Impact Investing Could Displace Traditional Charitable Giving

Impact investing could displace traditional charitable donations, with men driving this replacement more than women, according to a new study in the US.

Research from the Women’s Philanthropy Institute, part of the Indiana University Lilly Family School of Philanthropy, has explored how individuals use impact investing, how men and women do so differently, and what those gender differences may mean for the broader philanthropic sector.

It found that while both men and women embraced impact investing as a way to achieve social and financial returns, households where men made charitable giving decisions – either as single men, or as sole deciders within their marriages – were more likely to replace charitable giving with impact investing.

The report said the findings raised important questions for not for profits, wealth advisors, philanthropists and donors alike.

“The growth of impact investing has the potential to affect the nonprofit and philanthropic sectors substantially, by engaging more donors in new ways,” the report said.

“However, some worry that this approach could undermine or ‘crowd out’ more traditional charitable giving.”

Women’s Philanthropy Institute director Debra J. Mesch said the aim of the research – How Women And Men Approach Impact Investing – was to help not for profits navigate this “new universe”.

“The rise of impact investing demonstrates a growing enthusiasm for social change, but also raises concerns about the displacement of traditional charitable donations,” Mesch said.

“By exploring how men and women approach impact investing, our findings can help nonprofits better navigate this new universe while also providing donors, wealth advisors and families the opportunity to evaluate where impact investing fits in with their broader wealth and philanthropic strategies.”

The research, funded by a grant from the Bill & Melinda Gates Foundation, is among the first to look at gender differences in the field.

It established an image of the typical impact investor as a younger, higher-income person with at least a bachelor’s degree.

But it revealed that key differences exist regarding how women and men approach impact investing in the context of their broader financial strategies.

Among the key findings, the study showed women and men were equally likely to be aware of impact investing, but women were more likely to want to learn about impact investing.

The report said: “Women may have a particular interest in impact investing due to their different motivations for giving and interest in giving through a gender lens.”

It also found women and men were equally likely to participate in impact investing, but gender differences appeared for specific groups of people, separated by education or income level, for example.

In reference to the concern that impact investing might divert funds from more traditional charitable giving, the report found people who used impact investing in place of charitable giving tended to be younger, had higher levels of education, and higher incomes.

In particular, men seemed to drive this replacement, with single men significantly more likely than other groups to replace their charitable giving with impact investing.

The report, which also referenced a 2016 Study of High Net Worth Philanthropy, said: “The key gender difference in impact investing appears to be the idea of the replacement of charitable dollars.

“When men are involved – whether single-headed households headed by men, or married couples where men are the key charitable decision-makers – they are more likely than other households to replace charitable dollars with impact investing.”

Interestingly, those with wealth from investments were less likely to replace their charitable giving with impact investing.

People who used impact investments in place of some or all of their charitable giving were also associated with greater giving levels to religion, health, and animal causes.

In terms of public policy priorities or social issues that concerned impact investors, people who cited the issues of climate change, human rights, or race relations were more likely to impact invest.

In contrast, people who said the economy/federal deficit or terrorism were key issues of importance to them were less likely to impact invest.

The report said not for profits could take away several points from these findings.

“Impact investing is a new tool for philanthropically minded people to use,” it said.

“Fundraisers must examine how new philanthropic tools affect existing ones; organisations hope new tools are used in addition to, rather than instead of, traditional giving vehicles.

“Organisations in the key sub-sectors mentioned above should pay particular attention to impact investors. This is one possible way these organisations can more deeply engage existing donors or attract impact investors who may align with their current donor profile.”

The findings were based on data from the Bank of America/U.S. Trust Study of High Net Worth Philanthropy series.