In developed countries, corporate philanthropy is a well-established and often fairly sophisticated branch of philanthropy. How is it faring in emerging economies? What forms does it take? And what do governments think about it? Alliance asked around to try and find answers to these and other questions.
Is it growing?
The answer appears to be a clear ‘yes’, though actual data is mostly lacking. Corporate philanthropy is ‘one of the most quickly growing parts of Russian philanthropy’, says Natalya Kaminarskaya of the Russian Donors Forum, while Jorge Villalobos of Cemefi in Mexico and Atallah Kuttab of SAANED in the Arab region describe the growth in corporate philanthropy as ‘exponential’. Mexico and South Africa are two places for which data is available. In 2010, says Villalobos, corporate philanthropy was responsible for 32 per cent of total grants made in Mexico. In South Africa, says Colleen du Toit of CAF Southern Africa, the NGO sector receives about 25 per cent of its funding from business under what is known there as corporate social investment (CSI).
Absence of data makes it hard to quantify corporate philanthropy in other countries. While there are no figures for Turkey, says Filiz Bikmen, formerly with Sabanci Foundation, there is certainly growth ‘in terms of new topics and partnership with Turkish government and international organizations, and to some extent NGOs’. In Indonesia, says Natalia Soebagjo of the Centre for the Study of Governance at the University of Indonesia, ‘non-public corporations tend to be secretive about how they support philanthropic/charitable donations so it’s difficult to track’.
Serah Makka of the Tony Elumelu Foundation observes that ‘corporate philanthropy is becoming more prevalent in Nigeria as organizations are being called upon to take responsibility for the ways their operations impact societies and the natural environment’.
How has it emerged?
Natalia Soebagjo’s account of the way corporate philanthropy has unfolded in Indonesia might resonate with observers from other emerging economies: personal wealth has increased, at least partly because former state-owned industries have been privatized. This new ownership led to labour problems, conflicts over land and increasing environmental degradation. To counter these problems, ‘companies launched PR and CSR programmes for local communities. Bigger companies also established corporate foundations to complement their CSR approach.’
A number of things, says Atallah Kuttab, have triggered the growth in corporate philanthropy in the Arab region: social accountability as encouraged by the early stages of the Arab Spring, peer pressure, ISO sustainability reporting requirements and the growing presence of Global Compact reporting in the region. But, he says, ‘the main thrust of corporate sector philanthropy investment is charity driven. At the moment, the latest developments of the Arab Spring have created an uncertain environment for business and therefore for philanthropy.’
In many countries – such as Brazil, Russia, India and South Africa – corporate philanthropy of one form or another has a longer history, though the direction or focus is often new. In Brazil, for instance, ‘the concept has undergone a change in the past two decades’, say Marcos Kisil and Paula Fabiani of the Institute for the Development of Social Investment (IDIS), towards ‘activities that can have sustained effects’.
In Russia, says Natalya Kaminarskaya, ‘supporting social causes was part of companies’ obligations even in the Soviet era. Thus, most big companies had kindergartens, hospitals and summer camps.’ After perestroika, companies moved more towards technical support, but pressure from the state moved them back to provision of funds because corporate money was virtually the only source of support for large sections of the country’s social infrastructure. All major companies have philanthropy programmes, she says, ‘not necessarily public or very well organized, but they all have them’.
In South Africa, too, CSI has a long history, says Colleen du Toit: ‘Since colonial times South African companies (especially the mining sector in the early days) have practised some form of corporate giving. Under apartheid this was mostly “cheque-book charity”.’ Since then, legislation has provided a spur: for example under the Black Economic Empowerment (BEE) Act, listed companies must devote at least 1 per cent of net profit after tax to CSI purposes.
Likewise in India, corporate giving, while not new, is undergoing something of a surge, says Meenakshi Batra of CAF India. ‘Many companies are taking a keen interest and learning about better ways of giving.’ This is a trend that the government is keen to foster, with legislation pending to encourage companies to give 2 per cent of their net profits to social causes.
Multinationals setting an example
In China, the Sichuan earthquake in 2008 ‘provided the impetus for many multinationals and locals to review their philanthropic portfolio’, remarks Cy Yeung of Intel China. The multinationals have been the pioneers of CSR, and companies like Intel have extended their global community programmes locally. ‘But the gap is expected to narrow as Chinese companies realize the core values of CSR and look to it to augment their international expansion.’
In Turkey, corporate philanthropy began with the Turkish ‘holding’ companies (conglomerates with a number of companies operating in several different sectors), which are family owned and have foundations established by the family – what Filiz Bikmen calls ‘quasi family/corporate foundations’. As in China, multinationals tend to be leading CSR efforts, using strategies developed from their experiences elsewhere. For example, Intel has trained over 2 million K12 teachers (about 15 per cent of all K12 teachers) to advance education transformation. It has also launched an Innovation Initiative to incubate future leaders of the non-profit sector.
