From IMPACT Magazine Winter 2013 – Giving
By the Wharton Social Impact Initiative
Giving money away is easy. The challenge lies in using money to create the most positive impact. Individuals today are increasingly more calculating in their contributions and are considering new types of capital with which to create impact. It’s less about “giving back” and more about making deliberate decisions that do the most. While high impact philanthropy has become increasingly popular, impact investing, too, is a rising force affecting donors and businesses alike.
KNOWING WHAT WORKS
In a world where infographics on performance can be found everywhere—from your food labels to newspaper headlines—donors want to know more. When buying cars, computers, or frozen pizzas, consumers can weigh factors to determine the choice that fits with their goals and desires. And, in many ways, donors are buying impact.
Philanthropic donors are looking for assurances that their contributions are not just making a positive change, but making an efficient and effective impact. In turn, nonprofits are increasingly being asked to provide evidence of that impact.
This wasn’t always the case.
Imagine being a donor decades ago, before the internet provided easy access to information, before you could easily research organizations in your community—let alone across the globe. Your knowledge and understanding of different nonprofits most likely came from personal experience or from referrals from your friends and colleagues. Maybe the local newspaper had an article highlighting an especially compelling case of a life that was changed by a local organization, or maybe you relied on brand names when making contributions. Almost certainly, though, the range of organizations that you were aware of was limited. With fewer choices, deciding where to donate was simpler.
As information about the work of organizations became easier to access, donors began to learn more about different nonprofits, and that made the decision more difficult. A focus on impact—which organizations were actually making a change—became a desired differentiator.
“What we’ve found is that donors give—and give more—when confident the money will actually make a difference.”
But how does one actually evaluate which organizations are better than others in the 21st century? In recent years, entities such as Penn’s Center for High Impact Philanthropy (CHIP), Givewell, and Charity Navigator have been founded to provide information that can help donors evaluate organizations. These experts conduct research and evaluation on how cost-effective, scalable, financially efficient, and accountable organizations are—and whether or not they have proven results. For example, each year, GiveWell identifies three thoroughly-vetted organizations as their top charities to give to, while Charity Navigator rates hundreds of charities in a database that donors can filter by category, geographic location, or size to view an assessment of the organizations that fit their interests.
Penn’s CHIP, housed in the School of Social Policy & Practice, builds and shares donor toolkits, investment analyses, and other reports, in addition to hosting educational seminars and workshops about giving. “What we’ve found is that donors give—and give more—when confident the money will actually make a difference,” Katherina Rosqueta, CHIP’s founding executive director and 2001 Wharton MBA graduate, recently told The New York Times.
In addition to reports and other resources, an increase in popularity of “solutions journalism”—which goes beyond inspiring anecdotes or heart-wrenching tales to highlight effective strategies and real impact—also arms donors with information to make informed giving decisions. The New York Times columnist David Bornstein is one of the founders of the Solutions Journalism Network, which, according to its website, “looks at examples where people are working toward solutions, focusing not just on what may be working, but how and why it appears to be working (based on evidence).” The goal is to shift from anecdotes to evidence and from challenges to solutions so that the solutions can be shared and replicated.
IMPACT INVESTING: PURPOSE AND PROFIT
Though philanthropy is often the first thought when it comes to making an impact, philanthropic capital is only part of the story. Through impact investing, individuals can ensure their investment capital does more than earn a return on investment—it creates a social return as well. “Many are turning a critical eye to their investments, and want their values to be reflected in their investments as well as their donations,” explains Jacob Gray, cofounder and general partner of Murex Investments who serves as senior director at the Wharton Social Impact Initiative.
The rise of impact investing is a reflection of the belief that business is a powerful tool for addressing difficult social problems and that businesses that connect a for-profit approach with a social mission are worthy of investment. In this way, rather than depending on philanthropic donations, social enterprises are able to create a sustainable, market-based approach to social impact, and investors receive a return on capital.
The impact investing industry is still nascent, but many are convinced that there is enormous potential to direct huge amounts of capital toward investments in impact. A September 2013 research report from World Economic Forum estimated the current impact investing market size at $25 billion.
“Since the term was first coined in 2007, many leading proponents of impact investing have estimated the potential size of the sector,” says the report, titled From the Margins to the Mainstream. The report highlights predictions by leading financial organizations such as the Rockefeller Foundation, J.P. Morgan, and the Calvert Foundation that the sector will continue to grow, with estimates ranging from $400 billion to $650 billion by 2020.
“Along with aggressive growth expectations, interest in socially conscious investment strategies is indeed growing,” the report continues.
It’s not surprising to see strong interest in exploring, expanding, and refining this use of investment capital for social change. This semester, Wharton Social Impact Initiative launched a multifaceted impact investing initiative to give students the opportunity to gain knowledge, skills, and experience in the field. Gray, who heads up the Impact Investing Initiative, explains the student demand: “I think our students strongly suspect that, if we let this market develop, it could very well influence the way finance is practiced for a very long time, and who better than these students, and this institution, to be part of that?”
THE FUTURE: MORE, BETTER
Moving beyond traditional philanthropy is essential, and more and more businesses, institutions, and individuals are taking on the challenge. Combining sustainable business models with innovative approaches to social impact is the new opportunity for donors, investors, and businesses.
These different approaches are connected by a common thread: a desire to find the most effective methods to creating sustained, positive impact. The issues are too important for anything less.