Considerations when connecting investing with philanthropy
In principle, linking impact investing to philanthropy can generate benefits for your family and for society (albeit it’s highly dependent on an individual’s personal circumstances and ambitions). In practice, this can be challenging to implement effectively. Here are a few considerations if you’re interested in using investments to support your giving:
Unite around common values and objectives
To begin connecting investing with philanthropy, establishing a common set of family values and objectives at the outset can serve as a solid and shared foundation for the subsequent efforts.
The process of discussing core values and clarifying a deeper sense of family purpose can be valuable in itself. It can cement relationships and unite generations around common goals. And it can enable older generations to pass on insights and values which help to secure a lasting family legacy.
It also can form the basis of your overall impact strategy – and define how family capital can be used for investing and giving. Agreeing topics, such as family values, priority issues or themes, capital allocations and family roles, provides the foundation from which to start looking holistically at how family wealth is used for impact. This can lay solid groundwork for new approaches rather than jumping ahead to what may feel like a novel proposal to try impact investing.
By establishing common values and objectives, you can keep your end goals in view and an open mind as to the tools that may help tackle your chosen issues.
Winning over stakeholders
Some stakeholders may start with a different view about the purpose of your investments and a lower risk tolerance. As mentioned, trustees may be more focused on protecting assets and be averse to new ways of investing or giving.
While various approaches can manage this potential conflict through discussion, often actual experience can be more convincing. This can be accomplished by introducing small changes within existing, agreed structures. For example, some families begin by making impact investments using the grant-giving portfolio rather than their endowment funds. Or others allocate a small portion of the investment portfolio for different purposes, reflecting different appetites to risk, impact and experimentation.
As well, some difference in stakeholder perspectives may be intergenerational. Younger generations are often seen as driving interest in impact investing, whereas older generations have traditionally been less interested. However, we’re starting to see all generations engaging in this area. In the ‘Investing for Global Impact’ report, while 68% of respondents agreed that impact investing is being driven by the younger generation, 79% also reported it as being embraced by the generation in charge of the family’s wealth. Therefore, starting the conversation with the family head may be easier than in the past.
In the end, aligning investing and philanthropy may not be for everyone. The starting point for philanthropy may be highly personal. Individuals often have strongly held beliefs which fuel their giving and which generate some of the personal rewards of philanthropy – recognition, sense of personal and emotional fulfilment. In these cases, active integration of investing with philanthropy may not be possible; but ensuring alignment rather than divergence of efforts is still achievable.
Learning from and leveraging others’ experiences
Introducing or trying to lead the discussion with your family or foundation about combining investing and giving can be challenging without experience or knowledge of these topics. Already, family discussions are often fraught with tension and entrenched roles.
Even once committed, new skills and knowledge will likely be needed to implement the approach. Some capabilities may already exist within teams to be leveraged or uncovered. But you may also need to bring in or build up additional skills and knowledge. Educational programmes can develop capabilities through information about what’s out there and action-learning experience.
The good news is that pioneering families and foundations have been undertaking this combination for some time. Most are now sharing their hard-won experience, and networks of experienced funders and experts can offer intelligence and insights. So, learning from, and even collaborating with, others further ahead on this journey can be useful.
Start from where you are today
As an immediate first step, families can review their philanthropic aims and efforts in relation to their existing investments (and/or corporate activities).
Consider whether these align or conflict with each other, as well as the family values and impact objectives. Then make decisions about whether, when and how to start making changes. This doesn’t mean changes have to be actioned immediately. Even capturing them is a valuable step before prioritising and planning.
From there it’s possible to start learning how investing can be used proactively alongside grant-giving to help to address societal problems. Thereafter, consider what investment actions to make, with advice as appropriate.
For example, imagine a family’s wealth had been grown through real estate, and linked to this they’d focused their philanthropic efforts on homelessness. By starting to explore the investment field, they might discover new options that address the same issue as their giving. For example, they might come across social or affordable housing funds, or capitalisation of lenders for disadvantaged borrowers, or social enterprises that train and recruit homeless or vulnerable individuals.
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