Philanthropy as a new way to mobilise finance for impact
At the first annual EU Sustainable Investment Summit, Dafne Chair Carola Carazzone, represented the philanthropic sector at the fourth session titled “Open your mind: New ways to mobilise finance for impact”.
Carola Carazzone set out the diversity of the philanthropic sector, referring to foundations, corporate funders, community foundations and individuals using their own financial and non-financial resources for the public good. She highlighted the unique ability of philanthropy to respond in real time to the critical challenges facing our societies, while simultaneously taking a longer-term view. When it comes to new ways to mobilise finance for impact, she noted the increase in foundations and philanthropic organisations that are looking into how to align their asset and endowment investments with their public benefit missions, including how to consider climate change in relation to the source and management of their operational and endowed funds.
An example of this shift within the sector is the Philanthropy Coalition for Climate, which aims to mobilise the European philanthropy sector to address climate change as a cross-cutting and societal crisis. This mobilisation is underpinned by the #PhilanthropyForClimate commitments which is a global movement and call to action to all foundations, offering a framework to integrate across the full range of their work including operations, programmes and investments. Because of its resources, independence and ability to take risks, philanthropy has an essential role to play in addressing the climate crisis and deepening inequalities. Aligning investment strategies and their implementation with a rapid and just transition to a net zero economy is an essential pillar of our vision for all foundations to integrate climate across their portfolio. Already, over 350 foundations have committed to act on climate including through their investments tangibly demonstrating this shift towards aligning asset and endowment investments with public benefit missions.
Assets for public good
Philanthropic organisations handle the grant giving and the investment of the endowment often in a very independent and diverse way. For the majority of philanthropic organisations asset administration of their endowment and their grantmaking/operational activities are two separate areas of activity with not much interlinkage. However, more philanthropic organisations have started considering that their asset administration should at least, to some extent, be linked to their mission and/or be supporting start-ups/social enterprises/businesses also in the form of “impact investing” etc. Low interest rates have led to more attempts to create more impact with mission-linked or social investments. Mission-related investment refers to the dedication of the portfolio of assets and investments of a philanthropic actor to its public benefit mission. Social (impact) investment refers to investments made by different types of investors (including foundations, VP funds, impact investors and institutional investors) into companies, organisations, and funds with the intention to generate primarily a measurable, beneficial social or environmental impact alongside a financial return.
Philanthropic endowments do impact investing across different asset classes with an initial focus on private equity, venture capital and green infrastructure with a range of returns from below-market to above-market rates, depending upon the circumstances. Given that some national laws require a preservation of the value of the endowment, and mission-related investment or investment in social enterprises do not always generate the required financial returns (or are considered too risky investments) or giving loans is not permitted, barriers and legal uncertainty around this type of investment exists in some countries. In addition, such actions may not be in line with the mission/statutes/will of the founder, which may suggest a certain risk appetite.
Grantmaking for social investments
Apart from the asset administration side, more philanthropic organisations also use their grantmaking (non-repayable donations) or operational programme activities to support social business/green business by giving them financial support/grants/loans or by lending organisational support (e.g. developing skills or improving processes). Some national laws do however not allow for the “programmatic” side to generate returns. Hence barriers to some type of these engagements (e.g. if loans are given in the grantmaking side) are reported in some countries.
Some philanthropic organisations together with innovative civil society actors, impact investors and social entrepreneurs act as real thought leaders and incubators for social investments. While some foundations are considered as thought leaders for social investments, there are incubators and accelerators for social investments out there that could be considered as “pipelines”; and these elements would have to be connected systematically.
Cross-border philanthropy and collaboration opportunities
The philanthropic sector would benefit from better implementation of the non-discrimination principle, which does not yet fully apply to public-benefit organisations and their donors. It is important to ease tax effective cross-border donation from individual and corporate donors to social economy actors, as well as ease their tax-effective asset allocation/investment of the endowment into social economy actors.
The EU could also develop measures and incentives to stimulate more collaboration among the philanthropy/foundation sector and public sector, in order to move EU policy priorities, including the green transition, forward, for example, through InvestEU. We also ask the Commission to call for national measures to ease/stimulate more foundation engagement in impact investing on the programme side, and more mission-related investments on the asset allocation side.
By Hanna Hanses, Philanthropy Advocacy
Hanna Hanses is Junior Manager at Dafne (Donors and Foundations Networks in Europe) in Brussels. Since joining Dafne in 2019, she has been part of the Legal Team of Philanthropy Advocacy, a joint initiative of Dafne and the EFC (European Foundation Centre). She holds an LLM International Human Rights Law from the University of Essex, UK, focusing her thesis on climate-induced displacement. She received her LLB Bachelor in Law from Ghent University, Belgium. Hanna brings with her a multi-cultural experience, having lived in inter alia the Democratic Republic of Congo, Switzerland and Belgium.