A Donor-Advised Fund, also known as a DAF, is a type of giving account which allows donors to make tax-deductible charitable contributions that can be granted to nonprofits immediately or over time. Depending on who is hosting the DAF, contributors can invest money, stock, or cryptocurrency. Money placed in a DAF account is tax-deductible and can be invested in order to grow the total donation amount.
But how exactly do DAFs relate to environmental nonprofits? And how can you be sure that you are supporting the environmental causes that you are most passionate about?
A Brief History of Investing for Positive Environmental Impact
American citizens have a long history of participating in impact investing, socially responsible investing (SRI), and ESG (Environmental, Social, and Governance) investing, dating all the way back to the 18th century. However, these investing practices as we know them today really began to take shape between the 1960s and 1980s in response to events like the Vietnam War and Chernobyl.
The initial purpose of socially responsible investing meant eliminating or actively avoiding investments in products and services that conflicted with an individual’s beliefs. Common examples of this included guns and other weapons, cigarettes, and even government bonds during times of war. Compared to the more “exclusionary” nature of SRI, impact investing emerged as a “bigger picture,” dual-purpose form of investing: make profit and do good for society and/or the environment at the same time.
ESG investing took on a slightly more clinical approach, looking at the overall impact a company has before investing. Typically, this impact is measured by a third-party rating scale and criteria that judges each individual business’ influence on society and the environment, as well as their own internal governance.
The 1970s saw the first real shift in investment interest toward environmental issues, which continues to this day. Though, it is important to note that environmental issue areas and the organizations attempting to address these have been significantly underrepresented historically. This is, thankfully, beginning to change with environmental investing seeing a 58% increase since 2018 with climate change and sustainable natural resources becoming the top two issue areas of interest.
DAF Tips for Those with Environmental Interests
- Pay attention to the sponsoring organization of your DAF. The sponsoring organization is going to benefit from housing your DAF (likely by charging administration fees); make sure the sponsoring organization is an independent nonprofit in whatever issue area you’re passionate about, which doubles the good of the money you invest and donate. An upcoming new DAF feature will be unveiled on the EarthShare Giving Platform, where donors can search for 501(c)(3) organizations both in and out of EarthShare’s environmental Nonprofit Network that work on the issues they care about most.
- Keep in mind how you’re giving. Nothing beats cash when it comes to donations. Period. While many DAFs allow you to make contributions with things like stocks and cryptocurrency, these are highly volatile. A stock donation worth tens-of-thousands one day could suddenly be worth much less the next.
- Use the money you put in your DAF. One of the largest criticisms of DAF accounts is that they enable users to place money in a giving account and then… nothing happens. The money just sits there. While, yes, letting your money sit in the fund can build (slight) interest, ultimately, it’s not benefiting anyone since it’s not being distributed. Do your research, determine what organization(s) you want to support, and make sure you’re directing that money out of your account on a regular basis.
- Donate to nonprofits who are vetted. Your money is hard-earned, and you want to make sure it’s placed in good hands. Make sure the nonprofits you plan to donate to actually are who they say they are and the places they put their money to work align with your own goals and mission. EarthShare takes the time to vet every single Nonprofit Partner in our network to ensure they are a valid nonprofit organization with a strong focus on the environment.