Understanding the ‘impact journey’

Private philanthropy plays an important role in helping to achieve a sustainable world. A 2021 report by the OECD, Private Philanthropy for Development – Second Edition,[1] found that, between 2016 and 2019, USD42.5 billion was donated by the 205 foundations covered. The most popular causes were health and reproductive health, followed by education, agriculture, forestry and fishing. Although the US was the most charitable developed nation, with over 50 per cent of the total originating there, the largest recipients were China, India and (regionally) the Caribbean, Latin America and Sub-Saharan Africa.

The Charities Aid Foundation found that, globally, more than 3.5 billion people helped someone they did not know in 2021, which includes both volunteering (23 per cent) and donating to charity (35 per cent). The funding gap to achieve global sustainability is estimated to be USD176 trillion. Private wealth, currently USD629 trillion, is going to be an increasingly important source of impact capital.

Impact equals personal purpose

In the author’s experience there is always meaning behind choosing a particular cause. If someone is an animal lover, and has been around animals or wildlife all their life, they might be concerned about animal conservation and habitat preservation. If another is an avid scuba diver, they might be interested in preserving our water resources and the life that calls them home. Yet another family might have experienced the death of a relative from a water-borne disease and so be concerned about ensuring that people have access to clean and safe water. The reason can also be ‘all of the above’, as multiple generations in a family may have different priorities in terms of what matters to them, for different reasons. The point is that people care because there is a meaning to them personally. This is also not fixed in time: as people evolve and face new experiences they may develop different priorities, so flexibility is required to continue to advise them. It is the advisor’s job to help them with execution.

Table 1: The impact spectrum

The spectrum of having an impact

We usually speak of philanthropy within the context of an impact spectrum that goes from ‘it’s all about me’ to ‘it’s all about someone else’. A number of models have been created to demonstrate the spectrum and they have common themes. The spectrum above (see Table 1) is based on other examples and the author’s own experience.

Leveraging impact to complement philanthropy

What if there was a way to expand one’s scope of philanthropic virtue to include assets that do not leave one’s legal ownership and benefit? What if the way that one invests wealth could be aligned to what is deemed most important? Some will immediately think of socially responsible investing (SRI) or environmental, social and governance (ESG) overlays, but overarching, one-size-fits-all methods do not get to the heart of what it means to ‘think of the betterment of others’ when considering how to manage wealth.

Understanding what drives individual clients towards philanthropy while simultaneously assessing their investment portfolios could open up a new perspective on the relationship between wealth and impact. Joining the dots between investment portfolios and philanthropy by using education, improved access to information and personalised storytelling could reveal that the two concepts may be more closely related than we imagined.

Advisors could find a driving force behind this within the UN Sustainable Development Goals (SDGs)[2] by assessing which areas their client is interested in and viewing how aligned their current wealth portfolio is to their interests. As defined by the UN, the SDGs are ‘a universal call to action to end poverty, protect the planet and improve the lives and prospects of everyone, everywhere’. In 2015, the UN General Assembly negotiated 17 SDGs covering many aspects of sustainability, including hunger, education, gender equality, clean energy and infrastructure. The SDGs are a powerful tool as they are a globally accepted, intuitive standard that clients and advisors can use to describe their values.

The goal of the SDGs is to ‘transform the world’ by 2030. The World Bank indicates that the growth in wealth has been largely at the expense of the natural environment. By complementing government, non-governmental organisation and corporate spending, private wealth has a role to play in solving some of the world’s most pressing environmental, social and developmental issues.

The main difference with this method and ESG investing or overlay is that the alignment of the investments relates directly to the values that the client cares about. Instead of getting lost in the nebulous overarching umbrella, the advisor can come closer to what someone really has a passion for, which will help the feeling of connection with the investment strategy. Alignment means that there is a bandwidth where decisions do not have to be binary in nature, so outright exclusions may or may not be applicable. Access to this information teamed with storytelling may better inform clients on how they wish to deploy their philanthropic capital.

Next steps

Advisors should encourage a mix of strategies across the spectrum. The key trend, particularly for next-generation clients, is to invest in line with what they value instead of giving up full control.

Many families who are advised by trustees may have enough wealth to set up trusts and foundations to be purely philanthropic, but the way that the assets within these structures are invested can also have a complementary role to play with the charitable projects or bequests that they make. This is where sustainable investing plays a new and important role for everyone, as they can understand how all of their investments are aligned to their values. For trustees and advisors, ‘structuring for cause’ and ‘investing with values’ can be a whole new conversation.

Storytelling plays a vital role for advisors when engaging clients on their impact journey, and it is clear that philanthropy and impact are deeply personal. Therefore, advisors should be adaptable to the level of personalisation that is required when discussing philanthropic concepts with clients.

Ensuring we are able to fully understand a client and deliver content and analysis in a relatable way could unlock a whole new perspective of how clients use their wealth to achieve their goals, both financially and morally.