This is a follow-up to The Cost of Doing Good, where I challenged the social impact sector – particularly foundations – to pause and ask some uncomfortable questions about the prevailing push toward impact investing.
The first article wasn’t a critique of the idea itself but an invitation to a more honest, collective dialogue. It called out the gap between the passion we profess and the operational realities we face. It named the trade-offs that few seem willing to confront. But asking hard questions is not enough. At some point, we need to get serious about the path forward. If the spirit is right, and the case is strong, how might we actually do this?
Let’s start with what we already know. Moving any foundation’s portfolio toward impact investments is not just about shifting capital – it’s about shifting culture, expectations, risk appetites, and leadership mindsets. It’s about fundamentally redrawing the lines of what is considered responsible stewardship. And it cannot, and should not, happen overnight.
The most thoughtful paths forward are never abrupt. They are almost always phased, incremental, and intentionally scaffolded. This is where transition frameworks matter. Foundations can, and arguably should, explore what’s called a blended portfolio strategy. It’s a pragmatic way to start migrating investments without pulling the rug out from under current granting commitments. You don’t have to light a match to the old model to build the new one. You can layer it in.
One approach is to start with a carved-out allocation – setting aside a small, clearly defined percentage of the investment pool, perhaps 5 to 10 percent, dedicated to impact investments. This creates a living laboratory where the foundation can build internal muscle, learn how to diligence these opportunities, understand the local ecosystem, and develop appropriate performance metrics – without destabilizing the broader granting capacity. The key here is to make these early-stage investments with patient capital, understanding that these deals may take longer to realize returns, both financial and social.
Over time, this dedicated pocket can grow, not through mandates or heroic leaps, but through performance-based confidence and the natural replacement of maturing assets. It’s not an overnight revolution – it’s a patient evolution.
Another lever is the thoughtful use of catalytic capital – money that is deliberately positioned to absorb more risk, to provide guarantees, first-loss protection, or concessional terms that help crowd in more risk-averse dollars. Catalytic capital is the social finance version of scaffolding – it de-risks the structure so that others can build alongside it. For foundations, this might come from unrestricted funds, special purpose vehicles, or even donor-advised funds where the donor has an appetite for pioneering impact-first opportunities. Catalytic capital doesn’t just fund projects; it funds confidence.
And we can’t ignore the potential of partnership models. Foundations don’t have to go it alone. They can partner with credit unions, local development agencies, and social finance intermediaries who already have deep experience in structuring and managing community investments. Foundations can bring their capital and their local convening power to the table while relying on the technical expertise of others to structure the deals, manage the risk, and ensure due diligence.
There is also a growing recognition that investment policies and benchmarks themselves need a reframe. If we continue to benchmark success solely on traditional financial return metrics, impact investing will always look like an underperformer. It’s the classic problem of measuring a fish by its ability to climb a tree. Foundations need to evolve their investment policies to integrate social return expectations – not as nice-to-have footnotes but as real performance indicators that sit shoulder to shoulder with financial metrics. It’s about designing a new scorecard.
But perhaps the most important transition isn’t about capital at all – it’s about people. The leadership, the boards, the investment committees – all must develop the literacy, the courage, and the cultural capacity to steward this shift. This is not just about hiring an impact investing consultant. It’s about building teams that understand that the job of a foundation is no longer just to preserve capital for granting – it’s to activate capital for impact. That shift requires new skills, new comfort zones, and, frankly, new kinds of leaders.
Impact investing is not just a technical pivot. It’s an identity shift.
To make this work, we need to bring donors along, we need to educate boards, we need to co-create new models with community partners, and we need to be honest that this will take time. The sector must make room for the idea that doing good with our capital may look less “efficient” on the balance sheet in the short term but can deliver far deeper, more resonant community impact over the long term.
The path forward is not binary. It doesn’t have to be a choice between the old model and the new one. It can be a journey of thoughtful integration, of carefully calibrated risk, of patient transition. But the key is to start. To stop pretending that we can have all the upside with none of the trade-offs. To acknowledge that the work of changing where the money goes is inseparable from the work of changing how we think, how we measure, and how we lead.
If the first article was an invitation to ask better questions, this is an invitation to build better answers.
And maybe, just maybe, the risk is worth taking – not because it’s safe, but because it’s necessary.