Foundations and impact investing: Why the heck is it taking so long?

When Felix Oldenburg shifted his career from social entrepreneurship to philanthropy, he had high hopes for the role of foundations in financing social ventures. After three years leading a network of 4,500 foundations, those hopes are yet to materialise. But, he writes, it’s not time to give up yet: foundations can become serious impact investors by innovating with their endowments, not just their grant money. The third in our Impact Papers series, in partnership with EVPA, asking honest questions about investing for impact

Felix OldenburgIf you’re reading this, there’s a good chance you are not only interested in impact investing, but you also think it has a great future.

You’re in good company: most people in the impact investing space believe this, myself included. I have long believed the tipping point was near and that it would set impact investing on a course to overtake conventional investing – as it has to, if we want to reach climate goals and reduce global inequality. Today, many of the planet's leading economists and investors agree with this, even if confusing terminology and ‘greenwashing’ make it hard to agree on anything. 

And yet: regardless of the definition you choose, at the current rate of growth of assets invested for impact, I very much doubt I will live to see the day when finance becomes a net contributor to a sustainable and equitable world.

A snail's pace

It was partly my commitment to impact investment that prompted my decision to move from social enterprise into the philanthropy sector. Foundations, I had learned from my work with hundreds of social entrepreneurs in Germany and across Europe, could be the missing link in the finance ecosystem for social and environmental solutions. After all, they typically have truly patient capital, as well as access to and expertise in working with leading changemakers in their field. And what could be a better time for the transition to impact investing than a historically low interest environment that forces foundations to rethink how to generate impact from their endowments?

What could be a better time for foundations to rethink how to generate impact from their endowments?

Quantitative evidence of the role foundations play in impact investing is scarce to non-existent. But it’s clear that they are far from being a significant force. My estimate is that their combined annual investment in Germany is in the in the low millions, and does not even typically come from the endowments, but are actually funds from the budget. The difference is significant, since these funds are more flexible in terms of financial returns, but also far smaller than the endowments. As a result, it is possible that impact investing is not driving an overall increase in resources geared towards impact, but actually reduces the grant funding available – which is equally important as a source of early stage and seed funding for social innovation.

Dashed hopes

After three years at the helm of a large and diverse network of foundations of various sizes and missions, I have to admit to at least three miscalculations I made when first joining the philanthropy sector. 

First, I assumed low interest rates would drive foundations to seek alternative returns. The opposite is happening: most foundations prioritise the financial returns even more than before. According to our data, around half of Germany’s foundations are not beating the inflation rate. And even the larger ones feel the pressure from years of low interest rates and increasingly volatile equity markets. This environment could trigger a rethink, but in many cases it seems to solidify conservative investment strategies.

 Second, I hoped foundations would be more interested in and embrace financial innovation. Wrong again: while most foundations are – for better or worse – chasing innovation on the programme end, they are highly reluctant to experiment on the management end. 

Third, I assumed foundations would have a privileged connection to deal flow from their operational or grant making expertise in the field. After all, they often know hundreds of social projects and ventures operating within their thematic or regional networks. Again, no luck. The truth is that most grant makers know little about finance, and can as much recognise an investment opportunity as they can distinguish equity from loans.

New engagement strategies

Are we barking up the wrong tree? After all, one could argue the sum of institutional philanthropy is small compared to private or corporate wealth. Would chasing the venture capital community or promoting corporate impact investing vehicles mobilise more funding?

Possibly. However, I think giving up on foundations as a driver of impact investing would be a big mistake. They are a unique source of capital in the market – capital that comes with impact expertise, with connections to all segments in society, and with a much longer-term orientation.

Learning from each of the above miscalculations, I believe, can point to a next generation of engagement strategies for EVPA and many other networks, such as the Global Impact Investing Network (GIIN) and TONIIC.

To start off, rather than framing impact investing as something innovative and pioneering, we need to remind foundation leaders of their centuries-old tradition as owners and co-owners of business assets – ranging from hospitals to schools, from inclusion enterprises to forests or nature reserves. Investing in today's green bonds or social entrepreneurs is very much in line with this legacy.

We need to remind foundation leaders of their centuries-old tradition as owners and co-owners of business assets

In addition, we need to invest in advocacy work that could for example lead to easy-to-access public guarantee programmes for charitable asset holders. Mitigating the default risks of investments with proven environmental or social benefits, instead of paying for future costs, makes good budgetary sense. The EU has made a good start on this: it has pledged a partnership with the philanthropy sector including comprehensive default guarantees and even guaranteed returns in its most recent proposal for the budget period 2021-2027. Now, associations and other intermediaries need to connect foundations to this and other national opportunities.

None of this will work, though, without helping foundations gain the financial expertise they need to invest their endowments for financial returns and social impact – especially in a world where investments no longer generate automatic returns. That means, as a first step, boards recruiting more finance veterans, and providing free online and in-house training for foundation staff. Nor will it work until everyone, including foundations, understands that every investment has an impact, intentional or otherwise.

I am not sure how much time this will all take. But I am sure of this: there is no time to lose, neither for foundations, nor for the field of impact investing that needs to – finally – live up to its promise.

What role do you think foundations should play in impact investing? Join the debate by tweeting, using the hashtag #ImpactPapers or drop us a line (

Hear more from Felix and dozens of other thought leaders from around the world at EVPA's 15th Annual Conference, Celebrating Impact, taking place in The Hague, 5-7 November. Tickets available now.

Photo credit: Christian Klant