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What is a Donor-Advised Fund (DAF) and The Role DAFs Can Play in Climate Impact Investing

In talking with our community, we have heard there is an appetite from both our investors and issuers to learn how to leverage Donor-Advised Funds (DAFs) for impact investing, particularly in for-profit ventures addressing urgent issues like climate change. 

As background, a DAF account allows its donor to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to 501(c)3’s from the fund over time (source).  Donors can contribute to the fund as frequently as they like, and then recommend grants to their preferred philanthropic organizations whenever it makes sense for them. The way that DAFs are structured allows donors to contribute funds to the DAF when they can and/or are interested in taking a tax deduction, then make grants when they identify a need they want to support, like a charity or philanthropic cause.

Leveraging Your DAF For Climate Investing

Climate startups in their early stages need capital that is patient and flexible, which is different from the conventional growth and timeframe expectations of traditional venture capital. DAF dollars have an opportunity to help fill in the capital stack for these social entrepreneurs. Depending on the entity administering a DAF, a donor may be able to recommend private impact investments which opens up a world of philanthropic possibilities. 

How Often Are You Deploying From Your DAF?

Currently, DAFs aren’t required to annually distribute a percentage of assets (source), which means that assets put into a DAF today that are not immediately granted out can potentially grow in value and earn interest and investment dividends into the future with no tax consequences, while also increasing the dollars available for making charitable contributions. According to the National Philanthropic Trust’s 2023 Donor-Advised Fund Report, DAF assets reached ~$228.89 billion in 2022, but only 23% ($52.16 billion) was deployed. There is an opportunity for this pool of capital to be deployed. 

Total Contributions to DAFs and Total Distributions from DAFs (2018-2022)

You may have a DAF already and not know or recognize that acronym - some financial institutions will refer to it as a “charitable savings account” or “giving account.” In fact, awareness of Donor Advised Funds is actually decreasing in the general public; it went from 19% to 17% from 2022 to 2024 (according to a poll by inequality.org).

Deploying DAF Funds to Invest on Raise Green

At Raise Green, we have seen an uptick in investments made from Donor-Advised Funds (or DAFs). DAFs are available to both individuals and entities; in addition, anonymity options for DAF investors provide additional flexibility.  Anyone considering a DAF should review the specifics of the DAF sponsor they are considering, including the requirements they have around your ability to select impact investments, and of course your particular tax situation in advance of setting up a DAF. 

If you already have a DAF, you can inquire with your DAF sponsor about what your options are to make impact investments, like those available on Raise Green. If they do not offer that capability, there are certain intermediary organizations you may be able to donate to, who in turn will then invest under your direction on Raise Green. You can also consider opening another DAF. Typically, you can transfer funds from your existing DAF to a new DAF or fund it directly. 

Many DAFs may not allow you to invest on Raise Green, however, the universe of DAF organizations/ sponsors is growing. To date, Raise Green has had investments through DAF sponsors Impact Assets, Legacy Global, and LOHAS Advisors. If our readers know of additional DAF sponsors that are flexible, we would love to know! 

We hope that you found this article helpful in understanding how DAFs play a role in impact investing and promote collaboration, education, and support for climate solutions within communities and across generations.

Author: Kate Drane


About Raise Green:

Raise Green is the climate investment marketplace for clean energy, ESG, & local impact investing registered with the SEC & FINRA member to facilitate the sale of private securities. We are dedicated to accelerating the green energy transition by democratizing access to capital and investments in climate solutions. We have facilitated over $9 million in investments for various climate-focused organizations, with a significant portion supporting women-led or BIPOC-led companies.

This Blog is for discussion purposes only, expresses the views of Raise Green, and is not investment research. This is not investment or tax advice, and does not constitute a solicitation to sell or an offer to buy any securities. Certain information is from or links are to third party sources. Although they are believed to be reliable, we do not guarantee their accuracy, completeness or fairness. Raise Green is a licensed Funding Portal with the SEC and FINRA, and is not a Municipal Advisor. Prior to being approved to list a company on the Raise Green portal, a diligence review is completed. Prior to investing. investors must sign up for an account on the portal. Raise Green does not provide tax, accounting or legal advice. Investing in crowdfunded offerings involves risk and you should review the risks of a particular investment prior to investing. You are strongly encouraged to consult your professional advisors before investing. Go to www.raisegreen.com for additional information on services, the funding portal, regulation, and investment risks. Or, direct inquiries to info@raisegreen.com. Copyright © 2024