6 November 2024

Plurality in philanthropy: Balancing long-term impact and urgent needs

In a time of multiple global crises, from climate change to social inequality, the philanthropic sector faces a critical question: should foundations rapidly increase their spending to address urgent needs, or shape their spending patterns to balance the demands of current and future generations?

As the CEO of the Association of Charitable Foundations (ACF) in the UK, I see this debate intensifying among our 450 member organisations. But – and here’s the spoiler alert – there’s no simple answer.

The primacy of mission

“If you’ve met one foundation, you’ve met one foundation” aptly describes the philanthropic landscape. Foundations come in all sizes with a varied array of missions, strategies and approaches.

Some are endowed with the flexibility to decide how much of their capital to spend, while others are legally obliged to invest and preserve their capital to support future generations as well, using only their financial returns to spend in the here and now. Other foundations don’t have an endowment and need to fundraise, while corporate foundations often rely on annual payments from the company which supports them.

This diversity makes it impossible – and undesirable – to apply a one-size-fits-all approach to philanthropic spending. At ACF we firmly believe that this plurality is one of the sector’s greatest strengths, allowing it to tackle both immediate crises and long-term, systemic issues.

Yet whatever the foundation’s set-up, maintaining the value of a foundation’s capital is not a charitable purpose nor an end in itself. Accumulating financial returns without plans to spend them in a timely manner is not acting in the public interest. The purpose of holding capital is to enable the foundation to achieve its mission by supporting the communities and charitable causes that it was set up to serve.

Time as a strategic asset

For endowed foundations, time is one of their greatest assets. They can take a long-term view without needing to be led by fluctuations in the political or economic cycle, or public opinion. This unique position allows them to tackle complex, long-term challenges that other types of institution may struggle to address.

This long-term perspective is particularly valuable for addressing issues such as social justice, education and scientific discovery – areas that often require sustained effort and patience to reach meaningful results.

Yet these same foundations also have the flexibility to rapidly adjust their spending in times of unexpected opportunities, or increased need.

There is no better example to illustrate this point than the contribution made by foundations during the Covid-19 pandemic. Like many across Europe, foundations in the UK responded swiftly, committing over £400 million to emergency funding almost overnight.

The spending debate: present urgency vs. future needs

At the heart of the conversation is a pressing question: should foundations increase their spending in response to today’s multiple crises? This question reflects the challenge of balancing present urgent needs against investing in the innovation that will be needed to tackle the crises at source, while also preparing for potential future challenges.

While perpetuity offers stability and focus over the long-term, some argue that in times of acute crisis, holding back capital for future use can result in missed opportunities for impactful interventions today that could prevent future problems arising. Foundations that prioritise perpetuity over current spending may risk being seen as detached from the immediate needs of the communities they aim to serve.

Others express concern about the long-term consequences of widespread spend-down strategies, worrying there won’t be enough philanthropic capital for future crises or ongoing needs.

It always comes back to mission

The unpredictability of future needs is a factor here. If foundations had spent all their resources during the 2008 financial crisis – a time of significant hardship for many – they would have been ill-equipped to respond to the COVID-19 pandemic just over a decade later.

Again, your mission is key. If your goal is to mitigate the worst effects of the climate crisis, the case for urgent spending is compelling. Climate tipping points are being reached and delaying intervention risks irreversible damage. Whereas if you are seeking to improve social mobility through education, this demands a long-term systemic approach over many years.

I am seeing more and more foundation boards actively recognising that perpetuity is not a default, and exploring all options, in their ongoing pursuit of finding the most effective ways to achieve their mission.

Multiplying the impact

I’m also seeing a growing number of foundations ask themselves a wider question; how can I look beyond the financial returns to put all of the endowment at the service of the mission? Instead of focusing on whether to spend 4% or 5%, how can I use the 96% or 95% on behalf of the communities and causes I care about?

Through mission-aligned investing foundations can ensure their assets are not working against their mission but supporting positive change. And as shareholders foundations can influence a company’s behaviour, by engaging through their investment manager, with the company directly at board level and via policymakers. Success stories include pressuring companies to pay their employees enough to lift them out of poverty, as well as health and climate related changes.  

Across Europe and beyond, foundations are contributing to the growth of social and impact investment, part of a global movement to ensure capital serves the public good. In fact, over $1 trillion is now invested worldwide with this focus.

One UK example is the Barrow Cadbury Trust, which describes its grantmaking as “not the only tool in the box”. Holding a social investment portfolio as well as being an active shareholder across their investments to promote environmental and social justice is a key part of how the Trust pursues mission. This supports the Trust’s strategy of seeking lasting change over short-term interventions.

A call for active decision-making

There are no easy answers to the question of foundation spending in times of crisis. But one thing is clear; preserving capital should not be an end in itself. Viewing your endowment strategy through the lens of your mission is a good place from which to consider two critical questions;

  • How does my mission impact our approach to perpetuity?
  • How can I make full use of all of the other options my endowment gives me to forward our mission?

Foundation spending as a responsive and positive force

By embracing active decision-making and staying responsive to evolving needs, foundations can enhance their impact – both in addressing current crises and preparing for future challenges. This adaptable and strategic approach will ensure that the philanthropic sector remains relevant to the needs of society, both now and into the future.

Foundations have a unique responsibility and opportunity to be a force for good in times of crisis. Now is the time to fully leverage that potential.

This article is part of a series marking the one year anniversary of the international edition of ‘Philanthropy Back the Drawing Board‘. Guest curated by the book’s author, Rien van Gendt, the series shares insights on the prevailing topics and trends in the philanthropy sector:

Authors

Carol Mack
Chief Executive, Association of Charitable Foundations (ACF)