donors who give through <a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-an-llc\" target=\"_blank\" rel=\"noreferrer noopener\">LLCs<\/a> often engage in for-profit impact investing. <a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-a-community-foundation\" target=\"_blank\" rel=\"noreferrer noopener\">Community foundations<\/a> invest their assets, too. If most or all of these assets were deployed in impact investments, they could have an enormous positive social and environmental impact in line with funders\u2019 philanthropic missions.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is impact investing as a philanthropic strategy? <\/strong><\/h2>\n\n\n\n<p>With impact investing, instead of focusing entirely on what will provide the greatest return, an investor aims to generate returns while also making a positive social or environmental impact. This can mean all kinds of things, including investing in renewable energy, pulling investments out of companies that sell fossil fuels or make weapons, or investing in the development of affordable housing.&nbsp;<\/p>\n\n\n\n<p>As with conventional investments, the investor has a choice about the level of risk and the types of investments they want to take on. While impact investing does generate returns \u2014 that\u2019s what makes it investing instead of philanthropic giving \u2014 overall, the financial returns tend to be somewhat lower than those of conventional investing.&nbsp;<\/p>\n\n\n\n<p>Some foundations dedicate a portion of their investing to impact investing, and make more conventional investments with the remainder. A few funders, believing that all of their activities should advance their mission, put their entire endowment into impact investments.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is the role of impact investing in philanthropy? <\/strong><\/h2>\n\n\n\n<p>The term \u201cimpact investing\u201d was coined by the Rockefeller Foundation in 2007. That said, some foundations have been investing with an eye to positive social and environmental impact since well before that. The <a href=\"https:\/\/www.insidephilanthropy.com\/find-a-grant\/grants-n\/jessie-smith-noyes\" target=\"_blank\" rel=\"noreferrer noopener\">Jessie Smith Noyes Foundation<\/a>, for example, states on its <a href=\"https:\/\/noyes.org\/investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">website<\/a>, \u201cWe began aligning our endowment investments with our mission starting in the 1980s, decades before \u2018impact investing\u2019 \u2026 became a buzzword in philanthropy.\u201d The <a href=\"https:\/\/www.insidephilanthropy.com\/find-a-grant\/grants-m\/macarthur-foundation\" data-type=\"link\" data-id=\"https:\/\/www.insidephilanthropy.com\/find-a-grant\/grants-m\/macarthur-foundation\" target=\"_blank\" rel=\"noreferrer noopener\">MacArthur Foundation<\/a>\u2019s <a href=\"https:\/\/www.macfound.org\/programs\/field-support\/impact-investments\/strategy\" target=\"_blank\" rel=\"noreferrer noopener\">website<\/a> indicates that the legacy foundation has been making impact investments since 1983. Indeed, the Rockefeller family\u2019s own involvement in the creation of <a href=\"https:\/\/rockarch.issuelab.org\/resources\/27975\/27975.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">social housing in New York<\/a> a century ago could be understood as a form of impact investing.&nbsp;<\/p>\n\n\n\n<p>Today, impact investing is gaining momentum as a philanthropic trend, but still only a small share of foundations\u2019 assets are invested for positive social impact. While a handful of philanthropic organizations, such as the <a href=\"https:\/\/www.insidephilanthropy.com\/home\/2024-2-28-going-all-in-the-california-endowment-will-shift-all-of-its-assets-toward-impact-investing\" target=\"_blank\" rel=\"noreferrer noopener\">California Endowment<\/a> and the <a href=\"https:\/\/www.insidephilanthropy.com\/find-a-grant\/grants-s\/skoll-foundation\" target=\"_blank\" rel=\"noreferrer noopener\">Skoll Foundation<\/a>, have put most or all of their assets in impact investments, they are not the norm. The median foundation in a 2024 Bridgespan Social Impact survey had allocated just 5% of its investable assets to impact investments, IP\u2019s Michael Kavate <a href=\"https:\/\/www.insidephilanthropy.com\/home\/2024-3-18-how-much-of-foundations-money-is-in-impact-investments-just-5-is-common-says-report\" target=\"_blank\" rel=\"noreferrer noopener\">reported<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Types of Impact Investments in Philanthropy<\/strong><\/h2>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Mission-related investments (MRIs)<\/strong><\/h4>\n\n\n\n<p>Distinct from seeking social or environmental benefits in a broad sense, mission-related investments focus investments in line with the foundation\u2019s specific mission. A foundation whose mission is to address the racial wealth gap might put its investments at Black-owned banks. A climate funder might invest in renewable energy companies. MRIs are usually market-rate investments with a positive social impact.