The first movers: how philanthropic foundations built impact investing

This is article 8 of 14 in the Impact Capital series. Here is article 7.

General characteristics

Philanthropic foundations are among the earliest and most structurally important actors in impact investing in emerging markets and developing economies. Long before impact investing became mainstream, foundations deployed capital into development-oriented funds, social enterprises and intermediaries operating in EMDEs. Unlike commercial investors, foundations are not constrained by regulatory capital requirements, balance sheet optimisation or short-term return targets. Their investment behaviour is instead shaped by mission alignment, additionality and long-term systemic outcomes and is increasingly embedded in professional, portfolio-level investment processes.

Globally, philanthropic foundations manage assets estimated at more than USD 2 trillion. Only a minority of these assets is invested through impact funds, but foundations account for a disproportionately large share of catalytic and early-stage capital in EMDE-focused impact vehicles. Based on GIIN surveys and fund-level disclosures, foundations are widely estimated to represent a mid-teens share (around 15–20%) of investors by number in EMDE impact funds, while accounting for a smaller share of total capital volume due to generally smaller ticket sizes compared to DFIs, insurers or large asset managers. For many leading foundations, however, impact fund allocations have moved from niche experiments to a strategic building block within the overall asset allocation, particularly in private markets and blended-finance structures.

Foundations participate in impact funds for several reasons. First, funds provide scale and diversification, allowing foundations to deploy capital across multiple countries and sectors without building in-house investment teams. Second, fund structures enable foundations to influence market standards by shaping governance, impact measurement and environmental and social safeguards. Third, impact funds offer a mechanism to blend philanthropic capital with commercial and public finance, amplifying the reach of foundation resources, crowding in additional investors into higher-risk markets and aligning investment portfolios more closely with the foundation's mission and grant-making strategy.

A defining characteristic of foundations as investors is their flexibility across the risk–return spectrum. Foundations invest in equity, quasi-equity, junior debt and first-loss tranches, and they are often willing to accept below-market returns or extended time horizons. Programme-related investments and mission-related investments are commonly used to justify such allocations within foundation governance frameworks, for example in the US through PRIs and MRIs. This risk tolerance allows foundations to support funds operating in frontier markets, fragile contexts or underserved sectors where purely commercial capital is unwilling to engage. At the same time, many foundations increasingly differentiate between impact-first and finance-first allocations, managing these buckets with clear performance expectations on both impact and financial outcomes.

Sector allocation reflects mission priorities rather than portfolio optimisation. Financial inclusion, small and growing businesses, agriculture, health, education and gender equality feature prominently. Climate and environmental themes have grown rapidly in recent years, but foundations often approach these sectors through adaptation, resilience and community-level interventions rather than large-scale infrastructure alone. Compared to commercial investors, foundations are more likely to support funds with explicit social objectives and deeper impact models, even where scalability is limited. For investment teams, this creates room to pursue thematically focused mandates that combine robust risk management with high intentionality and measurable outcomes.

Geographically, foundations investing in EMDE impact funds are concentrated in North America and Western Europe, reflecting the location of large philanthropic endowments. However, regional foundations in Africa, Asia and Latin America increasingly participate in locally focused funds, often alongside international peers. Foundations are also more willing than other investor groups to support country-specific or regional funds rather than global platforms, accepting higher concentration risk in order to use their capital to back specialised managers with deep local insight and to shape the pipeline in priority countries and themes.

Concrete investment cases

The role of foundations as impact fund investors becomes most visible in their participation as early, catalytic or anchor investors, often at first close, where their capital enables fund formation and subsequent mobilisation of DFIs and commercial investors. From an asset-allocation perspective, these commitments are not only about signalling; they also open access to high-quality, impact-oriented deal flow that is otherwise difficult to reach.

