Why 2025 Is the Year of Catalytic Investing
Current 16 - Insights - By Katrin Lewis and Ali Motroni
As we step into 2025, catalytic capital is taking center stage, redefining how we think about the role of capital in solving society’s most urgent challenges. Catalytic capital has emerged as the research and development (R&D) arm of capitalism, paving the way for a future that works for all through de-risking investments, testing innovative models, and driving systemic change. At Align Impact, we’ve spent the past six years building one of the most sophisticated catalytic investment practices in the industry, sourcing, underwriting, and structuring investments that unlock new pathways for capital and impact. With a dedicated team and over $70m in impact-first capital deployed, we are declaring 2025 “The Year of Catalytic Investing” because the moment has arrived for catalytic capital to scale, influence markets, and shape the future of impact investing.
1. Catalytic Capital as the R&D for Capitalism
Just as R&D powers innovation and breakthroughs in technology and medicine, catalytic capital is pioneering new financial models that allow impact solutions to take root and scale. This patient, risk-tolerant, and flexible form of funding enables early-stage solutions to scale and tackles problems that traditional markets shy away from. Whether funding first-mover regenerative agriculture funds, enabling clean energy transitions in emerging markets, or backing innovative ownership structures that close racial wealth gaps, catalytic investments open the door for mainstream investors to follow.
Align plays a vital role in this ecosystem, having underwritten nearly 50 catalytic funds and 28 direct investments over the past six years. Our work ensures that capital flows where it’s needed most, driving impact in climate justice, economic mobility, and community resilience. As MacArthur Foundation describes it, catalytic capital "amplifies the impact of all other forms of capital." In 2025, we’re seeing catalytic finance mature into a defining force for systems change through new models of public-private collaboration, the maturation of catalytic investment tools, and a surge in philanthropic foundations and Donor Advised Funds deploying flexible capital to address climate change, the opportunity gap, and the housing crisis.
2. Bridging Policy and Impact Investing
In 2025, the intersection of policy and catalytic investing is more pronounced than ever. Impact investors are no longer just reacting to systemic challenges - they are actively shaping and plugging into policy conversations to drive lasting change.
Take our engagement with community development financial institutions (CDFIs) and climate finance intermediaries, many of which depend on public capital, policy incentives, or first-loss structures to operate effectively. Leaders like the Lafayette Square Foundation, and Blue Haven in partnership with LAVA Strategies, exemplify how policy-informed investing can transform communities. While many of the strategies emerging from these partnerships target market-rate returns, catalytic investing plays a crucial role in unlocking and accelerating impact.
The growing convergence of policy and investing reflects a recognition that markets alone cannot solve systemic challenges. In 2025, the work of these leaders demonstrates how aligning financial incentives with policy interventions— such as navigating regulatory hurdles and addressing funding gaps—amplifies impact. By engaging policymakers, catalytic investors ensure the solutions they fund are not only scalable but also enduring.
3. The Democratization of Catalytic Investing
Catalytic capital is no longer just the domain of large foundations and Development Financial Institutions - it’s becoming increasingly accessible to a broader range of investors. There has been a rise of platforms that allow smaller investors to participate in catalytic finance, from crowdfunding community solar projects to donor-advised funds focusing on racial equity and climate resilience. Another innovation we’ve seen is catalytic Funds of Funds, designed to diversify risk across multiple catalytic investments while giving limited partners exposure to high-impact strategies at more accessible investment minimums. Additionally, investors are structuring ‘Multi-Donor Advised Funds’ around specific impact themes such as “Accelerating Wealth through Ownership” and “Ocean Health,” to pool philanthropic capital in vehicles already earmarked for charity, accelerating innovation.
By breaking down barriers to participation, these models are broadening the catalytic capital ecosystem, enabling more investors to fuel transformative change and de-risk pioneering impact solutions at scale.
Conclusion
The messy middle of reimagining financial systems has consistently required patience and imagination, but in 2025, catalytic capital is breaking through as a mainstream force. With strengthened cross-sector collaboration, the maturation of blended finance tools, and the expanding accessibility of catalytic capital, this approach is no longer just about proving impact, it’s about shaping the next generation of markets.
At Align, we are committed to leading this charge, ensuring catalytic investing is not just an exception but an essential strategy in every investor’s portfolio. The tools, vision, and momentum are in place to drive systemic change, and Align is ready to help our clients deploy catalytic capital at scale and with confidence.
The information presented in this newsletter is the opinion of Align Impact, LLC and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources but no liability is accepted for any inaccuracies. This is for information purposes and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Align Impact, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission.