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Program-related investments (PRIs)<\/strong><\/h4>\n\n\n\n<p>Program-related investments are made first and foremost to advance one of the foundation\u2019s purposes. Production of income is \u201cnot a significant purpose\u201d of PRIs, according to the <a href=\"https:\/\/www.irs.gov\/charities-non-profits\/private-foundations\/program-related-investments\" target=\"_blank\" rel=\"noreferrer noopener\">IRS<\/a>. Thus, program-related investments may be below-market-rate investments.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Community investments<\/strong><\/h4>\n\n\n\n<p>Funders concerned with affordable housing, economic equality and community development might make community impact investments, such as participating in community loan funds in underserved communities.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Divestment<\/strong><\/h4>\n\n\n\n<p>Some foundations choose to divest from \u2014 meaning proactively <em>not <\/em>invest in \u2014 certain industries or areas that are at odds with their missions. For instance, the Rockefeller Foundation, which was founded by an oil tycoon, has pledged to <a href=\"https:\/\/www.rockefellerfoundation.org\/news\/the-rockefeller-foundation-commits-to-divesting-from-fossil-fuels\/\" target=\"_blank\" rel=\"noreferrer noopener\">divest from fossil fuels<\/a>. The <a href=\"https:\/\/www.insidephilanthropy.com\/home\/2024-2-28-going-all-in-the-california-endowment-will-shift-all-of-its-assets-toward-impact-investing\" target=\"_blank\" rel=\"noreferrer noopener\">California Endowment<\/a> has divested from fossil fuels, tobacco and other industries that have a negative impact on community health, and also from <a href=\"https:\/\/prisondivest.com\/why-divestment\/campaign-victories\/#:~:text=The%20California%20Endowment%20divested%20from,fully%20divest%20from%20private%20prisons.\" target=\"_blank\" rel=\"noreferrer noopener\">private prisons<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>An Impactful Philanthropic Strategy <\/strong><\/h2>\n\n\n\n<p>Impact investing is an important philanthropic tool given that the vast majority of foundation assets are invested. If all foundations invested their endowments in line with their philanthropic missions, the impact would be enormous. Organizations like <a href=\"https:\/\/www.insidephilanthropy.com\/find-a-grant\/grants-r\/rockefeller-philanthropy-advisors\" target=\"_blank\" rel=\"noreferrer noopener\">Rockefeller Philanthropy Advisors<\/a> and the <a href=\"https:\/\/thegiin.org\/\" target=\"_blank\" rel=\"noreferrer noopener\">Global Impact Investing Network<\/a> are working to make it easier for philanthropic organizations to shift investment priorities and scale up their impact.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Learn more about other funding strategies at Inside Philanthropy\u2019s <a href=\"https:\/\/www.insidephilanthropy.com\/learn\" target=\"_blank\" rel=\"noreferrer noopener\">Learn Center<\/a>. Become a <a href=\"https:\/\/www.insidephilanthropy.com\/membership\" target=\"_blank\" rel=\"noreferrer noopener\">subscriber<\/a> today.<\/h2>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h2 class=\"wp-block-heading\">You might also want to check out:<\/h2>\n\n\n\n<p><a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-an-endowment\">What is an endowment?<\/a><\/p>\n\n\n\n<p><a href=\"https:\/\/www.insidephilanthropy.com\/explainers\/what-is-an-llc\">What is an LLC?<\/a><\/p>\n<\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p class=\"\">Impact investing is a catch-all term for putting money to work in ways that are different from traditional investing. The goal is both to make a positive social or environmental impact <em>and<\/em> generate a financial return for the investor.<\/p>\n","protected":false},"author":470,"featured_media":151,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"content-sidebar","footnotes":""},"categories":[26779],"tags":[26780],"ppma_author":[32648],"class_list":{"0":"post-23004","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-explainers","8":"tag-ip-explainer","9":"author-ipstaff","10":"entry"},"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"IP Staff","author_link":"https:\/\/www.insidephilanthropy.com\/author\/ipstaff"},"authors":[{"term_id":32648,"user_id":470,"is_guest":0,"slug":"ipstaff","display_name":"IP Staff","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=mm&r=g","author_category":"","first_name":"IP Staff","writer-profile":"","last_name":"","user_url":"","job_title":"","linkedin":"","instagram":"","twitter":"","facebook":"","description":""}],"_links":{"self":[{"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/posts\/23004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/users\/470"}],"replies":[{"embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/comments?post=23004"}],"version-history":[{"count":14,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/posts\/23004\/revisions"}],"predecessor-version":[{"id":213170,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/posts\/23004\/revisions\/213170"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/media?parent=23004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/categories?post=23004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/tags?post=23004"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.insidephilanthropy.com\/wp-json\/wp\/v2\/ppma_author?post=23004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}