Most foundations operate with a structural disconnect. The investment portfolio (roughly 95% of assets) is managed without regard for mission, while only the grant budget (roughly 5%) is directed toward charitable purpose. The emerging model asks what happens when more of your assets work toward your mission. The answer depends on what type of foundation you are and which mechanisms you use to unlock capital.
Grants pursue mission. Investments pursue returns. These two activities operate independently with no shared criteria.
A portion of the investment portfolio is redirected toward mission-aligned vehicles, creating a third channel of capital.
Every dollar in a community foundation is held in a fund (a DAF, agency fund, field of interest fund, scholarship fund, discretionary fund, and so on). Each fund has two sides. The investable assets describe how the money is invested. The spendable assets describe how grants are deployed. Most community foundations have very limited discretionary control over the grantmaking side, since fundholders direct the vast majority of grant dollars. The investment side tells a different story. Most fundholders and fund types participate in the foundation's main investment pool, giving the foundation meaningful influence over investment strategy even when grantmaking control is limited.
This is why impact investing is such a powerful lever for community foundations. On the investment side, introducing an impact asset class into the main pool can galvanize the broadest base of assets with a single policy decision. Explore the Community Foundations tab to see how this works.
GIIN estimates that the global impact investing market has a total AUM of $1.5 trillion. Not all impact investing looks the same. The strategies below show how foundation leaders can think about the spectrum, organized by three core approaches and the criteria that guide investment decisions in each.
Selling or screening out stocks that are not ESG-aligned or are detrimental to the asset holder's mission or purpose. This usually encompasses the entire portfolio.
Buying stock in publicly traded companies to become a shareholder "activist" and promote an agenda aligned with the foundation's mission.
Buying stocks in companies that are highly aligned with ESG factors or values.
Using a particular "thematic lens" to invest across asset classes and return profiles to advance a targeted impact area like environment, health, or education. Investment firms increasingly offer these kinds of impact funds.
Catalytic investments take on greater risk, more flexible terms, more patient timelines, and impact-adjusted financial returns. They accept higher risk than traditional investments (no or limited collateral, short operating tenure, seed capital), provide flexibility for the investee's needs (interest-only or free periods, flexible repayment), give a capital runway for adaptation, and allow lower financial returns to ensure higher social impact returns.
Investing in local companies, organizations, or funds with the intention to generate measurable community benefit and financial returns.
The three categories form a progression. Responsible Investing focuses on the lens of avoiding harm and shaping company behavior. Values-Aligned Investing actively selects companies and themes that match what the foundation stands for. Impact-First Investing prioritizes measurable community outcomes, with capital structured to support the investee rather than to maximize returns. Each foundation can pick where to start and grow into deeper alignment over time.
Private foundations have a legal distinction between PRIs (Program Related Investments) on the programmatic side and MRIs (Mission Related Investments) on the investment side. The spending policy determines how much of the corpus is deployed each year for grants and operations. Use the source of funds mechanisms below to choose an approach, then explore the projection model to see how each path reshapes capital deployment over a 10 year horizon.
A 10 year projection model. Adjust the inputs to see how portfolio composition and a dedicated impact-first local allocation shape capital deployment, asset growth, and total mission dollars mobilized.
Community foundations don't face the PRI/MRI distinction. The central challenge is the composition of the asset base and how new gifts flow into the foundation. Use the source of funds mechanisms below to choose an approach, then explore the projection model to see how each path reshapes capital mobilization over a 10 year horizon.
A 10 year projection model. Set the foundation's asset composition, fundraising flows, and impact investing strategies to see how each mechanism reshapes capital mobilization, fee income, and discretionary capital growth.
Investment return assumption of 7.0% annually, consistent with the average 10 year annualized return for community foundations through 2024.