Whenever a person, community, or organization is in need, there is often a resource power dynamic at play. There might be someone or some institution with resources that could benefit those in need, but the donor and recipient might have different views on the best way to meet that need.
After last December’s tragedy in Newtown, Connecticut, people from around the world showed support to the community by donating teddy bears, toys, and an array of other items. Just a couple of months earlier, we saw a similar outpouring of material donations like blankets and canned goods from people who wanted to ease the suffering of those affected by Hurricane Sandy.
In both instances, the high volume of donations showed a strong charitable spirit, but the material donations often overtaxed the communities they intended to benefit. Newtown opened warehouses to store the goods, and volunteers from other towns came to help sort through everything that arrived. Local and national media published images and shared videos of just how many donations arrived in Newtown, sending a message expressing gratitude for the gifts, but requesting that donations stop. Websites of the American Red Cross and Federal Emergency Management Administration posted announcements asking that products not be donated, explaining that FEMA and many disaster relief organizations do not have the people, time, and money to distribute the donations. If people wanted to contribute, the communities preferred to receive money instead of material goods.
On the institutional giving side, the same tension exists between what the organization needs in terms of flexible money and what foundations or government can give. General operating support grants, which allow the grantee to decide the best use of the money, are often preferred to restricted grants, which fund specific programmatic areas.
It’s important to note that when someone sends a teddy bear to Newtown, a blanket to the Jersey Shore, or when an institution designates a grant for a specific purpose, the donor does so in order to show support or help. In fact, they might be acting strategically, knowing the type of change they want to affect, and giving the resource that will meet that goal.
As an attempt to break, or lower, the power dynamic between the donor and ultimate recipient, philanthropic organizations are experimenting with models that bypass an intermediary like the American Red Cross or another nonprofit and go straight to the community they want to help. Two months ago the Atlantic published an article about GiveDirectly , a nonprofit that collects donations online and gives cash directly to poor households in Kenya. The article walks through the benefits and challenges of cash donations with no strings attached, and what a future of direct philanthropy would mean to the nonprofits whose services might not be needed.
I’m struck by how frequently those of us working to create social change are faced with the opportunity to determine how our resources –be they time, knowledge, or money– go to those we want to assist. Recognizing that an inherent resource power dynamic exists is the first step. The second step is conferring with those whom you hope to help to find out what they need, and asking them the best way to make it happen. While you might have lots of free time, a unique piece of knowledge, or financial resource from which they could benefit, know that they have an intellectual resource that you probably don’t possess: an understanding of what life is like for them, and how their life could improve given your resources.
What are other examples of times when a community in need could have benefited from a resource that the donor did not know, or want, to give? And what are other organizations or policies that struggle with the tension of giving unrestricted cash instead of funding a specific intervention or program?
After reading “Why Bill Gates, Warren Buffet, and Other Billionaires Should Be Wary of Impact Investing,” a blog post on Policy Mic, I wondered why a discussion about whether philanthropists should consider impact investing didn’t include a discussion about impact investing in philanthropy.
The blog post focused on why individual investors have reasons to be cautious about impact investing. However, these are Giving Pledge members who have pledged “to commit to giving the majority of their wealth to philanthropy.” In this context, shouldn’t we be thinking of them as philanthropists rather than as individual investors?
A recent Economist article cited Steve Case saying that impact investing was the hottest topic at the second Giving Pledge meeting. Aside from knowing that several attendees want to convene a follow-up conversation on the topic, we don’t know much of anything about the context in which impact investing was discussed. Since many of the 81 Giving Pledge members already have private foundations, it seems reasonable to assume that some of the conversation involves how to make impact investments through a foundation. With this assumption, let’s explore what impact investing could look like for Giving Pledge members who give through foundations and why this is so exciting.
First off, what exactly is meant by “impact investing?” The Economist article uses a broad definition, “how to invest money to make profits and do good at the same time.” We do not know whether the profits need to be market-rate, and whether doing good involves a measurable social and environmental return, or just applies a screen to ensure the investment will do no harm.
Without much information to go on, my guess is that the Giving Pledge members are discussing how a foundation can invest its non-grant dollars in a way that produces financial returns and advances its mission. It’s important to recognize that this does not necessarily mean that the foundation will have less money available for grants.
In fact, if a private foundation makes an investment that advances its mission and produces a market-rate return (known as a “mission-related investment” or MRI), the foundation cannot count those investment dollars spent on the investment towards the minimum 5% charitable payout (the grantmaking pool) that the foundation must spend each year. Instead, those dollars have to come from the foundation’s non-grantmaking pool of money (sometimes referred to as the “corpus” or “95%”). This means that the foundation has the same amount of available grant dollars that it would have had without making the MRI. The difference is that the money the foundation would have invested with the sole purpose of making more money now helps the foundation advance its mission in addition to making more money for the foundation.
If a market-rate return is not the primary goal, a foundation can make an investment that advances its mission and produces a below-market rate return (known as a “program-related investment” or PRI). The IRS states that the primary purpose of a PRI cannot be the production of income (financial return), but instead must be to advance the charitable purpose of the foundation. Because of this requirement, private foundations can count PRIs as part of the minimum 5% charitable payout.
When Giving Pledge members talk about impact investing, are they thinking in terms of market-rate or below-market rate investments that also advance their missions? Just as many foundations make one, both, or neither of those types of investments, I imagine the Giving Pledge members will do the same. Even though we do not know exactly what it means for the Giving Pledge members to explore impact investing, I’m encouraged that the conversation is taking place and hope that it sparks a field-wide conversation about how a foundation can advance its mission through investments in addition to grants.