Philanthropy is a broad term that encompasses many different forms of charitable giving and advocacy, but most of us can agree that its core purpose is to support efforts that make a positive and meaningful impact on individuals, communities and society as a whole. Yet only a small percentage of private foundations use their endowment assets for impact investing—with the goal of generating positive social or environmental change as well as financial returns.

One study of 65 foundations with a combined total of around $89 billion in assets found that only 5% participated in impact investing. In another survey, 88.2% of participants said “their foundations were ‘somewhat’ interested in impact investing,” but 48.9% said that “none of their foundation’s investment portfolio is currently allocated to impact investments.” Many cited a lack of knowledge (37.7%) or concerns that the approach would generate lower returns (20.4%) as reasons their foundations hadn’t pursued impact investing.

One of the overarching criticisms of aligning an endowment's investments with impact goals stems from the myth that to pursue impact, one must sacrifice returns. Yet, according to data from the Global Impact Investing Network (GIIN), “79% of investors surveyed globally said the performance of their investments met or exceeded their financial targets, while 88% said they met or exceeded their impact targets.” Because foundations have bought into the myth, they have historically hid behind the argument that to invest for impact, they would breach their “fiduciary responsibility.”

However in 2015, the IRS issued new guidance to clarify this persistent misconception, stating that "foundation managers may consider all relevant facts and circumstances, including the relationship between a particular investment and the foundation’s charitable purposes" when making investments. According to the guidance, "managers are not required to select only investments that offer the highest rates of return, the lowest risks or the greatest liquidity," as long as they are careful to make "investment decisions that support, and do not jeopardize" the foundation's charitable purpose.

Private foundations in the U.S. aren’t required to dedicate a large percentage of their funds to mission-related investments. In fact, they only need to comply with the IRS’ “5% rule,” making qualifying charitable contributions that equal or exceed 5% of their total endowment (and this doesn’t even begin to address the more than $52 billion sitting inside donor-advised funds that do not have any sort of minimum charitable contribution rule). Traditionally, foundations allocate the remaining 95% of their assets to investments that have the best potential to maximize financial returns, regardless of whether or not they align with the organization’s mission and values.

A Pledge 5% movement could transform philanthropy as we know it. By dedicating funds to investments that further your charitable purpose, you can benefit your team, your foundation and your community at large. Impact investing has the potential to foster learning and growth within your organization, move more money toward projects that support community constituents and causes and enhance your public image—ultimately encouraging more people to give to your foundation. It’s a virtuous circle that helps you increase both your impact and your financial returns.

Read the full article about 5% movement in philanthropy by Bryce Butler at Forbes.