The Multiplier Effect of Impact Capital

Leaders of foundations and family offices, along with individual private wealth holders themselves, are increasingly asking the same question: How do we create real leverage with every dollar donated or invested? Traditionally, these funders operated on the premise that their role was to support the development of new solutions to problems in areas such as education, health, or climate change. The assumption was that these solutions, once developed and backed with evidence, could then be scaled by public-sector systems. In many countries, however, mounting fiscal pressure and shifting policy priorities means this pathway is less reliable.

Funders are adapting to this new context. One way is to increase their work in “impact-first investing”—funding strategies that deploy grants, recoverable grants, guarantees, low-cost debt, and other instruments with the specific intention to draw in additional third-party investment. Done well, this creates a powerful multiplier effect, pulling in capital at larger scale and from a wider range of sources, including investors who require market-rate returns.

To understand how trends in impact-first investing are playing out, BCG surveyed more than 100 foundations, family offices, private wealth holders (including high-net-worth individuals, or HNWIs), and their advisors. We also conducted in-depth interviews with more than 20 of those players along with financial intermediaries (wealth managers and private banks). (See the sidebar “A Spotlight on Impact Capital.”)

Our research illuminates what different actors across the ecosystem want and where they are getting stuck. It sheds light on areas where funders anticipate increasing their work, including climate and health. And it highlights a clear set of moves—some that work across the whole market and some specific to each type of funder—that can mobilize more of the capital required to tackle some of society’s thorniest challenges.

The Impact Capital Ecosystem

In the past, funders typically siloed the pools of capital aimed at creating societal impact from their traditional investment portfolios. Increasingly, however, they are pursuing impact objectives across a wider range of their investment and philanthropic portfolios. For the purposes of this article, we call that larger, combined pool “impact capital,” with different segments spread across the full risk-return spectrum. (See Exhibit 1.)

• Grants and donations reached a record $617.2 billion in 2025 in the US alone, with foundations accounting for 19% of it, up from roughly 7% four decades ago, according to the Giving USA Foundation. Another $320 billion to $330 billion sits pre-committed in donor-advised funds (DAFs), according to the DAF Research Collaborative.
• Market-rate impact investing—debt and equity intended to generate social or environmental impact alongside a solid commercial return—totals about $50 billion annually, according to the Global Impact Investing Network.
• Impact-first investing remains a relatively small, but growing, category. This segment includes catalytic capital, which accepts disproportionate risk and/or lower returns relative to a conventional investment in order to mobilize additional third-party investment. Reliable figures for annual impact-first investing flows are not yet available.

Grants remain the dominant tool for funders. And many will continue to create leverage through traditional grant-making; for instance, by advancing systemic change (for example, via policy advocacy and shaping industry standards). However, there is widespread awareness of other options. For example, nearly 75% of survey respondents are familiar with impact-first capital instruments, although only 21% report a high allocation of assets in that category. (See Exhibit 2.)

The Impact-First Investing Opportunity

There are indications that impact-first investing could play a greater role in the years ahead. One is that foundations and advisors cite mobilizing more capital—creating a multiplier effect—as the top reason they would consider deploying capital in impact-first investments. (See Exhibit 3.)

Meanwhile, the majority of respondents plan to step up collaboration—for example, with other philanthropies and foundations—in deploying catalytic capital. The ability of funders to leverage external dollars and capabilities could prove powerful, particularly in high-priority areas where large capital investment is needed. (See the sidebar “Where Funders Are Doubling Down.”)

So, what is holding funders back from expanding their impact-first investing? Survey respondents report a number of barriers.

Common Barriers—and Emerging Solutions. The most frequently cited barrier is a lack of sufficient investable opportunities—a clear signal that improving the infrastructure underpinning the impact capital ecosystem would unlock flows. The second most cited is the difficulty of measuring impact. Others include the time required to properly evaluate potential deals and the lack of the requisite internal capabilities to do so, obstacles that make opportunities hard to find, structure, and pool. (See Exhibit 4.)

A particular constraint cited in interviews with smaller organizations is a lack of expertise and skills to evaluate and execute impact-first investment deals. While larger family offices and foundations often employ the requisite capabilities to act on investable opportunities, that is rarely the case for smaller organizations that lack significant in-house specialist teams.

