NextBillion - A WDI Publication

If philanthropic capital is waiting for a rainy day to address climate change, it’s already pouring. But instead of supporting solutions to this fundamental global challenge, a significant source of funding is either lying dormant or, worse, actively contributing to the problem.

I’m referring to Donor-Advised Funds (DAFs), a type of specialized charitable giving account that lets someone donate cash or assets, take an immediate tax deduction, and direct that money to nonprofits as individual grants over time. These funds are popular with the general public: To take one prominent example, around 48% of Fidelity Charitable DAF accounts had less than $25,000 in assets at the end of 2025. They’re also popular with wealthy families and other high net-worth individuals, who favor them due to their tax advantages and the greater simplicity they provide compared to alternative philanthropic approaches, like setting up a foundation. And they are growing: As of FY 2024 (the most recent data year), more than $327 billion was sitting in U.S. DAFs, earmarked for the public good.

The money has, from a legal and tax perspective, already been gifted to a charitable entity (the DAF), and the donors have already enjoyed the tax benefits of making the donation. But too often, the process stops there. Unlike a private foundation that is required by law to donate 5% of its assets each year, a DAF’s sponsor — often an entity within a larger financial institution — has no obligation to donate anything on a defined timescale. In the meantime, the money sits in an account, invested in the market, growing tax free. That, of course, benefits the company managing the DAF, many of whom are paid a percentage of the funds under management.

Only around $65 billion (~20%) was disbursed as grants from U.S. DAFs in 2024, with the rest remaining in these funds. And though sustainable investment options for those funds exist, and can have incredible impact, other DAF sponsors funnel donors into a narrow menu of options that default to the conventional index funds used by their parent companies. 

While donors deliberate on where to deploy the capital, or defer the decision until later, these billions of dollars already committed for the public good can even be financing high-emission sectors like the fossil fuel industry, which is emitting billions of tons of CO₂ per year. 

Meanwhile, innovative climate startups are in need of funding to accelerate their solutions.

Philanthropy can and should be a key part of the solution, not part of the problem.

Purchasing future carbon credits in Kenya

To understand the sort of impact that could be made if this funding were mobilized, take the example of Kenya-based Octavia Carbon, Africa’s first direct air capture company. They had a strong business case from the start: Use the region’s abundant geothermal energy to power technology that pulls planet-warming carbon from the atmosphere and locks it away. That pairing turns clean power into an exportable product in the form of carbon removal credits sold to global buyers. 

What Octavia needed was buyers for their carbon removal credits. But as with many innovations, carbon removal needs to demonstrate its value before commercial buyers will feel confident that it works. 

Terraset, a climate-focused nonprofit, aims to bridge that gap by paying now for carbon removal to be delivered later. Over the past three years, we have pooled philanthropic funding, including from many DAFs, to purchase future greenhouse gas removal from more than two dozen early-stage climate companies. Each ton of gas removed is represented by one “carbon credit,” a unit that buyers in the voluntary market can purchase to fund climate solutions or offset their own emissions.

Buying carbon credits before the services are delivered is known as a “pre-purchase,” and it provides necessary, early funding to accelerate and build the market for carbon removal, methane abatement and other climate solutions in emerging markets. We’ve noticed that climate technology developers that make it from pilot to institutional finance almost always have both early backers and early customers. The ones that stall, despite validated technology and strong teams, often don’t.

Pre-purchases create the demand signal that helps a company prove its model, develop the monitoring, reporting and verification (MRV) protocols that buyers and regulators require, and reach the commercial milestones that make institutional finance possible. Without this bridge capital, even a technically sound business with cost advantages can stall, and even die, between pilot and scale.

Since 2024, Terraset has made a series of pre-purchases from Octavia, totaling around $300,000. In that same time period, Octavia reports that it has created 160 jobs — 98% of which have been filled by Kenyan youth — and the company is establishing itself as a hub for carbon removal innovation across sub-Saharan Africa. With steady partners and investors like The Catalyst Fund, as well as a $5 million seed round led by African VC firms Lateral Frontiers and E4E Africa, Octavia’s journey illustrates the impact of unlocking different kinds of capital for promising climate innovators. 

The commercialization gap that grants can’t fill

Octavia’s story highlights one way funders can overcome a structural gap in how philanthropic capital typically reaches early-stage climate businesses in emerging markets. Most philanthropic giving is designed around grants: one-time disbursements to support a project, a study or an organization’s operations. Grants are valuable tools, but by not requiring delivery of a product (in this case carbon removal credits), they don’t create the commercial demand signal that tells investors a product has a market.

