23 March 2023

Diving into the “EU Philanthropic Capital study” with DG ECFIN

Philea and the European Commission Directorate-General for Economic and Financial Affairs (DG ECFIN) together took a closer look at the “Philanthropic Capital Study” which the European Investment Advisory Hub (EIAH) had issued in November 2022.

The hybrid event, “Diving into the “EU Philanthropic Capital study” – Mission-Related Investments and Foundations” took place on 7 March 2023 in Philanthropy House, Brussels and attracted around 80 interested stakeholders. It was the first time that the main researcher of the report, Thomas Venon, discussed his key findings with philanthropy representatives. Foundations and philanthropic organisations represented at the event included:

A new momentum

In her opening remarks, Delphine Moralis, Philea, underlined the new momentum that enables the mobilisation of philanthropic capital towards Mission-Related Investments (MRI). The EU’s Social Economy Action Plan (SEAP) helped create this momentum, as it proposes better synergies between philanthropic donations and MRI. To this end, the SEAP suggests assessing the launch of co-investment mechanisms around targeted mission areas in political priorities in the context of InvestEU.

Traditionally, Moralis explained, many philanthropic organisations considered the grant giving and investment of the endowment as two separate areas of activity with not much interlinkage. We have however seen a move over the past years, whereby foundations increasingly consider that their asset administration should, at least to some extent, be linked to their mission[1]and/or support start-ups/social enterprises/businesses also in the form of “impact investing”. Philanthropic organisations nonetheless continue to face obstacles: for instance, in some countries the law requires a preservation of the value of the endowment, while mission-related investment or investment in social enterprises do not always generate the required financial returns (or are considered as being overly risky investments). Another issue can arise when giving loans is not permitted.

According to Moralis, the European Commission should play a role in stimulating more MRI and impact investing (II), especially now that interlinked crises in Europe require philanthropy to unleash its full potential. Indeed, the “Philanthropic Capital Study” as announced in the SEAP could provide the basis for the assessment of innovative tools. With InvestEU, there is a potential to de-risk, at least partly, foundations’ investments through the design of products or the development of tools within a co-investment facility.

The view from the European Commission

Ines Goncalves, DG ECFIN, speaking on behalf of the European Commission, welcomed the study as the evidence needed in terms of analysis of the landscape of philanthropic capital to generate InvestEU tools in an evidence-based way. She highlighted that the study confirms that the philanthropic sector has financial potential for mission investing and is equipped with leading early adopters to build mission investing expertise, which they have done in the absence of a conducive legal and fiscal landscape. Goncalves recognised philanthropic actors as drivers of innovative approaches and, in conclusion, emphasised philanthropy’s important role in the expansion of the European impact and social investment space.

Deep dive into the study

The tone was set, and the panel kicked off with an interactive format where researcher Thomas Venon brought some of his key findings to life through the input of representatives of the philanthropic organisations that contributed to the study in recent months.

Venon introduced the study by noting that philanthropic organisations can uniquely make investments aligned with their missions. To build on this unique contribution to the impact investing space, he referred to the need for appropriate legal and fiscal frameworks for the MRI space to be able to grow. He used a sample approach of 23 foundations of different sizes, structures and origins across jurisdictions to illuminate the landscape of investments through different relevant angles. Some quantitative observations he highlighted include a strong concentration of the resources. This comes with a note of caution, since having a few very large market players dominating the space can hamper market building.

Stefan Einarsson brought in the perspective of the Swedish national association which has in its membership also the smaller foundations that were beyond the scope of Venon’s study. Furthermore, as a researcher he sees that MRI is generally still at a low level. Some reasons he cited for this are the legal and tax frameworks, notably the need for perpetuity. Furthermore, most foundations focus on rather narrow missions, which they need to follow in order to be granted tax-exempt status. Additionally, the investment language is very different than foundations’ language which focuses on missions: philanthropists’ primary goal is to create something they believe in and not to generate return. He challenged the panel and audience by asking how to create systems that leverage knowledge of philanthropic ways of operating.

Catalyst role of foundations

Venon picked up this idea of philanthropists as being catalysts for this emerging market, notably by making grants to create pipelines and by creating financial instruments for investees. To demonstrate a few examples of “creatio ex-philanthropia”, the floor was given to Marco Gerevini from the Fondazione Social Venture di Giordano Dell’Amore (FSVGDA) and Lourdes Marques from the ONCE Foundation.

The FSVGDA is a good example of a foundation which has developed new structures to create bridges between grants and MRI. They have done so through “self-extinguishing” shares. Marco Gerevini introduced FSVGDA as a foundation created by the Cariplo Foundation dedicated to impact investing. Cariplo’s objective was to separate the risks of experimenting with new financial tools from the Cariplo foundation. One avenue they have explored is the “impact grant” where the equity is invested in a social enterprise partially through self-extinguishing shares where if impact KPIs are reached these shares become a grant. By doing so, the “impact grant” incentivises the social enterprise to reach the impact KPIs and, at the same time, it reinforces the capital so that it can attract new financial resources, either equity or debt.

