Charities are in an increasingly difficult position as the strain caused by a weak economy means demand for services while sustained higher interest rates and tighter credit conditions limit access to affordable funding. Against this challenging backdrop, there is growing pressure on trustees to ensure that investment portfolios are being deployed in line with the organisation’s wider mission, rather than being assessed solely on yield or headline return. As a result, impact investing is now moving into mainstream trustee discussions, rather than remaining a niche area of the market. The Global Impact Investing Network report assets under management in impact funds growing over $400bn since 2022 to reach a total of around $1.6tn in 2025.
It is important to distinguish impact investing from traditional investing, which focuses primarily on achieving strong risk-adjusted financial returns. Confusion often arises between impact investing and the wide range of ESG-labelled funds available, many of which incorporate environmental, social, or governance considerations in different ways. ESG integration is typically focused on risk management and long-term sustainability rather than on delivering defined social outcomes. For an investment to be classified as impact investing, it is not sufficient simply to consider ESG factors. There must be a clearly articulated objective, setting out the specific social or environmental issue being addressed, supported by robust measurement and reporting that demonstrates meaningful and intentional outcomes.
Charities are uniquely positioned to engage with impact investing due to their established purpose of delivering social value focussed on their specific remit. Where trustees choose not to treat investment assets as entirely separate from charitable activity, a significant pool of capital can be aligned more closely with mission objectives. In addition to supporting the core purpose of the organisation, impact investing can strengthen reputational standing and reinforce stakeholder confidence, provided decisions are taken with appropriate discipline. The availability of tax-efficient investment structures can further support this approach, although these mechanisms should complement, rather than drive, the underlying investment strategy.
In principle, impact investing offers charities a compelling way to align capital with charitable objectives. In practice, however, trustees may find that genuinely targeted impact opportunities are limited within public markets, particularly where charities wish to focus on specific themes or localised outcomes. Public market impact funds can offer liquidity and transparency, but they may lack the precision required to directly support narrower charitable aims.
This often leads charities to explore private market opportunities, where more specialised and targeted impact strategies are available. While private markets can offer closer alignment with charitable objectives and more direct links between capital and outcomes, they also introduce materially higher levels of risk and complexity. The most significant difference relative to public markets is illiquidity, with capital often committed for extended periods and redemption opportunities restricted to specific dates, which may be quarterly, annual, or longer.
As well as the limited liquidity for private companies, the market is also much less transparent and valuations rely on periodic appraisals rather than the daily pricing of a public exchange. This makes ongoing risk measurement difficult for Trustees as prices are unlikely to be updated on a regular basis. The increased price volatility, lack of transparency, and limited liquidity create a much higher risk profile for private investments which has to be balanced against the charity’s duty to invest prudently.
Where trustees decide to pursue private market impact investments in order to better align capital with charitable aims, additional risk management discipline becomes essential. Detailed cashflow forecasting is required to ensure that operational needs can be met despite restricted access to invested funds. Trustees must also be prepared for the possibility that capital values may not be readily realisable without loss in the short term, reinforcing the need for a long-term investment horizon and clear tolerance for illiquidity.
Arlingclose can support charities through due diligence on potential impact investment opportunities, helping to assess both public and private market options in the context of financial resilience and governance requirements. We also provide support with cashflow forecasting, scenario modelling, and risk management advice. If you would like to discuss this further, please contact jscottsoane@arlingclose.com.
11/02/2026
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