Nonprofits may benefit from the growing popularity of impact investing
Posted by [email protected] on May. 23, 2026 / Subscribe 0
Author: RSM
Nonprofit organizations are working to adapt to the evolving philanthropy landscape of changing federal priorities, international trade modifications and ongoing policy shifts. The dual pressures of rising operational expenses and decreased federal funding are reshaping how nonprofits plan, secure resources and deliver programs. While challenging, this creates opportunities for the adoption of innovative strategies, and chief among them is impact investing.
Impact investing: A growing field
Impact investing is an investment strategy that aims to generate measurable social or environmental benefits alongside financial returns. This approach aligns with the objectives of many nonprofit organizations, enabling them to seek investments from individuals or groups interested in their cause.
According to Research and Markets’ Impact Investing Global Strategic Business Report, over the past few years, this investment category has grown substantially. There are multiple reasons for this growth, including:
- Social and environmental awareness
- A shift in investor values
- The emergence of impact metrics
- The rise of social enterprises
- The growing popularity of impact investing among young philanthropists
Impact investing has also grown in popularity as wealth shifts from baby boomers to Gen Xers and millennials. According to the Research and Markets report, younger generations opt to grow their wealth and make financial decisions in alignment with their personal values and social change.
Best practices
Nonprofit organizations can engage in impact investing in multiple ways. As recipients, they can unlock new dollars by developing revenue-generating initiatives designed to attract impact capital via loans, equity or hybrid financing mechanisms, all while prioritizing clearly defined social outcomes. Larger nonprofits can function as investors by directing a portion of their assets toward mission-aligned impact investments, thereby supporting their endowment growth and furthering their organizational goals.
This can provide nonprofits with alternative sources of funding beyond traditional grants. As an example, nonprofit housing developers could use low-interest loans or program-related investments from foundations to build or rehabilitate low-income housing units, generating both financial returns and social impact.
Nonprofits that want to take advantage of impact investing should consider the following best practices:
- Engage board members and funders.
- Reconsider tax implications and reporting obligations.
- Partner with experienced intermediaries, such as social investment funds or community development organizations, to share experiences and mitigate risk.
While impact investing offers many advantages, nonprofits must navigate challenges such as risk and return expectations; capacity and knowledge base issues; limited resources to track and measure financial and social impact; and legal, tax and regulatory complexities.
The takeaway
As securing funding is increasingly competitive, nonprofits should embrace innovative strategies like impact investing to diversify revenue sources. This offers organizations new ways to finance their missions, deepen their impact and build lasting resilience. Organizations prepared to harness the possibilities of impact investments will be well positioned to inspire a new generation of social innovation.
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