Foundations are also strong in creating synergies between the foundations’ work and their (sometimes sole) investee related to their mission. The ONCE Foundation is an example of how an organisation is able to add value and multiply its social impact through a sustainable and social philanthropy model. To demonstrate this avenue, Lourdes Marquez from the ONCE Foundation explained how the foundation and ONCE (Spanish National Organisation for the Blind) established ILUNION with the aim of generating quality employment for persons with disabilities through social economy business projects and their endowment investments. Marquez explained how the ONCE Social Group employs more than 72.000 people, 56% persons with disabilities, thus turning disabilities into capacities and universal accessibility as a competitive advantage.

Leveraging foundations’ expertise

Venon then focused on the idea of the value of specialisation. This concept refers to the value and expertise offered by foundations in terms of their mission areas. Foundations indeed draw expertise from their origins, for instance the business they are related to or of which they are the owner, the savings bank in a specific region they derive from, or from their philanthropic activity.

To demonstrate this unique value, Steffen Lueders from the Novo Nordisk Fonden introduced the REPAIR Impact Fund as an example of how the know-how of the corporate entity owned by a shareholder foundation can be put at the service of the latter’s philanthropic mission. He explained how the holding company is aligned with fulfilling the foundation’s mission by investing in companies which are experts in the fields of improving the health of people and the planet. He referred to antibiotics as an example of medication that people should not use too much, because they would risk becoming immune to its effects. When it became clear that pharmaceutical companies were not interested in addressing this issue, Novo Nordisk filled this gap by providing the necessary capital for this important research.

The relationship between the ERSTE Foundation and its transferee bank is an example of market building as a foundation originating from a bank. ERSTE Stiftung representative Franz Karl Prueller stated how the foundation combined its access to civil society actors with the bank’s expertise in terms of microfinance. This enables them to offer financial opportunities for NGOs and SEs through, for instance, financial literacy, investment opportunities and subordinated debt. The foundation also succeeded in leveraging its expertise with the result that the bank now adopts more ethical approaches to banking. Prueller concluded by referring to the guarantees provided by the EIF as one of the avenues to support these market-building exercises.

Barriers and solutions to do more

Thomas Venon reiterated the need of pioneers to support the co-creation process of financial instruments that fit the market. He noted that there is little doubt that if we had rules that recognise MRI, the sector would be better positioned to deliver on the potential of MRIs for mission delivery. Additionally, he observed that it is sometimes difficult to convince boards to try out MRIs. Convincing them on the basis of track records of successful MRIs could be helpful. We hence need data and transparency, which is common in scenarios of early-stage market building.

Frédéric Théret from Fondation de France shared insights into barriers in place around MRI. He referred in this context to the struggle to find financial partners, which help to deliver on the financial engineering for the fund. Foundations’ objective is impact, whereas the partners’ objective is to generate return, which are two concepts that are hard to combine. Fondation de France is now setting up an “impact first” fund, which needs to be seen as an investment where you could have no return at all and even lose your money. Théret added that in their experience, it is challenging to find projects that really deliver impact in terms of social issues. The market is very narrow with all investors in France looking at the same tiny projects. He therefore concluded by inviting policymakers to help with creating the social economy model that will rely on MRI.

Wrap up: Mapping the way forward

Thomas Venon rounded up by offering a first set of potential avenues to overcome some of these stumbling blocks. He distinguished between routes of acceleration versus adoption, and laid out how the market could be built where he underlined the need for a systemic approach. He also noted the observable alignment between the InvestEU policy windows and foundations’ missions, as he identified common ground to do something jointly. He pointed to a budgetary guarantee programme and referred to the proposed co-investment facility as included in the Social Economy Action Plan.

With this, the participants entered a debate to reflect on the study and the foundations’ input. Some commented that, whereas the financial market is European, laws differ across the Member States. The specificity of the philanthropic sector needs to take into account that social entrepreneurs are working for profit. So even if they deliver on impact, their investments can in most cases not be put into foundations’ non-profit programme activities. It raises the question of whether for-profit companies can deliver on missions. Investments of the endowment (asset allocation) in start-ups and social enterprises is often considered too risky and not delivering on financial return. Rules may need to change to adapt to new ways of working to enable support of social enterprises both on the programme/grants and asset allocation sides of foundations. The philanthropy infrastructure should play an active advocacy role around this agenda. In addition, concern about the lack of products was stated. Products developed under InvestEU could potentially already offer new tools for foundations to do asset allocation or a mix of programme and asset allocation investments. Intermediaries could do due diligence for the foundations on the start-ups supported by new instruments and a potential co-investment facility.

Next steps should include substantive conversations between the European Commission and foundation representatives on how to co-shape the financial instruments needed to unlock more MRI aligned with the InvestEU policy contexts.

[1] For a definition and some examples of “mission-related investments“ visit here.


Hanna Hanses
Policy Manager