Glossary

Allocators of philanthropic capital 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).

The IFI Tool uses “Annual IFIs” in the Foundation Annual Giving panel to refer to impact-first investments (IFIs) that are funded by substituting IFIs for a portion of a philanthropic asset portfolio’s annual budget for grants or other charitable contributions. For foundations, this generally means making IFIs out of the annual grantmaking budget.

The Catalytic Capital Consortium defines catalytic capital as: “debt, equity, guarantees, and other investments that accept disproportionate risk and/or concessionary returns relative to a conventional investment in order to generate positive impact and enable third-party investment that otherwise would not be possible.” 

In the context of the IFI Tool, “duration” refers to the time frame in which an impact-first investment would be expected to return capital to the investor, which could then be redeployed to generate additional impact. The model’s duration default of 8 years can be adjusted on IFI Strategy panel on the output screen. For examples of durations, refer to the table on the Investor Lens page.

Fees represent the operational costs to source, evaluate, execute, and monitor opportunities across all types of capital, including traditional investments, impact-first investments, and grants. These costs vary by type, reflecting differences in diligence complexity, deal structure, and reporting requirements. All inputs in the model are meant to be net of any fees occurred to generate financial return and social impact. 

“First-loss” refers to a type of credit enhancement in a capital structure. An investor or grantmaker providing first-loss capital agrees to bear early losses in an investment to encourage the participation of co-investors that otherwise would not have entered the deal. 

Impact investments are made with the goal of achieving social and/or environmental impact with either market-rate or concessionary returns. Impact investments can be made in public or private markets and include mission-related investments (MRIs) made by foundations. While almost all investments generate some kind of positive or negative impact, what defines impact investing is the intention to create a specific social and/or environmental outcome in addition to financial return.

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.

Impact-first investing is the deployment of capital to initiatives that prioritize impact while simultaneously generating financial returns, albeit often with lower returns than traditional investments. Impact-first investments, or IFIs, 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 investments.

“Philanthropic assets” and “philanthropic asset portfolio” are used as all-encompassing terms for the resources that an individual or organization has decided to put towards philanthropic purposes. This category 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 implicitly allocates some of these assets to philanthropic objectives, they should prioritize the overall social impact of that asset portfolio. To achieve that goal, one can use a combination of traditional investments, grants, and impact-first investments.

Philanthropic giving is the provision of 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.

Philanthropic investors—either individuals or institutions—have a portfolio of assets intended for philanthropic purposes.

The risk-adjusted market rate is the return one would expect to earn on an investment or set of investments given the level of risk if one were agnostic to impact. It measures how much return an investor demands per unit of risk, enabling more efficient evaluations of whether, given the risk profile, an impact-first investment is sacrificing financial gain. Most equity or equity-like investments use a long-term rate of return of around 7% as a common benchmark. Some investments—including some impact investments—aim for and achieve risk-adjusted market-rate returns. Others—particularly impact-first investments—may intentionally accept below-market returns to prioritize social or environmental outcomes. Understanding this trade-off helps investors align financial expectations with mission goals.

The Social Discount Rate (SDR) is the rate used to compare the value of social impact achieved in the future to impact achieved today, reflecting the trade-off between achieving impact now versus in the future.

When necessary to distinguish from Annual IFIs, the IFI Tool uses “Standard IFIs” 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.

Traditional investments are made with the goal of earning market-rate returns. This can include impact investing that seeks market-rate returns, as well as commercial investing, financially optimized investing, or market-rate investing.