Pre-purchases do: By committing to buying carbon removal (or methane abatement credits, or other tradable forms of climate impact) at a set price and volume, an early buyer takes on a share of the commercial risk that would otherwise fall entirely on the company. That risk-sharing helps the startup invest in infrastructure, hire staff and demonstrate delivery. It bridges the gap between traditional philanthropic support like grants, and the kind of track record that development finance institutions (DFIs), impact investors and eventually commercial capital require before they’ll commit.

At Terraset, we built a revolving fund specifically designed to channel funding to make upfront pre-purchases from early-stage companies, paying today for tons of greenhouse gas removal that will be delivered in the future as credits. Then, we sell the credits to corporate buyers and recycle the returns into new purchases, creating a flywheel for ongoing impact. The model is built on the notion that the most catalytic thing philanthropic capital can do at this stage of the climate market is to create demand. 

How pre-purchases work across technologies and business models

The pre-purchase model works across a range of technologies and contexts, but the dynamics are especially visible in emerging markets, where the path to institutional finance is longer and the need for early demand signals is more acute. The approach can also be applied across a variety of different business models.

For instance, we have also purchased from Pyrogen, another Kenyan company taking an entirely different approach to greenhouse gas removal. Pyrogen is transforming invasive tree biomass into biochar, which is then incorporated into high-performance, carbon-negative concrete blocks used in affordable housing construction. At full production, the company is targeting the construction of 5,000 affordable homes per year and the removal of over 17,000 tons of CO₂ equivalent annually.

Terraset made a $100,000 pre-purchase from Pyrogen in June 2025. Pyrogen is currently working with Habitat for Humanity via the World Bank’s CGAP-sponsored affordable housing finance program to build Africa’s first low-cost housing using concrete infused with biochar. 

Highlighting this larger institutional partnership is not intended to infer causation but to illustrate the pattern we see across Terraset’s portfolio: Even small contributions of philanthropic capital can unlock much larger institutional capital. In Pyrogen’s case, our pre-purchase allowed their team to purchase a block manufacturing kit, put their concrete mixes to the test outside the lab, and build a fully digitized monitoring system to track each concrete block from harvested biomass to installation. This early support builds the proof of concept, the verified delivery record and the first commercial milestone, all of which helps DFIs and impact investors enter with confidence.

Why DAFs fit the pre-purchase capital model

The pre-purchase model requires a specific kind of capital: patient, risk tolerant, with no market-rate return requirement and no pressure to deploy into proven assets. It is a perfect fit for funds that have already been donated to charity (i.e., DAFs) but have yet to be put to use.

DAFs are a well-established structure, and donors who use them certainly aren’t doing anything wrong. The logic is sound: Accumulate capital, grow it, deploy it thoughtfully. But for climate specifically, timing is essential. Urgency is key.

The leverage available to an early buyer of a company like Octavia Carbon or Pyrogen today is distinct from the leverage available in five years when these businesses have either reached commercial scale or failed to get there. A dollar deployed now — as a pre-purchase from an early-stage climate company in an emerging market — makes an impact that the same dollar cannot match later.

What donors can do

For philanthropic advisors supporting donors who have put their money into DAFs and are interested in climate impact, two things would help move that capital to where it’s most needed.

• Shift the conversation with donors from “what they can do one day” to “what they can do now.” Most climate-focused DAF donors already intend to deploy their capital to the types of projects we’ve discussed here. The question worth raising is whether the planned timing of these deployments is calibrated to the unique impact this capital can make in the short-term for businesses at the commercialization stage, particularly in emerging markets where early buyers make a decisive difference.
• Recognize that the knowledge barrier for donors is real but surmountable. Carbon removal is a technical field, and most donors are not interested in becoming carbon removal experts before making a decision. Intermediaries like Terraset can play a role here, by vetting companies, structuring purchases, verifying delivery and reporting back on outcomes. A DAF holder does not need to evaluate the permanence standards for direct air capture or the MRV protocols for biochar to make a meaningful, verified contribution to a company building climate infrastructure in markets like Kenya. They need a trusted allocator and a reason to act now rather than later.

The next wave of climate-committed philanthropic capital should be driving impact now: the hundreds of billions of dollars that have already been earmarked for the public good, but have not yet been put to work. For climate businesses, the ongoing wait for this funding has a cost that compounds every year. The companies building carbon removal infrastructure are doing it now, and they’ve reached the stage where early buyers can make the difference between survival and scale. The capital to support them already exists: It’s up to DAFs and other funders to deploy it, now.

Adam Fraser is CEO of Terraset, a nonprofit that pools and deploys philanthropic capital to early-stage climate solutions.

Photo credit: Nataliia Kravchuk