In our interviews, meanwhile, funders acknowledge that they are often unclear on how they can take advantage of impact-first investing. They may already have sourced a viable deal without realizing it could be structured or funded with non-grant instruments.

The barriers surfaced in our research are significant, but our interviews reveal they are hardly insurmountable. Consider the issue of limited investable opportunities. Some leading universal banks have started bringing the opportunities created by their clean energy investment bank teams to their clients on the private wealth side.

At the same time, meaningful strides have been made by investors, funders, and project sponsors on how to measure impact, aided by technology. Satellite imagery can be used to track forest or farm carbon storage, and AI analysis of large research data sets can now be used to spot new relationships between health interventions and their impact—connections that even experts may miss. AI can also extract third-party data and find patterns across different impact metrics, enabling philanthropies to understand and verify their portfolio’s impact without placing an undue burden on resource-constrained grantees. The real question is how such solutions can be shared with and replicated by others in a way that drives a scale-up in impact-first capital.

The Advisor Gap. The survey data also reveals a stark divide between funders and the advisors who serve them. Some 42% of advisors call impact-first investing instruments “too complex/hard to understand”—more than twice the share of foundations (19%), family offices (13%), and HNWIs (6%). HNWIs and family offices instead point to finding the right advisor and legal structuring as their top obstacles.

This gap may dampen the efficient flow of capital. As funders become more aware of impact-first investing opportunities, advisors will increasingly be expected to build the skills and expertise to guide their clients in the space. The upcoming wealth transfer will only accelerate this demand. Cerulli Research suggests only 20% to 27% of heirs keep their parents’ wealth advisor after an inheritance. For advisors, fluency in impact-first investing may no longer be a “nice to have” but instead a hedge against the coming wealth transfer.

Unlocking the Multiplier Effect

Mobilizing more impact-first capital requires two levels of action: those that drive market-level change and more specific, targeted actions by individual players.

With regard to the former, we see three core areas where players across the ecosystem can come together to address gaps in the market:

• Knowledge Building. Funders looking to explore or scale impact-first investing tend to run into two problems. First, most lack deep expertise in their focus areas—the technical knowledge and on-the-ground relationships needed to source good investments. Second, funders often lack a clear picture of the impact-first structures already available to them or where those structures have worked well. Without that knowledge, funders default to grants even when a better-suited instrument exists.
• Transparency. The market remains opaque, and therefore slow. Investors cannot readily see how much catalytic or concessional capital is available, the terms that would be required, or how comparable transactions are structured. Transparent views of available capital and shared comparable data on metrics such as investment tranche sizes and returns would facilitate more investment and more of the cooperation that is crucial to the market’s growth. No doubt some data will remain proprietary to help drive better returns; but a good share of this information can be made broadly accessible to drive public good. Indeed, there is positive momentum, with efforts like the G7’s Catalytic Capital Repository underway. But more participation is needed to drive change at scale.
• Common and Comparable Approaches. Today’s impact-first investing market largely comprises bespoke transactions. Guidelines, standards, and common metrics that enable the creation of repeatable instruments with comparable performance indicators would enable participants compare, replicate, and underwrite faster. For example, British International Investment, the Glasgow Financial Alliance for Net Zero, and BCG have developed a framework for blended finance funds in an effort to create more common structures.

Players across the impact capital ecosystem, as well as public sector leaders, can take individual action to both support those necessary market changes and to expand their roles in deploying impact capital. (See ”Foundations,” “Family Offices,” “Wealth Managers and Private Banks,” and “Public Sector” sidebars.)

Impact capital flows have always been scarcer than the need. And today, the relative decline in public-sector investment will widen the funding shortfall. Bridging that gap demands novel approaches that bring in more private capital from the sidelines. Progress will require greater levels of engagement, cooperation, and innovation across the impact capital ecosystem.

For funders, this is an opportunity to double down on their commitment, find new pathways to scale, leverage a wider array of instruments, and work with partners to unlock much-needed capital for some of the world’s most pressing issues.

Acknowledgments

The authors thank Aryadita Balakrishnan, Sossina Gutema, Bennett Holmes, Alia Moustafa, Isabela Scarabelot, Annie Xu, and Yvonne Yau for their assistance in the research and development of this article.