A sea change is underway in the world of philanthropy. The shift is driven partly by the cataclysmic effects of a global pandemic that has wiped out decades of developmental gains over the past few years while crowding out investment in other sectors. 

Yet it partly has been driven by the eye-watering transfer of wealth to a younger and more purpose-driven breed of philanthropist. Such soaring wealth, especially against the backdrop of a pandemic that has killed over five million, has generated outrage yet also elicited hope that private philanthropy can fill in the gaps left by governments and NGOs, when it comes to fighting inequality, eradicating disease, or curbing global warming.

Strategic philanthropy refers to an approach by which businesses or private individuals donate to causes that fit within a defined mission statement or set of goals or values. In recent years it has become a byword for a data-driven approach devised by some third-party consultancy, one scorned by some critics. ‘The tool kit of the consulting business is based on crunching massive amounts of quantitative data and analysing it,’ as Anand Giridharadas, a former Mckinsey consultant and author of ‘Winners Take All: The Elite Charade of Changing the World,’ told the New York Times. ‘What it’s bad at understanding is human life.’

But what if strategic philanthropy doubled down on embracing its humanist side? We would argue that it is entirely possible for philanthropists to build a deeper, more empathetic, and more contextual understanding of the communities they operate in – given the right tools and guidance. Private capital affords philanthropists extraordinary flexibility and autonomy, which can be leveraged to build a strong understanding of the human lives at the other end of their grant or donation.

Philanthropic value propositions

In the social impact space, private philanthropy behaves differently from governments or traditional NGOs, owing to its focus on demand-side economies, rather than supply (or direct service delivery). Traditional approaches are typically locked into a supply-side mentality, prioritising access to goods and services rather than their demand and use.

This arises for a number of reasons. The supply of goods and services is easier and quicker to control and quantify than the impact of their use. The impact of building a school, for example, might only be known over the course of, say, ten years through indicators like educational attainment, salary expectations, gender equality, literacy rates, or life expectancy. For traditional charities that have shorter-term funding cycles, impact measurement is costly to obtain and intangible when compared to supply-side metrics.

What if strategic philanthropy doubled down on embracing its humanist side?

Traditional NGOs need to demonstrate that money has been spent within the parameters of a specific campaign. By contrast, private philanthropists are able to retain all the funds allocated to a particular campaign for years, until a meaningful solution is identified.

The consequence of a supply-side mentality in the aid and development sector has been the misallocation of resources and lack of accountability. An example to consider is water provision and sanitation, which lies behind many problems in the developing world. The traditional aid and development approach is to simply provide more toilets. But this ignores huge cultural, social, and normative obstacles to people using them, especially women. With no focus on cultural norms and behaviour change, aid money gets wasted.

Another example is education, where the traditional aid agencies tend to prioritise building schools. But this ignores the challenge of persuading local families to send their children to school rather than using them as labour. People need to be persuaded of the economic benefits and the financial security that comes with an education before one can expect a school to flourish. It’s also important that parents understand the importance of continuity in education, rather than moving their children between different schools on the basis of changing costs. Instead of simply counting the number of schools built, they should want to know that literacy rates actually rose as a result. Or that the schools do not deteriorate over time. They should want to know that sanitation at the facility was improved to allow menstruating young girls access.

In other words, what strategic philanthropy is uniquely suited for is focusing on longer-term outcomes rather than shorter-term outputs. It can do this more nimbly than governments hostage to political cycles or NGOs worried about delivering short term results for anxious donors.

All philanthropists must understand that inventory, supply, and access, while necessary, are not enough. Customers have to also want and use your product. A strong value proposition is always built around an acute understanding of customers’ needs and delivering something that meets them, while ensuring it fits into their norms and daily routines. This is not at odds with a ‘trust-based’ approach but rather reinforces and even requires local say and ownership. Strategic philanthropy understands this motivating principle.

Strategic philanthropists, unlike governments, can also be more flexible, patient, and experimental. They can be methods-agnostic and take bigger risks, operating free of political patronage unbeholden to electoral calendars, or to shareholders’ need to show quick results (or even results at all). A case in point is Mackenzie Scott, who gave away $8.6 billion last year, half of which went to small charities or organisations that were given no ‘strings attached’ on how to spend their money.

