Impact investing in philanthropy has been around for decades.
It’s been almost 20 years since the Rockefeller Foundation popularized the term “impact investing.” The Ford Foundation has used program-related investments since the 1960s, when they were formally established as a tool for foundations by the IRS. Heron Foundation committed to aligning 100% of its endowment with its mission in 2012. MacArthur has been a leader in catalytic capital.
Foundations with a wide range of endowment sizes have become practitioners and champions of impact and mission-related investing.
Yet, on the whole, impact investing continues to be a niche activity, with the largest foundations committing a fraction of their capital to impact, and many foundations engaging in no impact investing at all. Given the promise and demonstrated results of impact investing, why has it not become standard practice for mission-driven institutions?
Foundation leaders, investment officers and others in the sector cite a variety of barriers to engaging in impact investing. Some are real, and some are perceived; all are addressable.
Overcoming barriers
As executive director of the Woodcock Foundation, which has made a commitment to aligning 100% of our $90 million endowment with our mission, I’ve been asking other leaders in philanthropy what is holding them back. Here are a half-dozen common barriers that I’ve heard, along with ideas about ways to overcome them.
- “Our approach is to maximize profits with our investments in order to fund our grantmaking.”
One common and significant barrier is a mindset rooted in a traditional approach to philanthropy – maximizing returns to fund grantmaking. This approach is rooted not in an impact orientation but in a tax and financial orientation. It is upheld by a set of incentives that reward investment returns without regard for impact.
Those in philanthropy who have spent time exploring impact investing are likely familiar with the concept of “the other 95%” (in contrast to the 5% of assets typically paid out in grants), and the phrase “all investments have impact.” Both offer an argument against this mindset. All investments do have an impact. If you’re not paying any attention to what that impact is, there’s a good chance your investments are undermining your mission.
So for those who have not yet been swayed: Do you know what your foundation owns? Have you considered whether you are effectively investing against the goals of your grant-funded programs? Are there ways to instead invest in aligned solutions? As an organization whose purpose is to deploy capital for the public benefit stated in your mission, isn’t it worth figuring it out?
- “We can’t engage in impact investing because of our fiduciary duty or our objective of perpetuity.”
Some foundation leaders and investment officers cite “fiduciary duty” or a commitment to exist in perpetuity as reasons to avoid impact investing. This interpretation does not reflect the legal framework governing foundations.
Let’s look at what fiduciary duty means for foundations. The primary requirements of foundation fiduciaries are the duty of care (to invest prudently), the duty of loyalty (to act in the foundation’s best interests), and the duty of obedience (to adhere to the stated charitable mission and all applicable laws).
Considering the organization’s mission in investment decision-making is not in contradiction to fiduciary duty; it’s actually part of it. In 2015, the IRS issued a notice addressing this topic, clearly stating that foundations can consider how an investment advances its charitable purposes as long as it also exercises prudence. Fiduciary duty requires prudence, not profit maximization. Considering the mission is absolutely allowed.
A more specific concern is that impact investing is too risky or produces returns that are too low to be prudent. Thankfully, there is plenty of data to demonstrate that mission-aligned investments can generate competitive financial returns on par with other investments in their asset class.
The GIIN’s State of the Market 2025 reports that roughly 80% of investors surveyed are seeking market-rate returns from their impact investments and that those investments are outperforming traditional assets across reported asset classes. Several foundations, including the Surdna Foundation, have reported on the outperformance of their own mission-aligned portfolios.
Finally, even for perpetual foundations, it’s feasible to have an impact-first allocation that intentionally accepts higher risk or lower return in exchange for impact. I’ve written previously about how we approach this at the Woodcock Foundation, as a foundation currently being managed for perpetuity.
Our objective is to generate sufficient returns each year across the endowment as a whole to cover our grantmaking and operating expenses. We allocate 5% of the endowment to impact-first investing, aiming to recover invested capital without additional return at the portfolio level, and we balance the return difference with our grantmaking budget. For the rest of the endowment, which is all committed to mission alignment, we set a return target sufficient to cover our costs.
- “We’re sunsetting, so impact investing doesn’t work for us.”
A plan to sunset — or to grant all of the foundation’s funds away by a set date — can feel at odds with a strategy to use investments for impact. Yet the decision to sunset and the decision to make impact investments are often driven by the same goal: mobilizing a greater amount of resources faster in order to address social and environmental problems.
Sunsetting does create unique circumstances for foundations in relation to investment strategies. Liquidity needs are higher, and perceived investment time horizons are lower. These are not barriers, though; they are considerations that can be addressed within an impact investing strategy. For example, cash deposits and short-term notes with community development financial institutions, bridge financing and guarantees are all liquid or short-term options that can align with both place-based and thematic impact goals.