Multinationals are leading the way in Indonesia too, says Natalia Soebagjo. ‘Resource companies took the lead in CSR, focusing on community development around their sites. Now other companies, in particular companies with international markets, are following suit.’
Why do they do it?
As noted above, there are a number of reasons for the increase in corporate philanthropy: peer or official pressure, general social expectations, desire for improved public image (and possibly increased sales), desire to make restitution for wrongs human and environmental – as well as a genuine wish to promote the wellbeing of those among whom they operate.
Marcos Kisil and Paula Fabiana suggest it is most often a form of compensation: ‘Corporations operating in Brazil view CSR as a tool to restore trust among the public by serving those who suffer from the unequal distribution of national wealth originally initiated by some of these corporations.’ According to Serah Makka, ‘the history of organized corporate philanthropy in Nigeria can be traced to the practices of the oil and gas, telecommunication and banking sectors driven by western and local multinational companies, whose corporate philanthropic activities are mostly to remedy the effects of their activities on local communities.’
Much corporate philanthropy follows the interests of the business. Turkish companies, says Filiz Bikmen, fund programmes ‘that tend to be more aligned with their sector and/or customers and employee interests’. Many feel that companies only focus on corporate philanthropy to improve their reputation or to attract more consumers, ‘ignoring the other core functions of CSR’ like workers’ rights and environmental protection.
What do they support?
The corporate philanthropy efforts of most corporate entities in Nigeria ‘lean towards provision of infrastructural and social amenities’, says Serah Makka, adding that ‘it is common for companies to adopt a quasi-governmental role’ where government has been unwilling or unable to provide the social amenities expected of it. Nor is Nigeria the only place where corporate giving is expected to pick up the loose ends of welfare provision. We have noted that this is true of Russia and Colleen du Toit remarks that the South African government ‘depends on the NGO sector to provide many services which should be within the remit of government, for example welfare services, early childhood development, healthcare etc’, and, as mentioned earlier, a quarter of NGO funding comes from business. Education is the biggest focus for CSI in South Africa, accounting for 40 per cent of the total, ‘due to the crisis in education in South Africa and companies’ need to foster the next generation of skilled professionals’.
The most popular areas for the top 30 companies listed on the Istanbul Stock Exchange are culture and art (23 per cent), education (18 per cent) and sport (10 per cent). Thornier issues like human rights are generally avoided, says Filiz Bikmen, though an exception is the Dogan media group which has launched a widespread campaign to end domestic violence. In the Arab region, says Atallah Kuttab, corporate philanthropy has made little headway in ‘tackling the key problems facing Arab societies such as building an education system that creates opportunities for young people, youth employment, better health systems, etc’.
Corporate foundations and family foundations?
In many countries there is no clear distinction between corporate foundations per se and the foundation of the family that set up the business. Much corporate philanthropy is done through CSR programmes or other philanthropy initiatives undertaken directly by the company.
In Indonesia, says Natalia Soebagjo, ‘major Indonesian corporations started off as family conglomerates, and the distinction is very vague.’ In the Arab region, says Atallah Kuttab, family foundations have grown out of foundations that were more closely related to the business. In China, where ‘the corporate foundation is still a new phenomenon’, says Cy Yeung, there is more of a tendency for successful businesspeople to set up their own family foundations.
However, both Colleen du Toit in South Africa and Meenakshi Batra in India report that the foundations of high net worth business people are not connected to the corporate foundations within their companies. In Mexico, too, the difference is clear: with family foundations ‘resources come from the assets of the family and the board is chaired by a family member or even made up of family members’. With corporate foundations, resources come mainly from the corporation, and the chair of the board ‘is usually someone who represents the corporation’. However, notes Jorge Villalobos, these distinctions are not always carefully observed in practice.
In Brazil, family philanthropy has played little part in social investment but this may be changing as personal wealth increases and families begin to establish their own foundations independently of the companies from which they made their fortunes. Although there are currently no tax incentives for family foundations, their independence from the need to act in the companies’ areas of interest may make them more attractive.
Going it alone or with others?
In Russia, says Natalya Kaminarskaya, ‘most companies tend to implement their programmes themselves, not trusting non-profits as partners. They more willingly partner with the state.’ In China successful businesspeople setting up their own foundations tend to operate their own programmes because ‘grassroots NGOs are not well developed’.
In Indonesia, says Natalia Soebagjo, corporates operate their own programmes but often in cooperation with local CSOs. ‘Very few, if any,’ she notes, ‘do grantmaking.’ More often, a range of instruments is used, from grantmaking to direct operation of programmes. Mexico, India and the Arab region all fall into the ‘bit of everything’ category.
