Solutions, Advisors

How to use donor-advised funds to make impact investments

The UN Sustainable Development Goals – those 17 audacious targets for tackling the world’s thorniest problems like inequality, climate change, and poverty – face an equally audacious financing gap: $2.5 trillion annually.

Unlocking capital of this magnitude, according to World Bank President Jim Yong Kim, requires matching viable social innovations and projects with millions in risk capital, billions in development assistance, and trillions in national and global public and private investment. Unfortunately, some of the most promising market-based solutions that address the SDGs – for-profit companies, products, and projects—die on the vine before they have the chance to trigger this capital domino effect, due to a lack of properly-aligned sources of risk capital.

At the same time, donor-advised funds (DAFs) – a philanthropic vehicle managed by a wide variety of public charity sponsors that allows donors to retain advisory rights – have skyrocketed in popularity and currently hold more than $85 billion in charitable assets waiting to be deployed. Savvy philanthropists have begun using DAFs to make not only traditional grants with no expectation of financial return, but also impact investments that hold dual promise of advancing the charitable mission and providing financial return.

Data on DAF granting and investing patterns is difficult to track, but based on our work in the field, research, and interviews with other experts, we understand that the number of donors who recommend impact investments—and the sponsors who facilitate such investments using DAFs – are few and far between. We believe there’s a vast missed opportunity to use DAFs for making impact investments in support of market-based solutions to the UN Sustainable Development Goals – across a wide variety of charitable purposes.

Read the full story at Stanford Social Innovation Review. 
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