How philanthropy can free up another £3.5bn for good causes
The world of giving is changing apace, but not fast enough according to a report launched today by New Philanthropy Capital, which lists 10 innovations that need to catch on in the world of philanthropy. The ninth innovation spotlights the small group of foundations investing their assets to create social and environmenal value.
At a time when global inequality in wealth is at an all time high and social needs are growing, "money needs to be used more effectively," said Plum Lomax co-author of the report. "We want to see more foundation assets seeking a social, as well as a financial, return," she continued.
Traditionally, foundations invest their assets to gain the best financial returns and distribute the income as grants. But regulatory changes making it easier for trustees to engage in social investment and recommendations from the G8 Social Impact Investment Taskforce are spotlighting opportunities for foundations to put some or all of their resources to work towards social change, rather than just those that they distribute as grants or set aside for social investments.
£17.5 billion was the total of private giving in the UK last year and £1.4 billion was contributed by the top 100 family foundations. These are the funders, including the Wellcome Trust and the Garfield Weston Foundation, that are most likely to participate in social investment according to the report.
If each of these foundations allocated just 10% of their overall assets a combined total of £33.8 billion, to seek a social return, an extra £3.4 billion would be working to contribute to social impact. The report notes that this is a crude calculation, but nonetheless shows that much could be achieved by making existing funds work harder.
The UK has a handful of foundations operating in this way, willing to make impact investments from their endowments, such as the Panahpur Foundation. But the uptake of social investment in the foundation space is gradual. In reality, “there is more being talked about than there is being done,” said Lomax.
In the US 100% impact investment is one trend that is emerging in an innovative corner of philanthropy, pioneered by Charly and Lisa Kleissner, founders of the KL Felicitas Foundation. The KL Felicitas Foundation is investing 100% of its assets for varying degrees of social and environmental return.
In 2000 Charly and Lisa Kleissner put $10 million into the KL Felicitas Foundation. From the outset they made a commitment to invest 100% of this endowment in line with the values and purpose of the foundation, which is to support early-stage social enterprises to develop and grow sustainably.
The foundation has constructed its portfolio to seek a social or environmental and financial return across all of its asset classes—cash, bonds, equity, hedge funds and real assets.
To date 40 family offices in the US, with combined assets of $3.5 billion have committed to this approach as members of the 100% impact network set up by the Kleissners.
Paula Jancso Fabiani, president of Brazil's Institute for the Development of Social Investment has described the initiative as an innovation "with the potential to transform how foundations are dealing with their investments, dramatically increasing the potential of creating social impact from money that is currently invested in financial markets.”
"The decision taken by individuals or companies to allocate some of their resources to improve the welfare of others, or the environment in which we live, is a major element of a civilised society," said Dan Corry, chief executive of NPC, in the foreword to the report. But faced with urgent need, innovative philanthropy is what matters now. "It has never been so important to put limited resources to best use," he said.