Christine KendallCommunity Foundations and Impact Investing of DAFs

By: Christine Kendall In: Community Foundations| Donor Engagement| Endowments and Investing

19 Jan 2012

On January 9th, Wall Street Journal blogger Veronica Dagher posted an article highlighting the opportunity for philanthropic donors with Donor Advised Funds (DAFs) to create a “double bottom line.” Dagher points out that donors at large national funds, such as Schwab, are increasingly looking not only to create social impact by spending their money in the social sector, but also by investing their money to create a positive impact through impact investing. Like Dagher, we see this as a promising trend, however, we have noticed that large national providers are not the only organizations providing donors with the opportunity to make impact investments. Some community foundations are also excited by this trend and provide donors with opportunities to invest their DAF dollars to create positive social impact while still earning a return on their investment.

What exactly is impact investing?
Impact investing can reference a wide range of activities. In a 2012 report entitled “Impact Investments an Emerging Asset Class” JP Morgan defined impact investing:

Impact investments are investments intended to create positive impact beyond financial return. As such, they require the management of social and environmental performance (for which early industry standards are gaining traction among pioneering impact investors) in addition to financial risk and return. We distinguish impact investments from the more mature field of socially responsible investments (“SRI”), which generally seek to minimize negative impact rather than proactively create positive social or environmental benefit.

This definition is helpful in that it clearly separates impact investing from SRIs and sets a higher bar for impact investors. It also indicates a certain intentionality for the investment on behalf of the donor and the intermediary providing the investment opportunity.

How are Community Foundations providing opportunities for impact investing?

We see impact investing as an exciting space for DAF donors to increase the impact their philanthropic dollars can have. In 2007, according to a Council on Foundations report there was $31B nationally in DAF assets, almost half of that, $16.5B, was invested in DAFs at community foundations. Community foundations represent a major portion of DAF funds and therefore represent an enormous opportunity for impact investing of DAFs. Through our work with community foundations, we have seen that some innovative community foundations are already starting to capitalize on the opportunity impact investing represents.

The Greater Cincinnati Foundation (GCF) is on the forefront and has been experimenting with impact investing since 2002. The foundation looks for opportunities within the community that offer compelling investment opportunities for specific donors on a deal-by-deal basis. In 2011, GCF was involved with five different community investment opportunities that involved seven individual donors. The foundation looks for organizations within the community that could benefit from loans or equity investments and conducts a thorough due diligence process. It then takes the investment opportunity to potential donors who it thinks might have an interest in the investment. GCF will make investments alongside the donor and when necessary will also provide grants to the organization to develop capacity to accept the investment opportunity. GCF provides donor outreach and education on impact investing to its donors to help them understand the opportunity. In general, donors have seen a 1-2% return on their capital through the community-based investment opportunities generated through GCF. GCF sees its impact investing efforts as a way to recycle its charitable capital.

In another example, Napa Valley Community Foundation has provided individual donors with specific opportunities to make impact investments in their communities. Christina Tucker and Diane Miller outline the story of Napa Valley Community Foundation in a 2011 article titled “The Community Foundation, A Charitable Giving Vehicle for High-Net-Worth Individuals.” Napa Valley had a donor who was interested in investing in a local hospital but also had an interest in the environment. The Community Foundation worked with the donor and a professional advisor to purchase a gas congeneration power plant that turns natural gas into electricity for the hospital. The power plant was purchased with a structured gift of $500,000 and a zero-percent interest program-related investment. The hospital can now meet more than 50% of its electrical needs and one quarter of its hot water needs while reducing harmful emissions and is paying back its loan with the money it is saving. Through impact investing, the donor made an impactful contribution to the hospital and the environment, and is also being repaid the program-related investment so that money can be recycled into another investment.

Considerations for Community Foundations wanting to pursue impact investing
The community foundations that have been experimenting with impact investing have seen a number of successful project completions and provide some early leanings that can help drive success. These projects indicate:

  • It is best to have a controller, CFO, or other internal finance expert involved in the process. Deals can be complex and require financial expertise on the part of the community foundation in order to best structure the opportunity. 
  • Developing a pipeline of opportunities within a community can be challenging and community foundation staff will need to be willing to devote time and resources towards developing this pipeline. 
  • It takes time to educate donors on the opportunities impact investing offer. One-on-one conversations with donors about the advantages seem to generate the greatest understanding and excitement on behalf of donors.

For community foundations interested in impact investing, The Rockefeller Foundation is currently working to develop a toolkit that will incorporate lessons like these as well as others to help guide the process.

In general, the impact investing opportunities we have heard about through community foundations tend to be locally-based. In comparison to many of the large national providers, many of these opportunities through community foundations tend to be on a project-by project basis rather than investment into larger more diversified funds. Donors at community foundations therefore have the opportunity to impact specific organizations within their communities while generating a financial return and retaining their capital, but are unlikely to diversify their risk across multiple projects.

At FSG, we are excited to see that both community foundations and national providers, like Schwab, are offering their DAF donors opportunities for impact investments. We think both fund models and specific local projects are compelling vehicles to create change. The field of impact investing offers donors a promising opportunity to recycle capital into the social sector; given the $31B in donor advised funds, we believe they hold a powerful opportunity to scale this market. To learn more about impact investing and/or DAF funds please contact Rebecca Graves or Christine Kendall.

Christine Kendall is a consultant at FSG, and Rebecca Graves is the executive director for CF Insights. This post originally appeared on FSG’s Social Impact Blog.

3 Responses to Community Foundations and Impact Investing of DAFs

Tracy Timmons

January 19th, 2012 at 8:57 pm

Thank you for such an informative article on a topic that we are also developing.

Community Foundations and Impact Investing of DAFs – RE … | Hard Earn

January 20th, 2012 at 2:58 am

[...] from: Community Foundations and Impact Investing of DAFs – RE … ch_client = “trevone”; ch_width = 550; ch_height = 250; ch_type = “mpu”; ch_sid = “Chitika [...]

Community Foundations and Impact Investing of DAFs – RE … | Best Family Resorts Toddlers

January 22nd, 2012 at 7:15 pm

Comment Form

Welcome to RE: Philanthropy! In this blog, guest and Council bloggers share ideas and insights on the most pressing issues in philanthropy. If you want to contribute, please contact

The opinions expressed in this blog are those of the authors and do not necessarily reflect those of the Council on Foundations.


Steve Delfin
Dawn Townsend
Michelle Byrd
Nathan Dungan
David Imbert
Erica Ekwurzel
Sandie Palomo-Gonzalez
Diana Doyle
Amy Owen
Dewayne Matthews
John Anderson
Lisa Philp
Owen Heleen
Dien S. Yuen
Audrey Jacobs
Kate Nielsen
Virginia Esposito
Candace Winkler
Daniel Olias Silverman
Michael Monopoli
Jennifer Lentfer
Peter Brach
Elizabeth Carrott Minnigh
Kristin Lindsey
Nicole Taylor
Chatrane Birbal
Robert Smith
Dr. Nelson I. Colon Tarrats
Jack A. Calhoun
Jordan Marshall
Rhonda R. Mims
Vincent Robinson
Alexis Raymond
Jerry Hagstrom
Adrienne Vargas
Sam Stern
Kaberi Banerjee-Murthy
Trabian Shorters
Jim Canales
Jeff Pickering and Susanne Norgard
Vanessa Cedeño
Sue Santa
David Biemesderfer
George McCully
Dan Rader
Bruce Trachtenberg
Henry Izumizaki
Aaron Dorfman
Valerie S. Lies
Ben Starrett