Friday, June 27, 2014

Are We at an Inflection Point for a New Kind of Social Impact Philanthropy?

One of the silver linings of a deadlocked congress is that the President has been forced to come up with more creative ways to stay relevant. Rather than just convening the White House conference that ends with a commission report that may or may not make the 24 hour news cycle, the administration has decided that much more good can be done by leveraging private sector philanthropy in connection with governmental actions (such as  regulatory changes) that don’t need the blessing of Congress. Basically  it all goes back to the idea that companies can get rich and  do the right thing and that government should be there to support what they do. This message ever since the G-8 Social Impact investment forum in London last year seriously endorsed a new more progressive minded approach to aligning capital formation with solving large social and economic  issues culminated in an announcement from the White House this week involving  twenty private-sector investors, including the McKnight, Ford, and MacArthur foundations to commit  a collective $1.5 billion dollars to a public private partnership. The  initiative’s goals include delivering “affordable housing and healthcare for low-income communities, carbon footprint reductions for some of the America’s least energy efficient buildings, fresh produce to food deserts, financial services and education to help lift millions out of poverty.”

All of this activity has generated some discussion as to whether we are now at an inflection point here in the development of a new kind of philanthropy? For example, Jean Case, CEO of the Case Foundation took to the Huffington Post to proclaim so “A new day has dawned. Impact investing offers a unique opportunity to "invite business in" - not limiting their role to that of their foundations or social responsibility programs, but rather enabling and encouraging them to use their core areas of expertise, or their established products and services in these efforts.” Case gives the example of Warby Parker, “using fashion and consumer demand to bring eyeglasses to the developing world at scale.”  Why are philanthropies needed when their funding could easily be drowned out by the private sector? For several reasons, philanthropies can invest in that part of the project where the risk of not getting a high enough rate of return (building affordable housing for example) would preclude (based on their fiduciary duty)  a private sector endowment manager from investing. They might also according to the influential report, Private Capital, Public Good:  How Smart Federal Policy Can Galvanize Impact Investing — and Why It’s Urgent by the US Advisory Board  use their own non charitable investments which can all count towards their mandated annual five percent payout. The investments will be watched carefully for impact and if the indicators suggest positive synergies we can expect that this sector with government help will grow and the old divisions between governmental, corporate and private sector philanthropy will for start to fade as a new urgency enters the minds of the global financial elite to save the planet. This shift in thinking cannot come a moment too soon as the Millennials are expected to receive a transfer of $41 trillion in the coming decades and will want to continue to align their investment priorities with their values.