Leveraging the power of wealth has significantly shifted in a more ethically conscious direction in recent years. The rise of ESG investments, which consider environmental, social, and governance factors when holding a financial stake in a company or organization, have grown tremendously, with $17.1 trillion in assets managed by sustainable investment strategies, as reported by Vox. Donor Advised Funds (DAFs) represent a fast-growing, highly popular option for eager donor-investors seeking to responsibly invest in the greater good, with donors contributing $37.12 billion to DAFs in 2018 alone.
What makes a DAF such a viable option for social impact investment is its high level of flexibility, both in terms of distributing funds and the types of funds it can receive. It’s no surprise that 97% of respondents to the Global Impact Investor Network’s annual survey said that DAFs met or exceeded their expectations for impact. Examining the qualities of a DAF can shed light on why:
- Tax Benefits – DAFs are not limited by the kinds of assets they can accept, allowing investors to fund their DAFs with stocks and bonds, providing immediate tax deductions when avoiding capital gains taxes.
- Influence – Donors are active participants in deciding where DAF funds should or should not go, in addition to determining how certain DAF assets should be invested.
- Broad Impact – For donor-investors with a passion for certain causes, DAFs can easily target a pre-determined set of specific organizations. On the other hand, if the donor wishes to simply contribute to organizations whose mission is in line with broader ESG goals, the fund can accommodate to a wider range of qualifying organizations.
- Distribution – Unlike other charitable funds, DAFs aren’t held back by specific distribution requirements that place pressure on donors to periodically make contributions outside of their preferred timeline. With a DAF, grant recommendations can be made as frequently or infrequently as the donor-investor wishes, so long as the investment portfolio has been structured to allow it.
These emblematic characteristics are but a few of the benefits of relying on DAFs when engaging in social impact investing – all of which empower donor-investors to do more with what they have. Syndicated funds, loan guarantees and risk capital notes are additional options for DAF donors to consider.
Fully harnessing the economic might of social impact investing requires a certain level of ease and sophistication, both of which DAFs offer in spades. Relying on financial consultation is an essential piece of the ESG puzzle, requiring not only a good vehicle for giving, but a worthy partner in understanding how the vehicle operates.