Impact Investing: Gift Planning’s Next Frontier

publication date: May 8, 2024
author/source: James Dunne

A new generation of investors is embracing a philosophy of purpose beyond profit. These investors are demanding the capital under their stewardship make positive social and environmental impact while also providing economic returns. Enter impact investing, which is gaining popularity. So, how can gift planners harness the power of impact investing to advance their mission? And, what are the risks and expertise required to compete for this new breed of impact capital?

What are impact investments?

Impact Investments generate positive, measurable social and environmental impact alongside a financial return. At our family office, we view impact investing along a continuum ranging from profitable to charitable. At one extreme are profitable investments such as traditional stocks and bonds. At the other extreme are charitable gifts including grants from foundations & DAF accounts. Somewhere in the murky middle are impact investments.

Challenging traditional paradigms

Impact investing challenges the traditional dichotomy of investing purely for profit versus charitable giving. It exists in a middle ground that incorporates elements of both, creating opportunities for gift planners to redefine what it means to invest with purpose. Traditional investments have clear-cut expectations and outcomes, focusing primarily on financial returns. Charitable gifts, on the other hand, are driven by altruism. Impact investments promise ways to achieve both financial and social returns. Therefore, the logic of impact investing requires a new kind of thinking from gift planners and an openness to experimental operating models.

Diverse approaches to impact investing

As gift planners, our approach to impact investing should vary greatly depending on our professional background. Charitable fundraisers might use impact investments to secure long-term funding for their organization, while investment advisors may evaluate impact investments based on their potential to deliver competitive returns. Family offices, like ours, use impact investments to align an investor’s wealth with their values.

Professional networks of impact investing

To effectively leverage impact investing capital, gift planners must expand their expertise and develop robust networks of professionals that include private capital, charitable foundations, and multiple levels of government. We’ve had success making impact investments that support affordable housing by providing mortgage loans to land trusts and social service charities at concessionary terms. Such investments required coordinated efforts across various sectors and deep knowledge of both the financial instruments involved and the societal impacts they aim to achieve. As our impact investing journey has continued, our role has evolved into a type of project manager. Organizing the professionals that provide expertise from a variety of backgrounds to get successful financing arranged.

Developing impact investing expertise

As impact investing grows, there is rising demand for gift planning expertise. Community foundations and independent donor-advised funds (DAFs) are particularly well-positioned to develop these capabilities. For instance, organizations like the MakeWay Foundation have started providing expertise to donors with the introduction of their “Impact DAF.” This trend highlights the importance of building internal capacities that can support innovative investment strategies.

The future of impact investing

Burgeoning interest in impact investing promises more innovative financial vehicles and broader adoption, but also presents new challenges and risks. Particularly for measurement standards, transparency, and liquidity.

Most impact investments don’t have the same track record as traditional assets, which can be a barrier to their inclusion in conventional portfolios managed by licensed investment advisors. Additionally, the current regulatory environment and fiduciary standards often limit the extent to which boards and licensed advisors can engage with pure impact investments. This isn’t necessarily a bad thing since such standards were put in place for good reasons. But, they do limit the speed of impact investing innovation and adoption.

Gift planning’s next frontier

Gift planners are uniquely positioned to bridge the gap between traditional investment approaches and the dynamic field of impact investing. By developing specialized expertise, cultivating strong professional networks, and aligning investment opportunities with the values of likeminded investors, we can effectively guide the stewardship of capital towards generating measurable social and environmental benefits alongside financial returns.

In an era where purpose and profit are increasingly intertwined, the willingness of gift planners to navigate this new terrain will be crucial. We must stay ahead of the curve by understanding the risks, leveraging new investment vehicles, and always ensuring transparency and accountability to donors. By doing so, we can fulfill the aspirations of impact-driven investors and also push forward the boundaries of what it means to invest with purpose.

James Dunne – Family Office Advisor - My mission is to inspire sustainability. Our family office provides bookkeeping, reporting, and a variety of accounting and investment services to wealthy investors. I'm an active member of the Canadian Association of Gift Planners and Philanthropic Foundations Canada. My personal hero is George Brown and I'm a Trustee of the George Brown Memorial Foundation.

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