To be sure, private philanthropy has faced withering criticism, some of it deserved, in recent years, from accusations of egoism to concerns it comes from people seeking tax avoidance (or evasion). Today’s billionaires are worth $7.6 trillion, an eye-watering leap in wealth from two decades ago when their assets were roughly $1 trillion. From 2000 to 2018, the assets of private foundations more than doubled, according to Candid, from $421 billion to $950 billion.

Private capital affords philanthropists extraordinary flexibility and autonomy, which can be leveraged to build a strong understanding of the human lives at the other end of their grant or donation.

But we often forget the achievements of these philanthropists. Polio has largely been eradicated due to philanthropic efforts. Some philanthropists have displayed they can apply a similar agility when it comes to fighting climate change. At the COP26 summit last year, 17 private funders, along with a few governments, pledged $1.7 billion for local Indigenous communities – who manage half the world’s land – to protect tropical forests from biodiversity loss.

The claim that tomorrow’s strategic philanthropists prioritise value over people is similarly unfounded. Take the recent work of our firm, ReD Associates. Commissioned by the Gates Foundation, the project examined vaccine distrust in the Global South and was based on in-depth ethnographic interviews with over 300 local respondents and experts across three countries (Nigeria, Kenya and Pakistan). Our findings disprove many of the media-driven notions around vaccine hesitancy in this part of the world – that people are particularly susceptible to anti-vaccination conspiracy theories.

Strategic philanthropists, unlike governments, can be more flexible, patient, and experimental.

Instead, we found Covid-19 at the community level gets filtered through a socio-economic lens and is not seen as a public health emergency. Nor does it rank high on most people’s concerns but rather is seen as a problem afflicting wealthier people with the means to travel. The constant flip-flops and changing narratives from the private and public healthcare systems in these countries only confounds the issue more and undermines public trust in the system. The usual trusted sources of info – elders, religious leaders – do not dare proper medical advice for fear of undermining their own authority in this highly uncertain context.

Indeed, consultants can help strategic philanthropists move beyond their basic theory of change about social problems to a more nuanced understanding of social governance and cultural dynamics influencing various intervention strategies. Not enough strategic philanthropies are focused on thinking deeply about complex systems-level strategies to achieve long term outcomes. At the same time, strategic philanthropy has the ability, flexibility, and autonomy to think about long-term systems change in ways that governments and NGOs don’t have the luxury to do.

Mixed philanthropy

The reality is we live in a world of concentrated wealth among a small set of rich (and mostly white and Western) donors. This kind of kaleidoscope of philanthropy poses no shortage of challenges or moral quandaries. High net-worth individuals, for instance, should not reap tax benefits from their philanthropic giving as this only defers greater burden on less wealthy taxpayers to make up the shortfall. Nor should private philanthropies replace local governance structures but rather collaborate with and complement existing institutions. To that end, they should put in place a transition plan and realistic timeline from the start. A desired outcome from their interventions, therefore, should not solely be relief to the poor but also governance that is more accountable, transparent, and effective, or else it risks undermining the impact or delivery of these services.

As we peer ahead at social investment over the coming decades, it’s clear we are going to have a very mixed economy of provision. Private capital – or so-called ‘venture philanthropy’ – is going to play an increasingly pivotal role, regardless, just as it has done in recent developments such as the vaccine for malaria announced in 2021. It’s vital for governments and charities to embrace and work with private philanthropists, rather than perpetuate philosophical divisions or accuse them of ‘reputation washing.’ As Beth Breeze of the University of Kent notes in her new book, too much criticism might deter ‘potential donors from sticking their head above the philanthropic parapet.’ Conversely, private capital also needs governments, because while it’s good at kicking off initiatives or innovating with less bureaucratic obstacles, philanthropy will never be a substitute for long-term good governance or provision of public goods and services.

Turning to private capital to solve the list of global problems is not without risk. It’s subject to the fancies of a privileged few, who in many instances are both disassociated from the problem or display little subject matter expertise. Still, private philanthropists – rich, high-profile, famously idealistic and at times in-the-clouds – are not going away. Their emphasis on tangible or data-driven results – or their focus on the demand side of the equation – should not come at the expense of other human-focused forms of philanthropy.

That is how to make strategic philanthropy effective.

Charlotte Vangsgaard and Mads Holme are partners at ReD Associates, a humanities-based strategy consultancy based in New York and Copenhagen.