When it comes to the social impact sector, and especially philanthropy, everyone – or almost everyone – is now carrying the flag of impact investing.
It’s the movement of our time, the banner under which finance is expected to find its moral compass. And you would think that cash-rich organizations like foundations should be leading this charge, leveraging their significant investment portfolios to drive capital into initiatives that tackle pressing social challenges. It makes sense, doesn’t it? Why park your money in traditional markets where you might unknowingly be fueling the profitability of the very industries you claim to oppose – oil, natural resource exploiters, unsustainable real estate developers – when you could instead be deploying that capital into ventures intentionally designed to deliver social good? Especially when many of these opportunities exist right in your own backyard.
The logic is seductive. The spirit is right. The promise is compelling.
But perhaps we’re moving too quickly to canonize this idea. Perhaps we need to slow down and ask a few uncomfortable questions – questions that seem curiously absent from the collective cheerleading.
Let’s start with a simple one: Do people really understand how a foundation works?
Foundations are not banks. They are not venture capital firms. They are not investment houses. They are stewards of a two-pocket system: one pocket holds investments; the other, granting.
The investment pocket is traditionally managed with a deeply conservative mindset. This is not a flaw – it’s by design. It’s a risk mitigation strategy meant to preserve capital and ensure steady, predictable returns that directly fund the granting side. The granting pocket, on the other hand, is often where foundations lean into their progressive identity. Here, they listen to the pulse of their communities or their broader stakeholders groups, if they are not geographically scattered, try to fill the gaps, fund bold ideas, and back grassroots initiatives. They take risks with their grants that they would never dream of taking with their investments.
And that’s the rub.
Consider this: imagine a foundation with a half-billion-dollar endowment generating an 8% annual return. That’s roughly $40 million made available each year for beneficiary grants. Now, what happens if the foundation redirects its investment strategy toward impact investments that promise, at best, a 5% return? That’s a $15 million shortfall – money that no longer flows into communities that depend on it.
Who’s going to be okay with that?
This is where the social narrative gets tricky. Impact investing is not a mere financial pivot. It’s a fundamental disturbance to the operating model that underpins foundations. This is not some abstract theoretical exercise – it is a direct hit to the real grant dollars that support essential community organizations doing urgent, frontline work. The cost is immediate. It is visible. It is local.
And here’s the more uncomfortable truth: impact investments are, by nature, riskier. Unlike blue-chip investments managed by the world’s largest and most sophisticated firms, impact investments often have less experienced leadership, limited financial history, and a higher likelihood of failure. The risk of losing the principal is real. Even if you believe passionately in the mission, the operational reality cannot be wished away.
So who, exactly, in the charitable sector is prepared to voluntarily accept fewer dollars today in exchange for a long-term social experiment? Which Executive Director, which community leader, is going to stand in front of their board, their staff, their stakeholders, and say: “We’re okay taking less now, because one day – maybe – we’ll see this pay off”? Which foundation President is willing to preside over a shrinking granting pool, underperforming investments, and increased reputational risk while waiting for this grand vision to mature?
And what about the charities that have grown to rely on those annual grants? Will they graciously step aside, cheerfully accepting less in the near term because the foundation is “doing the right thing” with its investments? Will they find alternative funding elsewhere, patiently supporting this shift while their own programs face immediate shortfalls?
The gap between the impact investing ideal and the community foundation’s operational reality is more than just a math problem. It is a cultural divide. It is a collision of expectations, a misalignment of time horizons, a question of who bears the cost, and when. The long game matters, but so does today’s need.
We like to believe we can have both. But maybe we can’t – at least, not without reimagining the entire system.
And here I am not making a case for doing it or not doing it. On the contrary, this is an appeal for the sector to come together in a serious, grown-up dialogue about how this shift might actually happen. It’s easy to be captivated by the passion, enthusiasm, and moral conviction of those making the case for impact investing. And often, they are right. But how do we convert that passion into real possibilities? What questions have we forgotten to ask? What cultures need to shift? What narratives need a revisit? What expectations must be redrawn? What models require reimagining? What benchmarks need to be updated? And how do we hire and develop for it?
These are not just technical questions. These are questions about courage, about timing, about the social contract between funders and the communities they serve. Because to truly shift to an impact-first model requires more than just a new investment strategy – it demands a redefinition of success, a resetting of community expectations, and a willingness to sit with the discomfort of reduced short-term impact for the promise of something larger down the road.
That’s a harder conversation. It’s not as easy to package in a glossy impact report. It doesn’t earn the same applause at conferences. It’s slower, messier, and full of trade-offs. But it’s the conversation that matters most.
Impact investing is not just about where the money goes. It’s about who is willing to pay the price for changing the game.