The Rise Of Social Impact: A New Paradigm?

Social impact is in vogue. Ensuring one’s giving has a concrete and timely social impact is a preoccupation that is gaining traction amongst philanthropists across the globe. In a recent survey of over 400 high net worth philanthropists conducted by BNP Paribas Wealth Management and Forbes, 43% of those starting out in philanthropy expect meaningful impact in less than 5 years, whereas immediate impact is of less importance to more than half of their experienced counterparts, who are willing to wait for over 25 years (http://tinyurl.com/nwwr8jv).  The clients we advise are increasingly looking to integrate social impact into their philanthropy strategies. Will social impact be the most important driver for the philanthropists of the future?

The Australian Centre for Social Impact describes social impact as “outcomes-led adaptive thinking and action […] that contributes to creating a positive, meaningful and sustainable change for the benefit of society” (http://tinyurl.com/qx2bnn7).  It is the unwavering focus on outcome that marks a break from the past. Rather than simply helping those suffering from extreme poverty, for example, one should be thinking constructively about addressing the root causes and providing routes out. The Chinese proverb, popularised by Gandhi, is oft-cited:  “give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime”. Some of the impetus behind the growth of social impact can be attributed to the dynamics of the competitive charitable sector. As charities fight to attract donors, providing tangible proof of your social impact can be a real differentiating factor, not to mention justification for one’s existence! It is also a testament to the increasing influence of more traditional business thinking on the sector; the last few years have seen exponential growth in impact investing and venture philanthropy, whose roots lie in venture capital and private equity. Social impact evaluation is becoming more widespread, with organisations such as the European Venture Philanthropy Association (“EPVA”) undertaking to standardise impact measurement methodology in order to broaden its use. Unsurprisingly, the EPVA was set up by people with a private equity background. 2010 saw the first social impact bond issued by Social Finance UK, which pioneered the idea of payment by results for a prisoner rehabilitation programme. Funds are raised upfront from investors in order to allow the service provider to carry out its programme and investors will be repaid by the government only in the event of success.

For those from the business world, demanding performance backed up by concrete results seems logical, and necessary. Over a third of our clients, mainly entrepreneurs, come to us with a desire to effect real change.   Entrepreneur-cum-philanthropists, or “philanthropreneurs”, are keen to bring their business know-how and energy to their philanthropic projects in a desire to improve efficiency and ensure their money is well spent. Take the example of Michael de Giorgio, who runs his Greenhouse Charity like a business, with demonstrable results, impact measurement and accountability to donors. Some foundations are broadening their remit, allocating not just grants but also entering into mission-related investments, which seek to achieve specific social goals aligned to their mission but with financial returns. One client’s foundation, which funds innovation in the fight against cancer, has ensured that 30% of its endowment is invested in biotech companies, predominately those working on innovative solutions for cancer diagnosis. The line between non-profit and for-profit activities is blurring, notably with the growth of social entrepreneurs and their drive to address social issues whilst still producing a financial return.  We recently helped an entrepreneur client, who whilst unaware of these trends, embodied the social impact approach in wanting to set up a project in her home country to create employment in a sustainable manner, and not just by giving money. She established a hub for social entrepreneurs and was able to garner interest for her impact-investing fund focused on North Africa.

Yet, it is worth remembering that many philanthropists are motivated by passion and will give to causes they believe in, even if impact is harder to prove or is unlikely to manifest itself in their lifetime. Take the example of a large hedge fund boss we worked with. He takes pleasure in his philanthropy precisely because there are no guidelines or rules constraining him. He gives according to gut feeling and to organisations he has come across on his travels.  In our experience, there is no one-size-fits-all when it comes to philanthropy. Just because a more formalised impact assessment did not exist in the past, does not mean that strategic giving is new. After all, it was Aristotle who said “to give away money is an easy matter in any man’s power. But to decide to whom to give it, and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.”