Mobilizing Donor Advised Funds For Impact Investing

More than $23 billion was contributed to donor advised funds (DAFs) in the United States in 2016, yet only a minor fraction of donor advised fund assets are invested for positive social and environmental impact.  More often than not, DAF assets are managed by a donor advised fund provider — such as a national investment bank that has developed a separate nonprofit to serve as a holding tank for DAF assets, or a community foundation — that has little or no offering for donor advised fund holders who want to leverage their DAF investment capital for positive impact.

 

Due to evolving demands from donor advisors, however, this is starting to change.

 

This report by Cornerstone Capital Group discusses the structure of DAFs and a variety of innovative ways that donor advised funds are being deployed strategically to help donors achieve their financial and impact goals through impact investing while also providing necessary investment capital for social and environmental initiatives. 

 

By using DAF funds for impact investments, donor advisors can support the issues they care about then redeploy the returns from those investments to new mission-aligned initiatives in need of capital. This capacity is particularly valuable for supporting social enterprises that need early-stage capital because they do not yet qualify for established venture funds. Moreover, because the donor advisors are not relying on the returns from the investments to fuel their personal capital needs, they may be more comfortable making investments that are higher-risk and provide lower returns than they would otherwise.

 

The authors identify eight ways to deploy DAF capital to work to achieve financial goals alongside impact aspirations. The report also offers specific examples and insights from ImpactAssets, Impact Charitable, RSF Social Finance, The Denver Foundation, Tides Foundation, and Triskeles Foundation, among others