In Mexico, remarks Jorge Villalobos, this is often an evolving process: when they are new in the field, companies operate their own programmes; later, as the initiative grows, they often form partnerships with CSOs. In addition, many government agencies are ‘authorized donees’ and receives corporate grants. Some Indian companies operate their own programmes, remarks Meenakshi Batra, but many work with NGOs (though other Indian foundations continue to be operating rather than grantmaking out of a lingering distrust for NGOs). It is expected that this trend will increase: ‘With more and more corporates giving, they will outsource their programmes to NGOs.’
In Brazil, some companies take a simple ‘cheque-writing’ approach because it is easy. Some, more sophisticated, have their own in-house team, ‘a foundation-type institution or department’, as Marcos Kisil and Paula Fabiani put it, which are responsible for the management of ‘engagements’, whatever form they take. Often they will work on their own programmes because it gives them more control over how resources are used. Where partnerships exist, Brazilian companies tend to form them with reputable non-profits ‘because of their established reliability and proven success’.
Most Turkish companies do not have large teams for corporate philanthropy or CSR, says Filiz Bikmen, so companies that run ‘social responsibility’ projects tend to invite an NGO (generally one that is well known and credible) ‘to co-design a project that adheres to the companies’ various market and operational criteria’. Sabanci Foundation is the only Turkish family/corporate foundation with a programme that allows NGOs to apply for grants in a structured manner and supports them through a specified set of activities with a dedicated team of experts. The Vodafone Foundation in Turkey provides grant support for a select few multi-year initiatives.
Although the Turkish government has a general expectation that companies will contribute in some way, says Bikmen, ‘this expectation is not explicitly defined nor actively encouraged’. International agreements rather than domestic expectations ‘are leading Turkey in this direction, for example the EU project on CSR as a vehicle for harmonization, competitiveness and social cohesion which initiated new debates on the role of companies and government with regards to CSR’.
In Russia, says Natalya Kaminarskaya, ‘there is no official obligation for companies to be socially responsible. The only exception is a formal requirement for government-owned companies to produce social reporting. But it is expected by both the state and the public that companies will support social causes.’
Even in India, where a bill to make CSR reporting mandatory is in the process of becoming law, the government has held off making CSR obligatory. The bill stipulates that the company should devote 2 per cent of ‘the last three years’ average net profits’ to CSR. If they don’t, the board must provide detailed reasons for not doing so in the company’s annual report.
Arab foundations should be well placed to engage with policymakers and take part in setting the reform agenda, believes Atallah Kuttab. At the moment, however, this is impeded by the absence of a favourable legislative framework. At a recent meeting in Cairo, foundation representatives from across the region declared their intention of drafting a foundation law and advocating for its adoption by the region’s governments.
Apart from India, South Africa is the only place where legal requirements for corporate giving exist. Apart from the BEE Act, there are a number of industry-sector charters setting out corporate obligations. The Mining Charter, for example, requires mining companies to ensure that local communities benefit from mining operations. In practice, says Colleen du Toit, this is not working as intended and ‘the BEE codes and associated legislation are being revised’. Despite that, ‘the stipulation for 1 per cent of net profit after tax to be invested in socio-economic development has ensured a reliable source of income for many South African NGOs’. The corporate sector in fact provides at least a quarter of funding received by the NGO sector. As well as CSI, the government encourages business to partner with government and NGOs on development projects. This approach is not without its detractors: ‘Analysts point out that both business and civil society are performing roles that rightly belong to government.’
The Chinese government encourages rather than obliges state-owned enterprises to practise CSR. SASAC (State-owned Assets Supervision and Adminstration Commission) released guidelines recommending state-owned enterprises to publish their own CSR report by the end of 2012 (at the time of writing, there was no information as to how many had done so). It is SASAC’s view, says Cy Yeung, that enterprises that engage in CSR will ‘increase their creativity, add value to their brands, and improve their employees’ qualifications’ in addition to the social and environmental benefits that accrue.
The same situation, more or less, applies to Brazil, though curiously Brazilian corporate giving may have been stimulated by the fact that there are ‘almost no tax incentives for individuals or families to donate’, say Marcos Kisil and Paula Fabiani. By contrast, corporations have enjoyed tax benefits for grantmaking to children’s rights, culture and sports projects and to state-certified organizations.
Most respondents commented on their countries’ unhelpful fiscal systems. In Nigeria, philanthropy in general is ‘yet to be adequately incentivized or regulated’, says Serah Makka. The Tony Elumelu Foundation is currently proposing a bill that, among other things, would provide tax incentives to corporate (and other) donors, while also providing a regulatory framework for the sector. In Mexico, the fiscal regime ‘limits donations by stipulating that corporations can’t deduct grants over 7 per cent of their profits of that fiscal year’.