Sunsetting foundations have an incredible opportunity to be innovative and catalytic in deploying investment capital. Without the constraint of perpetuity, they can embrace risk tolerance and think creatively about the purpose of their capital.
While recycling impact investments and liquidating them to align with the lifespan of the foundation is possible, an alternative is to make strategic longer-term investments and gift them to mission-aligned beneficiaries. This is the approach of Gary Community Ventures, which is focused on reshaping the arc of opportunity for Colorado kids and families. As part of its plans to sunset by 2035, Gary Community Ventures is creating investment structures to transfer assets from its own balance sheet to the community and unlock opportunities for wealth creation, pioneering a new approach to impact investing.
- “We don’t really believe we can have a positive impact with our investments; we’re concerned about impact washing.”
Some foundation leaders have little faith in the impact of impact investments and voice concerns about “impact washing,” or claims about impact outcomes that don’t stand up to scrutiny. This risk is real, and it can and should be mitigated with clear planning and process.
It’s important to start with clarity on what kind of impact you want to have. The impact goals for your investments might be the same as your grantmaking impact goals, or they might advance your mission in complementary ways. Goal clarity can inform thoughtful sourcing and a due diligence process that centers impact, examines intentionality and considers the centrality of impact goals to the financial success of an investment.
What gets measured gets managed: Agreeing on and documenting impact measurement and reporting requirements can increase accountability and improve outcomes.
- “Our investment advisors are the problem. They have advised us against impact investing, or they don’t have the expertise.”
This is a common complaint and investment advisors can be a hold-up. But a lack of advisor expertise is not a structural barrier — it’s a capacity gap. A whole sector of mission-driven registered investment advisors, or RIAs, has emerged, with many larger firms building out impact-focused teams, and boutique firms specializing in impact investing. The capacity gap can be filled by engaging a subadvisor to work with your current registered investment advisor, or RIA, or by finding a new firm to work with that can help you create an investing strategy that serves your impact goals.
At the Woodcock Foundation, we engage Pathstone, an outsourced chief investment officer, or OCIO, firm that advises and manages our endowment. It supports a range of goals, from thematic impact investing to shareholder engagement. Other firms like Veris Wealth Partners and Sonen Capital have deep expertise in impact investing.
Many advisors are also accustomed to collaborating with each other to meet client needs. For example, Westfuller Advisors is known for partnering with Bivium to provide mission-aligned investing solutions as an OCIO to foundations. CapShift has created a model focused on business-to-business advisory relationships, partnering with other RIAs such as Abacus Wealth Partners to serve their clients’ impact investing needs, from sourcing and diligence to portfolio monitoring. Still other advisors are known for providing custom, impact-first investment solutions, such as Social Finance and ImpactAssets Capital Partners.
For foundations looking to explore their options, a great resource is ValuesAdvisor, an online platform that can help identify best-fit advisors based on geography, portfolio size, impact themes and other parameters. For more tips, see ImpactAlpha’s Advisors’ Corner.
- “We can’t do impact investing because we’re too small or because we’re place-based.”
For some, a small endowment size or narrow geographical focus can be perceived as a barrier to impact investing. The reality is that a smaller size and a place-based funding focus simply create a different set of conditions, capacity and design needs, and even advantages in impact investing due to proximity to community.
Smaller and place-based foundations often have deep relationships, valuable contextual knowledge and agility, allowing them to identify high-impact opportunities that large national funders might struggle to find or understand. In some cases, a place-based focus may be appropriate for a portion of an endowment while thematic alignment might be more suited to the rest of it.
With a roughly $16 million endowment, the AJL Foundation is a small but impactful leader with its investments, incorporating a place-based focus on Colorado into its direct investments as well as in its approach to shareholder engagement. The Russell Family Foundation — a climate finance leader with roughly $100 million and a place-based focus in the Pacific Northwest — maintains a place-based focus for its catalytic investments while focusing on climate across its globally invested endowment.
It’s worth figuring it out.
Impact investing expands a foundation’s toolkit, allowing for alignment and impact well beyond the grantmaking budget in service of mission.
Whether you’re planning for perpetuity or a sunset, your investments offer a way to move more capital into solutions that align with your mission. The right advisors and other partners can help you build capacity, create a strategy and utilize a thoughtful process for making truly impactful investments.
Whether your endowment is large or small, and whether your focus is global or local, there are ways to advance your mission through your investments. While many potential barriers exist, there are solutions to all of them.
Getting to those solutions is worth it.
Stacey Faella is the executive director of the Woodcock Foundation.
Guest posts on ImpactAlpha represent the opinions of their authors and do not necessarily reflect the views of ImpactAlpha.
