Last Thursday I delivered the closing keynote speech at the inaugural Wealth & Society symposium. The great and the good from America, Europe and Asia gathered in trendy Shoreditch to discuss what the wealthy can do to make the world a better place.
It could have been a recipe for a bland mutual admiration society, everyone leaving with a warm fuzzy feeling and bugger all of any value being achieved. In reality they didn’t pull any punches and shared some meaty facts about what is working and what’s not in the fields of impact investing and philanthropy.
I’ve told you before about the 500,000 Baby Boomer owned businesses in the UK that remain for sale because their snowflake millennial offspring can’t be arsed to work as hard as they saw their parents had to. Some even end up closing the doors of a profitable business as their only means of escape into retirement.
According to Professor Changbo Fu from the China Global Philanthropy Institute (CGPI), they have exactly the same issue in China! He has some very specific data showing that only 40% are willing to take over, 15% refuse to keep the business going and 45% are uncertain about whether they will or not. Hardly a ringing endorsement of China’s growth prospects in the decades to come…
The People’s Republic is relatively new to the concept of philanthropy, with only a few hundred family foundations established thus far. That’s starting to change after new regulation made the role of charities clearer, while those well known communists Bill Gates and Ray Dalio were founders of the aforementioned CGPI.
The global statistics make for a fragmented picture. There are more than 260,000 foundations in 38 countries with total assets of $1.8 trillion. Around 60% are based in Europe and 35% in America, though those numbers reverse when it comes to the value of funds held in each region. I’m not sure if it’s a sign of increasing wealth or increasing focus on legacy but 75% of these foundations have been established since 1993. Half the foundations give out less than $1 million a year in grants and 58% don’t collaborate with other funds in any way.
So the biggest question of the day was how can these passionate founders and their funds be brought together to tackle some of society’s biggest issues like the environment and ‘digital poverty’, the posh name for not having a smart phone (they can have mine for a start…)?
Maybe the solution is impact investing? According to Rod Schwarz, the ex-Lehmans banker who is now CEO of ClearlySo, there is €115 trillion of managed assets globally, of which €228 billion relates to impact investing. In other words, a spit in the bucket. If the UN’s Strategic Development Goals are to be met we will need $5-7 trillion of impact investing every year from now to 2030. If that seems like a pipedream, Rod made some points which bear repeating:
- Impact investing has the moral authority that has been lost in other groups such as government and the church
- They can sell products at higher prices eg Fair Trade where people typically pay 27% more than identical products for purely ethical reasons
- Investors increasingly value options that make a positive impact
- Companies can attract the best talent who want to do meaningful work
A good example you may be familiar with is a company Rod chairs, Just Giving, which has raised over $6 billion for good causes and changed the cost structure for many charities. France has established 90/10 funds where 10% of capital raised is channelled to impact investing, while there are a small number of ‘community shares’ in the UK which are rather illiquid and low return but are strong on impact.
The feeling of the expert speakers is that we need a ‘Unicorn’ in the impact world, something with the scale of an Alphabet or Amazon to really make a global difference. We also need systemic improvements – for me the most shocking figure of the day is that only 2% of international aid reaches local non-profit organisations where it can be used to make a difference. We’d be better off putting our international development budget in a fleet of helicopters and dropping the cash, Ben Bernanke style, straight onto the streets of the neediest countries.
Which is about as big an indictment of leaving philanthropy to Big Government as you’ll ever see.
Until next time