Program-Related Investments & Impact Investing Comparisons

A Side-by-Side Comparison for Philanthropic Leaders

The high-level summary:

  • Impact Investing is market-rate or near-market investments that also create social or environmental benefits.

  • Program-Related Investments (PRIs) are below-market investments made primarily to accomplish a charitable purpose, and only secondary for financial return.

Think of it this way:

  • Impact Investing lives in the investment world.

  • PRIs live in the charitable world.

They overlap in language, but not in purpose, compliance, or financial expectations.

Side-by-Side Comparison Table

Legal Basis

Impact Investing | No special IRS category; treated as an investment strategy

Program-Related Investments | Defined explicitly in IRS regs (IRC §4944 & Reg. 53.4944-1)

Primary Purpose

Impact Investing | Achieve both impact and competitive or near-competitive returns

Program-Related Investments | Advance a charitable purpose (impact first, financial return second)

Return Expectation

Impact Investing | Market-rate or risk-adjusted competitive returns

Program-Related Investments | Below-market or concessionary; return is optional but encouraged

Financial Goal

Impact Investing | Preserve or grow assets

Program-Related Investments | Recycle capital for further charitable use

Charitable Requirement

Impact Investing | None required (impact is not equal to charity)

Program-Related Investments | Must directly further a charitable purpose

Typical Users

Impact Investing | Family offices, foundations, endowments, ESG funds

Program-Related Investments | Private foundations, community foundations, DAF sponsors

Risk Tolerance

Impact Investing | Traditional investment risk profile

Program-Related Investments | Higher tolerance – financial return is not the primary objective

Compliance Burden

Impact Investing | Standard investment due diligence

Program-Related Investments | Strict IRS requirements: purpose test, income test, no political activity, and monitoring

Common Vehicles

Impact Investing | Equity, bonds, funds, private credit, tangible assets

Program-Related Investments | Low-interest loans, recoverable grants, loan guarantees, and equity with a charitable purpose

Governance Involvement

Impact Investing | Investment committee-driven

Program-Related Investments | Board and legal counsel approval is often required

Financial Reporting

Impact Investing | Standard investment accounting

Program-Related Investments | Special PRI accounting; reporting as charitable use of assets

Ideal Use Cases

Impact Investing | Renewable energy, tech, social enterprises, market-rate community development

Program-Related Investments | Affordable housing, rural hospitals, education, arts, small business support, and nonprofit facilities

Capital Source

Impact Investing | Endowment, corpus investments, donor capital

Program-Related Investments | Charitable assets from foundations or DAFs

Recycling of Capital

Impact Investing | Not guaranteed

Program-Related Investments | Core feature – repaid funds must be used again for a charitable purpose

Most Common Misunderstanding

Impact Investing | “High impact = high mission alignment”

Program-Related Investments | “PRIs are risky loans” – not true when compliant

Typical Investor Motivation

Impact Investing | Double bottom line: returns + impact

Program-Related Investments | Philanthropic return: mission first, recycle capital second

Ease of Implementation

Impact Investing | Easier – investment advisors understand it

Program-Related Investments | More challenging – requires underwriting, compliance, and documentation

 

Pros and Cons of Each Approach

Impact Investing Pros:

  • Market-rate returns attract a wide range of investors

  • Fits smoothly into existing portfolio

  • Lower compliance burden

  • Scalable through funds and co-investments

  • Acceptable to most investment committees

  • Can achieve largr, institutional-level opportunities (energy, infrastructure, etc.)

Impact Investing Cons:

  • Impact is not always charitable

  • Often flows to profitable markets, not vulnerable communities

  • “Impact washing” is an ordinary meaning; impact claims are often weak

  • Doesn’t allow foundations to use their grant dollars

  • Doesn’t fulfill IRS charitable distribution requirements

  • Cannot replace philanthropy where return is impossible

Program-Related Investment Pros:

  • Charitable purpose is guaranteed

  • Capital can recycle, multiplying long-term impact

  • Supports nonprofits and underserved markets where market-rate capital will not go

  • Counts toward private foundations’ 5% payout requirement

  • Creates new pathways for DAF donors

  • Works for public-private-philanthropic partnerships (P4s)

  • Ideal for housing, healthcare, community development, education, and local capacity projects

Program-Related Investment Cons

  • Requires accurate, documented IRS compliance

  • Investment committees often fear below-market returns

  • Staff need training in underwriting and monitoring

  • Borrowers may be non-traditional (nonprofits, small enterprises)

  • PRIs require a more hands-on management approach

  • Board approval is often required for each investment

  • Not widely understood in the philanthropic sector

  • Can reduce AUM for community foundations (a perceived revenue risk)

 

The Assessment

Impact investing is fundamentally part of the investment ecosystem, a way to invest in companies or projects that produce both social benefit and financial return.  The return expectations keep these investments aligned with traditional portfolio strategies and fiduciary norms.

PRIs, by contrast, live entirely in the charitable ecosystem.  They are tools for deploying capital specifically to advance a charitable purpose, and they allow returns only as a secondary outcome.  Their structure enables foundations to fund projects that would never attract market-rate capital, such as rural hospitals, affordable housing, solar and agricultural pilots, apprenticeships, community loan funds, and more.

Impact investing works where markets already function.  PRIs work where markets fail. 

That is the core distinction.

 

How the Generosity Institute Uses This Distinction

Our Ben Franklin PRI Platform will:

  • Help foundations understand the difference

  • Advocate impact investing where appropriate

  • Recommend fully compliant PRIs where markets can’t solve the problem

  • Structure blended finance structures using P4 models

  • Suggest both dealing with underwriting and governance comfort to risk-adverse boards

  • Train foundations and DAF donors in both tools

  • Serve as a strategic partner across the entire philanthropic capital stack

PRIs are powerful philanthropic tools, governed by clear IRS rules and regulations that make them highly predictable and safer for donors, their trusted advisors, community foundations, family offices, and private foundations.