Philanthropy Today: Key Approaches Against the Backdrop of Impact Investing


May 3, 2018

6 min read

Summary Points:

  • Three possibilities as to why philanthropists persist in supporting social causes at scale when they may actually profit from them
  • Impact investing represents a fresh way of thinking that has many potential implications relevant to how philanthropies might formulate their strategies
  • Join the AVPN Conference plenary session “Philanthropy Today: Assuming Greater Strategic Performance” to hear from top philanthropists on their approaches

In recent years, the social investing landscape globally has been increasingly dominated by discussions relating to “impact investing” – ie, the deployment of capital in pursuit of both financial and social returns. Often times, this is fueled by the belief that individuals and organizations aiming to address significant social challenges can “have it all” by changing the world while also seeing a full market rate return on their money.

This leads to a provocative question: if true, why would anyone seeking social impact choose to engage in philanthropy – and actually give their money away?

In fact, this question is far more than just provocative, it is important, given that the magnitude of funds actually donated to social causes dwarfs that amount of impact investment.   According to the latest survey by the Global Impact Investing Network (GIIN), the total impact investing market globally in 2016 totaled “at least” $114 billion in terms of assets under management, ie the total amount of money deployed over multiple years that is still invested in active deals. In contrast, total charitable contributions made during only the year 2016 totaled $390 billion – in the US alone.

So who are these people, and why do they persist in supporting social causes at such extraordinary scale with grants, when they might actually make money? 

Relying on the US data, the answer to the “who” question is quite clear – these “philanthropists” comprise a broad and highly diverse array of parties by form, areas of focus, demographics, and size.  Indeed, they run the gamut from the Gates Foundation, which donates more than $4 billion annually, to my 95-year-old mother and the $10 a week she gives to her church.

The “why” question is somewhat more perplexing and suggests several possibilities.

  • They may not have contemplated any alternative approach, possibly due to lack of awareness, the belief that the promises of impact investing are oversold or simply not relevant to their situation.
  • Or, they might have a pro-active belief that the causes they support and impact they are seeking simply do not lend themselves to the creation of significant, sustainable earned revenue streams so fundamental to impact investing. While my mother probably belongs to the first group, it is intriguing to think that as a lifelong Lutheran she recognizes that Martin Luther’s campaign against the sale of indulgences 500 years ago probably eliminated any church’s best shot at building a robust profit model based on direct sales of “products” to their “customers!”
  • Alternatively, they might be proponents of impact investing and see significant ways in which philanthropy can actually enhance its growth or effectiveness.

This question merits exploring, as philanthropy remains not only the biggest source of funding for creating social change but the category most accountable for actually generating results. While impact investing purports to have a “double bottom line,” it is not at all clear what degree of commitment impact investors truly have to the social rather than the financial side of the ledger. That said, it is increasingly evident that hype notwithstanding, impact investing represents a fresh way of thinking that has many potential implications relevant to how philanthropies with very high aspirations for social impact might formulate their strategies.  On balance, I would submit that impact investing has:

  • Focused much attention on the “revenue models” of social purpose organizations, which has challenged their leaders and funders to be more purposeful about developing sustainable sources of non-grant income. This has the potential to dramatically improve the fiscal health of many nonprofits and better leverage grant funding in general to increase its social return on investment.
  • Caused philanthropies with large endowments to confront the fact that their ability to drive social change is not a function exclusively of the 5% of assets they deploy in grants but also may be advanced by the 95% they invest to generate the 5%.
  • Amplified interest in promising ideas for creating social impact through income-generating activities that may be far too high-risk for mainstream venture financing. These ideas might be attractive opportunities for philanthropic grants to support program pilots, business-model testing or market development, perhaps as part of a “blended finance” deal structure.
  • In general, increasing attention to and accountability for the social impact created by mainstream businesses can only be a positive thing.

Because philanthropists are ready to “risk it all” to improve our world, and therefore have vastly more degrees of freedom in terms of how to deploy their assets, they arguably constitute the class of social investors with the most compelling standing as drivers of social impact. Accordingly, how they actually choose to deploy their assets is critically important to our collective well-being.

There are, in fact, many options, and philanthropies can – and do – look at their potential pathways much differently.  This is evident in the choices made by many private foundations, each of which must determine the type of impact it is trying to achieve and how it can most effectively deliver desired results.

To explore different approaches, AVPN has will be assembling a distinguished panel of philanthropic leaders during its upcoming annual conference, which will be held in Singapore from June 3-7 – all of whom have wrestled with these questions in the context of their own philanthropic strategies:

  • Olivia Leland, Founder and CEO of Co-Impact, a global platform to encourage collaboration among committed philanthropist.
  • Mercedes Lopez-Vargas; President of the Lopez Group Foundation in the Philippines;
  • Shuichi Ohno, CEO of the Sasakawa Peace Foundation in Japan
  • Felix Oldenburg, General Secretary of the Federal Association of German Foundations
  • Khun Vichien Phongsathorn, Chairman of the Khon Thai Foundation in Thailand

Each brings a fresh perspective on the approaches key philanthropists is Asia and elsewhere in the world are taking in a world influenced – or at the least informed – by the phenomenon of impact investing.  This session is not to be missed.

About Author
Paul Carttar
Paul Carttar Founding Director US Social Innovation Fund

Paul Carttar is an independent consultant and also senior advisor to and co-founder of The Bridgespan Group. His work has focused on social innovation, enhancing the effectiveness of philanthropy, and scaling solutions that work.

Paul brings more than thirty years of experience across the public, private, and nonprofit sectors to his work. He recently served as the initial director of the Social Innovation Fund (SIF), a priority program of the Obama Administration that has mobilized nearly a half-billion public and private dollars to grow promising nonprofits with evidence of impact in low-income communities.

Prior to the SIF, Carttar was an executive partner with New Profit, Inc., working with entrepreneurial nonprofits to expand their scale and impact. Previously, he was chief operating officer for the Ewing Marion Kauffman Foundation, one of the nation’s most innovative private philanthropies, where he oversaw all program activities.

Carttar began his career in the public sector as an analyst and assistant economist for the U.S. Senate Budget Committee and subsequently served as research assistant to Dr. Arthur F. Burns, former chairman of the Federal Reserve Board, at the American Enterprise Institute. In 1982, he joined Dr. Burns, then U.S. Ambassador to West Germany, as his Special Assistant in Bonn. Later, Carttar spent several years with Bain & Company, the international corporate consulting firm, and held executive positions in two private, venture-capital funded companies in the healthcare industry.

Carttar is a frequent writer and speaker on social innovation and other nonprofit issues, including delivering keynote addresses at conferences in Kaliningrad, Russia; Dublin, Ireland; Singapore, and Seoul, South Korea.

Carttar graduated with highest distinction from the University of Kansas with a B.A. in Economics and English and received his M.B.A. from Stanford University’s Graduate School of Business.

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