The IKEA Foundation provided a USD 5 million grant to SunFunder's SET Fund, managed by SunFunder, as part of its strategy to address dual priorities of energy poverty and climate change. IKEA Foundation has committed over USD 2 billion in total grants fighting poverty and climate change, with specific focus on replacing polluting energy sources with renewable ones and providing energy access to underserved communities. This engagement aligned with IKEA's broader corporate goal of achieving 100% renewable energy across its value chain by 2030 and demonstrated how catalytic philanthropic capital can unlock additional commercial investment—the USD 5 million grant helped attract USD 42.5 million in first close commitments from OPIC, Calvert Impact Capital, and Ceniarth. The Foundation sought to enable families in off-grid communities in East/West Africa and India to afford a better everyday life while protecting the planet, advancing its goal of positively impacting 1 billion people through renewable energy programmes. For a foundation investment team, such a mandate offers diversified exposure to the off-grid solar and productive-use-of-energy segment with a clear theory of change and measurable SDG contributions.

Rabo Foundation invested in the BUILD Fund managed by Bamboo Capital, as a co-financing partner in specific deals rather than as an LP investor in the fund structure. This reflected Rabo Foundation's long-standing focus on agricultural value chains and rural development — evidenced by their co-investment in GMAC (Green Mountain Arabica Coffee) in Rwanda, where they leveraged expertise from Rabobank's 50+ years of food retail experience. The Foundation sought to reinforce coffee value chains while supporting women-owned companies (GMAC is women-owned and benefited from UN Women's COVID-19 recovery programmes). This engagement demonstrated Rabo Foundation's approach of combining sector-specific technical expertise with patient capital to support smallholder farmers and agricultural cooperatives in least developed countries, addressing both food security and rural poverty alleviation objectives. Here, the foundation's position in the capital stack is deliberately structured to improve the risk/return profile for other investors while still meeting its own impact and capital-preservation objectives.

A third example is the Michael & Susan Dell Foundation as an investor in the Unitus Seed Fund, managed by Unitus Ventures. The fund invests in early-stage technology-enabled businesses addressing poverty-related challenges in India. Dell Foundation participation illustrates how philanthropic capital supports early-stage venture impact funds targeting innovation, job creation and access to services in rapidly growing emerging economies. The Foundation had already invested USD 200+ million across India in education, livelihood, and microfinance sectors, deploying USD 20–25 million annually. Dell Foundation explicitly sought early-stage, technology-enabled businesses addressing poverty-related challenges — recognising that India's 400+ million youth (ages 15–29) lacked skills for high-demand jobs. The Foundation's investment thesis centred on "impact, scale, and sustainability" as three anchors, using seed funds to "divide and conquer" in education, livelihood, and financial inclusion sectors. Through Unitus, Dell Foundation gained exposure to jobtech platforms addressing India's job discovery problem for blue/grey-collar workers, leveraging technology to match skilled workers with employers while supporting outcomes-based education interventions (the Foundation pioneered variable-interest loans to 339+ schools with rates linked to student learning outcomes). Such early-stage exposure can complement later-stage growth equity or listed allocations in a broader impact portfolio, creating a more complete innovation-to-scale continuum.

A fourth example is Guy's and St Thomas' Foundation as an investor in Impact X Fund I, managed by Impact X Capital Partners. The Foundation's mission is "investing in a healthier society" with specific focus on urban health challenges and health equity, particularly addressing health inequalities in diverse, urban populations. By investing in Impact X's fund supporting underrepresented founders (less than 4% of VC goes to women, less than 1% to Black entrepreneurs), the Foundation sought to address structural inequities in access to growth capital that perpetuate health disparities — recognising that economic opportunity and entrepreneurship are social determinants of health. This aligned with the Foundation's 2022–2027 strategy focused on "reach" — leveraging insights from practical work to influence systemic change at scale — and its commitment to embedding diversity, equity, and inclusion principles across all activities, including using endowment assets as a tool for societal change beyond traditional grantmaking. For the foundation, this also strengthens its position as a thought leader on equity and inclusion, reinforcing its brand and stakeholder relationships.

A fifth example is the Visa Foundation and their USD 2 million investment in the Catalytic Impact Fund, managed by First Australians Capital. The Foundation specifically sought to address the USD 320 billion financing gap for women-owned SMBs (with only 2% of global VC reaching women entrepreneurs) and support underserved entrepreneurs systematically excluded from mainstream finance. Visa Foundation recognised that Aboriginal and Torres Strait Islander Australians face median annual incomes of ~AUD 30,000 (half of non-Indigenous Australians) and that structural barriers in business finance perpetuate poverty cycles. Through FAC, Visa Foundation gained access to Indigenous-led governance (Australia's first Indigenous-led fund manager with majority Indigenous board and investment committee) offering "patient debt finance" with concessional 0–4% returns targeting capital preservation over profit maximisation. This investment demonstrated Visa Foundation's thesis that capital access, digital skills, and financial literacy together enable underserved entrepreneurs to create ripple effects across communities — with supported businesses' success creating employment, wealth, and economic self-determination for Indigenous communities. This type of partnership allows the foundation to align with the corporate group's broader sustainability strategy while retaining its own governance and impact priorities.

