Glossary - Impact First Investing Tool

Traditional investing: Investments made with the goal of earning market-rate returns. This can include impact investing that seeks market-rate returns. Also known as: commercial investing, financially optimized investing, market-rate investing
Impact investing: Investments made with the goal of achieving social and/or environmental impact with either market-rate or concessionary returns. Also known as / Could include: sustainable investing, ESG investing (in public markets), mission-related investments (MRIs) by foundations
Impact-first investing (IFIs): Deployments of capital to initiatives that prioritize impact while simultaneously generating financial returns, albeit often with lower returns than traditional investments. Impact-first investments may at times project market-rate returns, but they generate the greatest level of impact when deploying capital to initiatives that are unable to attract traditional investors; thus, they typically anticipate lower expected returns or greater risk than market-rate. Also known as / Could include: catalytic capital, catalytic investing, concessionary capital, flexible capital, blended capital, patient capital (in some contexts), program related investments (PRIs) by foundations
Philanthropic assets or philanthropic capital: These are used as all-encompassing terms for the resources that an individual or organization has decided to put towards philanthropic purposes. This category of capital includes funding set aside for grants or charitable donations, money held in donor-advised funds (DAFs), family office resources, foundation endowments, and other vehicles. The idea underlying impact-first investments is that if an institution explicitly – or even implicitly – allocates some of their capital to philanthropic objectives, they should prioritize the overall social impact of that philanthropic portfolio. To achieve that goal, one can use a combination of traditional investments, grants, and impact-first investments. Also known as / Could include: endowment, corpus, fund, philanthropic portfolio
Philanthropic giving: Giving away money for a charitable purpose without any repayment or financial return. The most common examples of philanthropic giving are grants – generally made to nonprofit groups by foundations or DAFs — and donations made by individuals. Though “grants” are used as an example of philanthropic giving throughout the platform, the IFI Tool is designed to be inclusive of multiple forms of giving. Also known as / Could include: grantmaking, donations, charitable contributions
Philanthropic investors: Investors – either individuals or institutions – that have a portfolio of assets intended for philanthropic purposes. Also known as / Could include: funders, venture philanthropists
Allocators of philanthropic capital: Those who make decisions about charitable giving and investments for a portfolio of philanthropic assets. Allocators can be individuals (e.g., an asset manager) or a group of people (e.g., an investment committee). Also known as / Could include: fund managers, asset managers, asset allocators
Portfolio IFIs: The IFI Tool uses this term to refer to impact-first investments (IFIs) that are funded by shifting funds out of philanthropic assets that would otherwise be invested in traditional market-rate investments. Also known as / Could include: mission-related investments (MRIs)
Program IFIs: The IFI Tool uses this term to refer to impact-first investments (IFIs) that are funded by substituting IFIs for a portion of a philanthropic portfolio’s annual budget for grants or other charitable contributions. Also known as / Could include: program-related investments (PRIs)
Social Discount Rate (SDR): Just as a financial discount rate reflects compensation needed to choose “money later” over “money now,” the social discount rate estimates how much one values creating social impact today versus the same impact in the future. This matters because impact-first investments let you redeploy returned capital for future impact. Social discount rates enable making such impact trade-offs through time. The IFI Tool defaults the SDR to 3% to match long-term US inflation. Assuming program costs follow general inflationary trends, this essentially means being agnostic about impact timing—you’re simply adjusting for the fact that the same impact will cost more in the future due to inflation. If one wishes to adjust the SDR, they should assess three key drivers. These parallel the key drivers of financial discount rates: inflation, time preference, and risk:
- Changing Program Costs Over Time:
  - Will the same interventions cost more or less in the future?
  - Costs rising → Higher SDR (future dollars buy less impact)
  - Costs falling → Lower SDR (future dollars buy more impact)
- Time Preference for Impact Now vs. Impact Later:
  - Do you value impact less simply because it happens later?
  - No time preference → Don’t add to SDR for this factor
  - Prefer impact sooner → Add increment to SDR
- Future Impact Opportunities & Impact Risk:
  - Will there be better or worse opportunities for impact later?
  - Better future opportunities → Lower SDR
  - Fewer/riskier future opportunities → Higher SDR
  - Consider factors like beneficiary prosperity growth, cascading effects of interventions, critical timing windows, and uncertainty about future conditions (impact risk)
Impact units: To have a consistent way of measuring impact across philanthropic giving, impact-first investments, and traditional investments, the IFI Tool assumes each dollar of a grant equates to one impact unit. For example, $100 in grants equals 100 impact units. The impact of impact-first and traditional investments is then modeled in comparison.