Is corporate philanthropy becoming more thoughtful and less a response to immediate needs? Up to a point. Much of Chinese philanthropy is focused on ‘reactive giving’, says Cy Yeung, while Atallah Kuttab remarks that in the Arab region corporate philanthropy is mainly ‘charitable’. However, new trends are evident in many places. ‘Recently, to reduce risks and increase the impact of social investment,’ say Marcos Kisil and Paula Fabiani, ‘corporations are developing new forms of collaboration. Joint projects with other private institutions and partnerships with government have become more common.’ Fundo Vale, for example, works in collaboration with public, private, national and international companies or NGOs to support projects related to sustainability issues. The fund is primarily maintained by Vale, one of the largest Brazilian mining corporations.
Meenakshi Batra observes that ‘Indian philanthropy is moving from being charitable to being development oriented. A lot of learning is taking place as corporates look closely at quality issues and try to ensure that their interventions are meaningful.’ But she stresses that these are early days: funding portfolios, while growing, are still small. In South Africa, says Colleen du Toit, most large corporates are careful to invest in sustainable programmes that support real social change and development.
Employee community involvement
Companies in many places are beginning to encourage employee community involvement in the form of payroll giving, volunteering and in-kind contributions, often ‘matched’ by the company. In the Arab region, Atallah Kuttab notes greater ‘encouragement of staff to get engaged in voluntary work’, while Marcos Kisil and Paula Fabiani note a similar phenomenon in Brazil. In South Africa, too, there is growing business interest in employee involvement, though the reasons are not entirely clear. The same goes for Turkey, where the Corporate Volunteer Association, established in 2002, helps to build the capacity of companies to design and implement employee volunteer programmes and to match them with NGO partners. It has 60 members, two thirds of which are major Turkish companies, the rest multinationals. However, Filiz Bikmen points, 90 per cent of companies in Turkey are small and medium-sized enterprises, the category that is least active in corporate philanthropy.
Overall effect of corporate philanthropy
It increases the amount of resources donated, says Jorge Villalobos, and increases intra- and cross-sectoral partnerships. It also ‘improves the reputation of the corporate sector by encouraging the general public to view corporations as involved social actors as well as just generating profits.’ ‘From a low base,’ concludes Natalia Soebagjo, ‘corporate philanthropy is making an important contribution, particularly in a country like Indonesia where income disparity is so wide that the abyss between rich and poor often feels insurmountable.’
In India, ‘it is drawing attention to wider stakeholder engagement in social and development issues; it’s engaging employees … through volunteering, awareness building and individual (payroll) giving; it’s bringing in much-needed funding for NGOs to continue their work as international funding increasingly dries up.’
In the absence of reliable monitoring and impact assessment, Colleen du Toit points out, the overall effect remains difficult to gauge. ‘Most South African companies are reluctant to spend on monitoring and evaluation, preferring to use available funds on actual CSI expenditure which can be “counted” towards their BEE Scorecard points.’ However, compliance with international accountability codes such as the Global Reporting Initiative (GRI) and South Africa’s own King Codes on Corporate Governance is gradually resulting in better planning and management and reporting of results.
Others believe that the real results are yet to emerge. Atallah Kuttab, for example, believes that the growing insistence on results from business ‘will drive recipient NGOs to focus more on results and ways to measure results, which will eventually improve the performance and accountability of the sector generally.’
‘Business can do more than give,’ argues Cy Yeung. It has an ‘immense opportunity to do well by doing good through shared value’. He sees the opportunity for business to become involved in social innovation in areas like healthcare, ageing, education, the environment and social services delivery to ‘ignite another 30 years of growth’. For that to happen, though, some radical rethinking of the role of corporate philanthropy will be necessary. Until that happens, he thinks, it will remain the ‘icing on the cake and just nice to have’.
1 Attributed to Ismid Hadad of the Association of Indonesian Philanthropy (PFI).
Alliance would like to thank the following for their contributions to this article:
Meenakshi Batra Director, CAF India
Filiz Bikmen Independent philanthropic consultant
Colleen du Toit Director, CAF Southern Africa
Paula Fabiani Executive director, Institute for the Development of Social Investment (IDIS), Brazil
Natalya Kaminarskaya Director, Russian Donors Forum
Marcos Kisil President, IDIS, Brazil
Atallah Kuttab Founder and chairman, SAANED for Philanthropy Advisory, Arab region
Serah Makka Policy manager, Tony Elumelu Foundation, Nigeria
Natalia Soebagjo Center for the Study of Governance, University of Indonesia
Jorge Villalobos President and CEO, Cemefi, Mexico
Cy Yeung Director, Corporate responsibility, Intel China
Andrew Milner is associate editor of Alliance. Email email@example.com