For many years, philanthropy and investing have been considered separate disciplines—one championing social change, the other financial gain. The idea that the two approaches could be integrated within the same transaction—in essence, delivering a financial return while doing good—has generally struck most philanthropists and investors as far-fetched. Not anymore.

Impact investing, which seeks to generate social or environmental benefits while delivering a financial return, is expanding as a promising tool for investors and philanthropists. Some estimates value the impact investing market at nearly $9 trillion in the U.S. alone. As the problems societies face become more entrenched and complex, it’s clear that government and philanthropy can’t solve them on their own. A look at the amounts of capital involved bears this out: in the U.S., philanthropy amounts to approximately $390 billion annually, government spending is $3.9 trillion, and capital markets (all debt and equity investments) encompass $65 trillion. On a global scale, total investments are estimated at $300 trillion. Thus, a 1% shift in global capital markets toward impact investing—or investments that work toward social good—could cover the estimated $2.5 trillion annual funding gap to achieve the United Nations’ Sustainable Development Goals (SDGs). As this example shows, harnessing capital markets can substantially benefit society.

This kind of investment that works toward social good while seeking financial returns can be a valuable tool for philanthropic organizations to unlock additional avenues for sustainable impact. It offers a way to leverage financial resources for social and economic returns by making investments that align with philanthropic goals and intentionally deploying capital in enterprises, funds, or projects that generate positive social or environmental outcomes while seeking financial sustainability.

Aligning Investments with Mission

Many endowed foundations do not use their endowment to fulfill their mission. In the U.S., many private foundations distribute 5% of their assets annually. This means 95% of assets are often not used to further the foundation’s mission. With the rise of impact investing, the opportunities for foundations to align their investments with their missions are expanding. There has been a significant push for equity and racial justice equity lens investing, particularly after George Floyd’s murder and subsequent world events.

The Benefits of Impact Investing for Philanthropists

  • It’s a powerful tool for leveraging philanthropic dollars. Investment returns can be reused over and over again to compound the impact.
  • It allows donors greater freedom and flexibility to test innovative ways to achieve a financial return as they seek impact.
  • Donors use it for breath new life into or complement their philanthropic strategy—many report great satisfaction after incorporating impact investing as a central element in their approach to social change.
  • When applied to specific social causes, impact investing also has the potential to bring more capital and fresh approaches to targeted issue areas. For example, efforts are growing to coordinate impact investing with the 17 Sustainable Development Goals (SDGs), 15-year global goals to which all 193 UN member states, along with many businesses and nonprofits, committed themselves, beginning in 2016. The 2017 GIIN Annual Impact Investor Survey found that 60% of investors reported actively (or soon to be) tracking the financial performance of their investments concerning the SDGs.

Read the full PDF from Rockefeller Philanthropy Advisors.