There is no doubt as the world changes, so we will have to reimagine the way philanthropy, grantmaking and corporate social investment is conducted.
An intimidating range of forces—globalization, a changing ecosystem, economic crisis, and ubiquitous connective technologies, to name just a few—are changing both what social investors is called upon to do and how philanthropists, grantmakers, donors and foundations will accomplish their work in the future:
- Collectively, the humanitarian aid sector face a growing sense of need, even crisis, on many fronts. And many of the challenges—climate change, education reform, pandemics, entrenched poverty, food security, and much more—don’t adhere to political, geographic, disciplinary, or sectoral boundaries. These are “wicked problems”—complicated, continuously shifting issues where neither the problem nor the solution may be clear or stable.
- The humanitarian aid sector will try to address these challenges wisely and effectively in a political and economic context likely to remain turbulent and difficult to navigate, with government resources constrained, non-profits struggling under the weight of growing need, and businesses wrestling with relentless global competitive pressures.
- Fortunately, we can engage people in new ways, across boundaries of all kinds, and with unprecedented immediacy. The Internet of Things (IoT) technologies make it easier than ever for people to access information on demand and to reach out to a previously untapped range of perspectives and expertise.
- But these new technologies create new pressures as well. Leaders face increased expectations for transparency, immediacy, and rapid decision-making, even as solutions to complex challenges require the will to sustain effort across many years, if not decades.
Simply stated, social investors operate today in a stressful, rapidly evolving, networked, and interdependent world. Yet many of philanthropy and grantmaking’s core practices and principles remain essentially unchanged from the way they were done a hundred years ago. This is not to say that social investors haven’t responded to the shifting landscape. To the contrary.
As the relevance and role of philanthropy and humanitarian aid has become a more urgent question over the past decade, newer actors and older institutions alike have been striving to be more strategic in a variety of ways. Long before the pain of the recent economic downturn, many funders were pushing to improve by clarifying goals; building theories; examining data; and, increasingly, consulting more often with their partners and beneficiaries. The bar for acceptable performance has likely been raised permanently, along with the rigor with which it is measured.
Over the past few years we have witnessed brave, new and emerging leaders in the investment and development sectors who have distanced themselves from the past while launching experiments of many kinds, including venture philanthropy, online giving platforms, competitions, market-based approaches, and a determined focus on narrower objectives.
Ultimately, some of these efforts to improve will turn out to be no more effective than past approaches. Some will result in unintended consequences. And some will result in lasting changes that make a real difference.
However, as we enter 2020 – we can no longer only focus on improving organizational effectiveness, efficiency, and responsiveness, we at Next Generation believe that the work of the humanitarian aid sector over the next 10 years will have to build on those efforts to include an additional focus on innovation:
- Given the scale and complexity of the challenges lying ahead, funders, grantmakers and social investors will increasingly have look to other actors, both in philanthropy and across sectors, to activate sufficient resources to make sustainable progress on issues of shared concern as no single funder has the resources and reach required to move the needle on our most pressing and intractable problems.
- Given the pace of change today, funders will need to get smarter more quickly, incorporating the best available data and knowledge about what is working and regularly adjusting what they do to add value amidst the dynamic circumstances we all face.
In other words, the most successful funders and investors in the future will do more than operate as effective, independent institutions. They will act bigger and adapt better.
Barriers to change
Social investment and development have its own unique set of learning disabilities that get in the way of change, no less vexing for the fact that they are familiar to anyone who has ever tried to break free of them:
- Independence and control. The sector is both voluntary and independent by nature—In general, grantmakers and institutions can act without much reference to the success or failure of their efforts or to what others do. And they can shift priorities at any time, for any reason. This independence gives grantmakers, donors, social investors and philanthropists a degree of control that isn’t present in other industries. But control also produces power imbalances that often disrupt the development of healthy, productive relationships between funders and their partners.
- Insularity and inward focus. In many cases, whether a grant or gift is “effective” may matter less than the values it represents to the donor/investor, the personal commitments it reflects, or the web of relationships it helps to maintain. At its core, philanthropy is about expressing values, not outcomes and although this aspect is of course integral to its voluntary nature, it can lead funders and their institutions to be excessively inward-focused, rather than on the real-world impact of the organization and its work. Philanthropy and humanitarian aid lack adequate honest feedback loops that promote meaningful learning.
- Caution and risk aversion. Philanthropy is seen by some as the “R&D” wing of the government—one of society’s only truly flexible sources of capital for social benefit. In fact, few other actors are better positioned to take risks and try new things that might yield outsized and transformative rewards. Yet most funders fail to do so, for a variety of reasons. Because they understandably want the gratification of knowing they made a difference, or are concerned not to waste precious dollars, they focus on short-term, measurable results. Because they aren’t sure what will make the most difference, they spread their resources across many small grants, consistently underestimating how much money and how much time it will take to accomplish a goal. Because everyone loves a winner, they fear failure and protect their institutional and personal brands. What’s more, short attention spans and the realities of organizational life also conspire to make it difficult to place big bets and stick with them.
- Time and inertia. At the same time, donors and funders face their own capacity limits—a sometimes overwhelming feeling that there is too little time, too much information, and too many demands on too few people. For grantmakers, donors and social investors an enormous amount of time is focused on the mechanics of transactions, (i.e. due diligence, approving organisations and proposals) and managing the implementation of initiatives. Learning from practice has fallen by the wayside.
- Competition and credit. Overall funders and grantmakers still compete with one another for ideas, reputation, and recognition. Many strive to find and occupy a unique niche, much as businesses look for the gaps in the marketplace to fill. But in striving for credit or building a brand, funders can actually get in the way of advancing their larger goals. Everyone wants to lead—attracting support to their cause—but far too few are willing to follow.
These factors combine today to create an environment that virtually ensures that the humanitarian sector and social investment and development practitioners will not produce solutions that keep up with the dynamic realities of the world around it. In fact, much of what makes philanthropy and grantmaking such a powerful voluntary vehicle for social change also stands in the way of greater effectiveness.
New investment models
Impact investing has become a hot topic among donors and financial investors alike. Broadly defined, impact investing means investing capital to generate social impact in a way that also provides monetary returns. These returns may vary from the initial principal amount upward (or, potentially, downward), depending on the nature of the investment.
Impact investing offers an alternative to philanthropists, donors, grantmakers and philanthropists who reject the notion that there is a binary decision between investing for profit and giving money to a social cause. While traditional grantmaking often overcomes market-based failures, impact investing leverages the power of markets to create change.
Impact investing is one of the more exciting developments to emerge from the “social impact” movement of more definitively measuring the results of the social sector and more comprehensively understanding the relationship between inputs (investments) and outcomes achieved. Impact investing, or leveraging private capital for social good, is playing a key role.
Impact investors are motivated by an organization’s mission and degree of social impact. In addition, impact investors are motivated by double or even triple bottom-line opportunities to earn a financial return while also doing something good for society. Securing a financial return helps ensure that the organization generates measurable impact that is scalable and self-sustaining over time.
The potential scale of impact investing is impressive – already more than $502billion dollars are being deployed to achieve both impact and return on investment. As new funding models develop that can contribute to both financial and social return, social investors can leverage their financial resources to have a bigger impact in the future.