A sixth example is the King Baudouin Foundation as an investor in the Incofin India Progress Fund, managed by Incofin Investment Management. The Foundation's investment aligned with its role managing Belgium's Business Partnership Facility (EUR 12 million, 2019–2024) supporting private sector involvement in achieving SDGs in developing countries — demonstrating commitment to blending philanthropic and commercial capital for development objectives. Through Incofin, the Foundation sought exposure to "missing middle" finance in India's rural economy — addressing the gap where microfinance institutions and formal banking both fail to serve SMEs and rural entrepreneurs. The Foundation valued Incofin's 13-year India track record, local teams in Chennai/New Delhi, and focus on two high-impact sectors: financial inclusion and agri-food value chains serving rural and low-income populations (86% of Indians under 55 facing inequality in gender, education, family wealth). This investment exemplified the Foundation's strategy of partnering with specialised managers with deep local expertise to achieve social impact (job creation, income improvement, women's economic inclusion) alongside economic viability and scalability in frontier markets where Belgian development cooperation could catalyse private sector transformation. Commitments of this kind can sit within a dedicated EMDE sleeve of the portfolio, offering both geographical diversification and targeted social outcomes.

Across these cases, foundations consistently act as catalytic investors in impact funds managed by independent specialists. Their capital enables higher risk tolerance, longer time horizons and deeper impact models than would otherwise be possible, while fund managers provide the execution capacity and local presence required to translate philanthropic intent into scalable investment outcomes in emerging markets and developing economies. For CIOs and heads of asset allocation, this combination of catalytic role, professional implementation and measurable outcomes makes impact funds a credible, repeatable and governable instrument within the strategic asset allocation.

Current trends

In the future, foundations are expected to remain central to the EMDE impact fund ecosystem, even as their relative share of total capital declines due to the growth of institutional investors. One key trend is increasing intentionality in using foundation capital to crowd in others. Foundations are more explicitly positioning themselves as first-loss providers, anchor investors or guarantors, rather than as passive limited partners, and formalising these roles in investment policies and dedicated catalytic capital buckets.

A second trend is deeper integration of grants and investments. Many foundations now link impact fund investments with parallel grant-funded technical assistance, policy advocacy or ecosystem support. This integrated approach strengthens fund effectiveness and enhances development outcomes beyond what capital alone could achieve. From a portfolio perspective, this creates a coherent framework in which investment decisions, programme strategy and ecosystem-building mutually reinforce each other.

A third trend is greater professionalisation. Foundations are building dedicated investment teams, adopting portfolio-level impact frameworks and engaging more actively in fund governance. This has led to more rigorous selection of fund managers and clearer articulation of expected outcomes, while preserving flexibility on returns. Many leading foundations are developing explicit impact and risk budgets, defining target allocations to specific impact themes and embedding impact KPIs in reporting and mandate agreements alongside financial KPIs.

At the same time, constraints persist. Foundation endowments face volatility, and internal governance processes can slow decision-making. Some foundations remain cautious about deploying large portions of their endowments into illiquid EMDE funds. As a result, growth in foundation capital is likely to be incremental rather than transformational. However, a phased and well-governed ramp-up of impact allocations allows investment teams to build track record, bring internal stakeholders along and manage portfolio risks deliberately.

Despite these limitations, foundations play a role that no other investor group can fully replicate. Their willingness to accept risk, invest early and prioritise systemic change makes them indispensable to the creation and sustainability of EMDE impact funds. As public budgets tighten and commercial investors become more selective, foundation capital is likely to become even more important in shaping where and how impact investing can deliver meaningful development outcomes, especially when asset owners use their allocation decisions to set new market standards and mobilise additional capital.

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