The obvious story is: funders know about impact-first investing but are not using it enough. The deeper pattern is more useful:
Capital exists, intent exists, and instruments exist. What is missing is the infrastructure that converts intention into transactions.
The pattern is therefore not “philanthropists need convincing.” Many are already convinced. Nor is it simply “there is not enough catalytic capital.” The mechanism appears to be transaction cost. Every opportunity must be discovered, understood, structured, diligenced, measured and negotiated almost from scratch. When the cost of figuring out how to deploy a different instrument becomes too high, the rational response is to fall back on the familiar one: the grant.
BCG’s new research finds an intriguing gap: nearly three-quarters of the foundations, family offices, private wealth holders and advisers it surveyed know about impact-first investing, yet only 21% allocate a high share of their capital to it. The easy interpretation is that philanthropy needs more appetite for catalytic instruments, but the barriers point somewhere else: too few investable opportunities, difficult impact measurement, costly diligence, weak internal capability, legal complexity and advisers who often find the instruments harder to understand than their clients do.
And this is where the article joins several patterns we have already been finding in completely different places:
Money exists but cannot move. In local disaster funds, the obstacle can be release rules and audit risk. In adaptation finance, it can be project preparation. In impact-first investing, it is sourcing, diligence, expertise and structuring.
Project formation is a capability. BCG calls the problem a shortage of investable opportunities. But an “investable opportunity” does not simply exist in nature. Somebody has to turn a problem into a proposition with ownership, economics, evidence, risk allocation and an appropriate capital structure.
Scale depends on system absorption. Impact-first investing cannot scale merely because more foundations decide that they like catalytic capital. Advisors, lawyers, intermediaries, investment committees, measurement systems and deal pipelines must all become capable of handling it.
Coordination is productive capacity. BCG explicitly calls for shared knowledge, transparency, comparable structures and collaboration. Those are not peripheral ecosystem activities. They reduce the cost of making transactions happen.
Pre-agreement creates speed. Their call for common structures, standards, metrics and a “catalytic library” is essentially an attempt to make future transactions less bespoke. The more that can be agreed before each individual deal appears, the faster capital can move.
The pattern looks familiar because capital is not necessarily the binding constraint; the missing capability is the work that converts a problem into something capital can actually evaluate and use. BCG’s proposed remedies-shared expertise, transparent market information, comparable structures, common metrics and reusable transaction models -are therefore not supporting infrastructure around the market; they are part of what makes the market possible. This matters for climate adaptation especially, where some interventions should remain grant-funded, others may need concessional capital, and a smaller group may eventually become commercially financeable, making the ability to distinguish and structure those pathways as important as raising the money itself. The danger is that “creating investable opportunities” becomes another way of forcing public goods into financial structures that do not suit them, so appropriate capital still has to follow the problem rather than the other way around.
The question BCG leaves me with is whether philanthropy’s next multiplier comes mainly from putting more catalytic money into individual deals, or from building the project-formation, advisory and transaction infrastructure that allows many other actors to deploy the right capital repeatedly.
There is one objection worth holding onto. Not every shortage of investable opportunities should be “fixed” by making more things investable. Some social and climate outcomes are public goods and should remain grant- or publicly financed. Otherwise the pursuit of scalable transactions can begin distorting the problem to fit the capital.
So the deeper question is not:
How do we make more philanthropy invest?
It is:
How do we build the capability to distinguish what should remain a grant, what can absorb recoverable or concessional capital, what can eventually carry commercial capital, and then make those transitions easier to execute?
Arunabha Bhattacharya 
Leave a comment