Philanthropy: A shift from “Gifting” to “Investing”
Historically, “philanthropy” was about gifting capital to a worthy cause - gifting being the key term here. The majority of foundations even to this day have distinct teams for growing wealth and then choosing which causes to give that wealth to.
However, there is a clear shift in the way the younger generation approaches philanthropy - and they are showing a greater interest in putting together a “portfolio” of philanthropic investments, as they would a portfolio of for-profit investments, balancing risk and (social) return. This younger generation wants to drive more impact and generate both financial and social returns.
A recent report from Charities Aid Foundation shows that nearly 80% of wealthy donors under 40 years old hold socially-conscious investments, vs. 50-60% for age groups above 40 years old. What’s more, for the younger age group surveyed, 35% of their portfolios included investments in socially-conscious investments vs. 19% for the older generation.
An important benefit of an investing-first approach to philanthropy is a donor’s ability to “recycle” their philanthropic capital - or, put money to good use, then get it back and do it all over again! There are a few ways to do this:
Interest-bearing loans to charities - for example, micro loans to low-income entrepreneurial women to help them build businesses to enable financial mobility (Grameen America)
Dedicated socially-conscious investment funds (for example, the iShares Global Clean Energy ETF that invests in equities in the clean energy sector; or, you could invest in a venture fund aimed at increasing gender equality through the ImpactAssets platform)
Direct investments into for-profit companies driving change (for example, investing in venture-backed Impossible Foods, which aims to reduce the environmental impact of livestock farming, a major contributor to greenhouse gas emissions)
Importantly, for each of the above, donors are able to invest with their philanthropic (tax-advantaged) dollars via a DAF, for example - and all profits are simply returned to their DAF, to be used to support another impact initiative.
Why is this so relevant now? Well, the “great wealth transfer” is projected to result in $84 trillion being transferred from older Americans to Gen X and millennials over the next two decades. This younger generation will have more money than ever before, and the data shows us they are keen to put it to “good” use.