New money was contrasted with old during discussions at the conference on ‘New tools and trends in global philanthropy’ in London on 30 November. Organized by the Philanthropy Special Interest Group of the Society for Trust and Estate Practitioners (STEP), the event provoked some lively debate around how, why and when social investment can be a useful tool for philanthropists.
Individuals all have access to capital in the form of credit cards or mortgages, but what impact could the same kind of capital in the form of social investments have for charities? Chairman Clive Cutbill opened the event by suggesting that it is time for philanthropists to look at other ways of achieving their goals, as there are many different ways to get results without simply throwing money at a problem.
Victoria Hornby, Director of Grants at the The Royal Foundation of the Duke and Duchess of Cambridge and Prince Harry, spoke of the different attitudes of younger wealthy donors, those who have accumulated their own wealth as opposed to inheriting it. While more traditional donors are content to simply make a grant, those with ‘new money’ are more likely to see their money as an investment in a cause – and quite possibly wish to see some form of financial as well as social return on this. As John Kingston, Project Director of Social Finance, demonstrated in one of his many illustrative diagrams, ‘new money’ is interested in the middle space between grants and traditional financial markets. An area that is continuously evolving, this offers various opportunities for providing support in different ways, whether this is described as social investment, venture philanthropy or impact investment, or is a combination of non-traditional methods. Whether they are looking for a large amount of social impact or simply focusing on making more responsible investments in line with their ideals, philanthropists are increasingly exploring these alternative ways of working with charities.
As Kingston pointed out, most individuals at the event had access to capital in a number of ways, whether through credit cards, mortgages or similar. However, in the non-profit world this is much harder to come by. Looking at social investment (or however one wishes to describe this emerging area), it is evident that there is a lot of capital that could potentially be put to use for social good. Endowment capital, large charities’ reserves and pension capital were all discussed as potential sources of social investment funding – highlighting that there are billions of pounds available that could be channelled into areas for positive social return. An interesting point made by Raj Thamotheram of the Network for Sustainable Financial Markets was that actuaries are beginning to see that social investment does not necessarily affect long-term investment performance – previously this type of investment was seen as too risky.
However, social investment can pose some problems for philanthropists who would typically have simply given a grant. The regulatory and tax implications when a return is expected from a charitable donation mean that many foundations may be cautious about this.
Sustainability and scalability were discussed as being important for philanthropists to consider, particularly as the government, at least in the UK, can no longer be relied upon to help fund projects that have proved successful. Social investment can play a vital role in allowing social enterprises to develop and grow. Tom Hall spoke of the Scope Social Bond programme and how paying a return can widen the net of potential funders: while total financial loss (as with a grant) often requires a high affinity with the aims of a charity, social investment can also offer opportunities for mainstream investors. The key is to demonstrate impact in a clear way that investors can easily understand.
This does not mean that there is no place for traditional grantmaking – indeed, Suzanne Biegel of ClearlySo said that many social enterprises don’t understand what they need to be investment ready, so this is an area in which funders with more of an ‘old money’ mindset can have an impact. As Oliver Karius of LGT Venture Philanthropy said, financing is a means to an end. Danyal Sattar of the Esmée Fairbairn Foundation stressed that it is important for foundations to look at impact first and then find the most suitable financial mechanism. He warned against looking at risk only in terms of investment – the real risk for foundations and charities is that they do not achieve their mission.
This was echoed by Hornby’s closing comments, which emphasized that social investment should be viewed as a tool. Philanthropists should focus on mission rather than making social investment a mission in itself.
Jenny Conrad is Communication and Circulation Officer at Alliance magazine.