Following from my earlier article on impact investing vs philanthropy, I wonder if we can reform how philanthropy and finance operate to make them more effective and holistic. My vision? To promote increased awareness and create a constructive collaboration to accelerate systemic change towards a sustainable society
Contribution of philanthropy
Philanthropy is fundamental and important to our society but at the same time I would like to see a more holistic and coordinated approach to mitigating our ramping social and environmental issues. It would actually be interesting to know how consciously philanthropists separate where or how they made their money from where and how they give it away.
Philanthropy currently makes huge amounts of money available to good causes. It creates a flow of wealth that can usefully complement the mission of impact investing.
However, there are still massive issues in our society – poverty, inequality, climate change, access to education etc., which are identified in the United Nations’ 17 Sustainable Development Goals.
We need systemic change to tackle these but although I see impact investing as the most powerful way to create this societal shift, I acknowledge that we will not be able to address all of these pressing issues in a timely fashion by simply changing the way companies or investments operate.
Philanthropy can be a very powerful accelerator of some changes that would not otherwise be commercially viable, for example by supporting change in the education system or reducing poverty or social inequality. These are areas in which Philanthropy is very active and can contribute to significant societal improvements.
Furthermore, philanthropic funds can be directed towards lobbying efforts, thereby ensuring that political leaders and institutions implement changes which are both effective and fair. In this way social and environmental concerns are not eclipsed by the drive for profit maximisation.
I see philanthropy as having a huge support function. It makes sure that no one is left behind. Philanthropy can be seen as the fire brigade of our society. It helps where there is market failures that businesses cannot address, it can quickly channel resources where they are needed, e.g. when disasters happen. In the aftermath of an earthquake, or as right now with the COVID-19 emergency, we cannot wait for the market to adjust or start-ups to be created to provide support to those affected. While new technology can help us prepare and respond to future pandemics, as it’s already happening, in the meantime philanthropy can quickly finance extra relief to help save lives.
Philanthropy is therefore a powerful first responder for society. I wish that philanthropy could operate in a more coordinated and business-like way, be efficient but without separating money and the people who made it. Separation of roles is damaging to everyone. For instance if a successful businessman or woman give their money away to people who don’t have business or commercial acumen or several charities or foundations addressing connected issues but not cooperating, what I fear and indeed what I see happening is that significant resources might be wasted.
Can impact investment and philanthropy work together?
The two big questions for me are: Can we somehow reform the way philanthropy works? If yes, can we help philanthropists think and operate in a more holistic and coordinated way to make philanthropy more effective?
Transforming philanthropy would help to align our society, thus using the available firepower in the most effective way. In my opinion this can be done through the complementary collaboration of philanthropy and impact investing.
There is no point in fighting over which is more powerful or noble. The question is which approach will best allow us to achieve our common objective: to help others.
Blended finance in emerging markets is an existing example of joining forces to navigate different levels of risk in a project[1], leading to positive results for both investors and communities. It combines grant/charity funding and donations with private or institutional investment to de-risk investments in early-stage projects or businesses. Stratifying the risk allows charities to take the exposure to potential bigger initial losses, allowing private investors to better protect their investments thus unlocking larger financial resources.
The blended finance approach through which philanthropy enables the scale up of commercial financing can be expanded to many other markets so as to bring positive systemic change. Fortunately, many examples are already here.
What I like about the idea of philanthropy and impact investment joining forces is its circularity. It could be expanded even further, to encompass all facets of society: both profit and not-for-profit, business and financial sectors, philanthropists and charities, governments, and academics all working together towards a common goal. Society at large would be working in a more connected and holistic fashion. This differs considerably from the silos in which we typically function today. Which I believe is a consequence of the disconnection that often we feel inside us! Body versus soul, head versus heart, private life versus professional life, making money versus doing good, due to the mindset that many of us have created while growing up and that our society keeps reinforcing, in a vicious circle. In my personal experience, when I was an investment banker I didn’t feel comfortable in bringing my feelings and personal values to my workplace, instead I should leave them at home, for the weekend or to teach to my kids.
We should try to bring together all these different facets of society to agree on what our definition of sustainability actually is, what it really means, what it actually looks like and how we are going to reach it. The objective is to reconnect with each other, to talk to one another, to understand what the issues are, what the solutions could be and above all to work together, as a single body, to achieve them.
I understand that this may appear utopian, but I see so many positive signs that this is already happening everywhere, with increased consciousness emerging, so I’m very optimistic that this vision will be realised!
https://www.linkedin.com/pulse/how-impact-investing-philanthropy-can-unite-tackle-worlds-mele
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