They know what they are doing

Things are happe­ning in the foun­da­tion sector. With phil­an­thro­pic impact inves­t­ing and forms of funding such as loans and conver­ti­ble bonds, impact entre­pre­neur­ship has finally arri­ved in the sector. These new instru­ments are both enri­ching and chal­len­ging. One thing is certain: they give new impe­tus to a foundation’s invest­ment and funding stra­tegy. Phil­an­thro­pic impact inves­t­ing chal­lenges exis­ting maxims: busi­ness and phil­an­thropy are incre­asingly joining forces. Or, as the Global Impact Inves­t­ing Network (GIIN) puts it: ‘Impact inves­t­ing chal­lenges the long-held belief that social and/or envi­ron­men­tal problems should be addres­sed only through phil­an­thro­pic dona­ti­ons, and that market invest­ments should focus exclu­si­vely on gene­ra­ting finan­cial returns.’

Thin­king in decades 

At the same time, impact inves­t­ing has always been possi­ble for foun­da­ti­ons, so long as the finan­cial returns were suffi­ci­ently secure in addi­tion to the impact. New funding oppor­tu­ni­ties are now emer­ging thanks to some of the Swiss tax autho­ri­ties. The canton of Zurich also sees phil­an­thro­pic impact inves­t­ing as a valuable funding tool for foun­da­ti­ons. Returns are no longer excluded in prin­ci­ple. This summer, the Liech­ten­stein tax autho­ri­ties also chan­ged their stance on entre­pre­neu­rial funding models.

This deve­lo­p­ment puts non-repa­ya­ble allo­ca­ti­ons to the test, and not just from a finan­cial perspec­tive. Estab­lished awar­ding proce­du­res are also being ques­tio­ned. These days, tradi­tio­nal funding acti­vi­ties usually have a project-based time­span, and impact is measu­red in rela­tion to the dura­tion of the project. Entre­pre­neu­rial approa­ches, on the other hand, focus on the long term. Impact entre­pre­neurs think in deca­des. Projects and orga­ni­sa­ti­ons that are awarded funding should exist inde­pendently and be self-finan­cing in the long term. This includes the pursuit of profit. Impact and returns mutually promote each other.

Inno­va­tive models

Phil­an­thro­pic impact inves­t­ing is not univer­sally suita­ble. Natu­rally, there are no entre­pre­neu­rial models for disas­ter relief and scien­ti­fic or cultu­ral funding. But when it comes to tack­ling certain socie­tal chal­lenges, phil­an­thro­pic foun­da­ti­ons can use these new approa­ches to gene­rate added value. Our programme part­ner elea has been doing pionee­ring work in the fight against abso­lute poverty since 2006. It shows how a phil­an­thro­pic foun­da­tion can successfully support local busi­nesses to expand, espe­ci­ally in the vola­tile early stages, and give people access to trai­ning, jobs, value chains and oppor­tu­ni­ties. With phil­an­thro­pic impact inves­t­ing, foun­da­ti­ons can help fight poverty in the Global South and build entre­pre­neu­rial resi­li­ence. Andreas Kirch­schlä­ger, CEO of elea, is convin­ced that: ‘Impact entre­pre­neur­ship is the most important cata­lyst for change and progress, and inves­t­ing in inno­va­tive entre­pre­neu­rial solu­ti­ons is one of the most promi­sing answers to the wide-ranging chal­lenges of our time.’

Measura­ble impact

Phil­an­thro­pic impact inves­t­ing helps the compe­ti­tion to grow, and foun­da­ti­ons are feeling the effect. This is because both phil­an­thro­pic orga­ni­sa­ti­ons and commer­cial play­ers are invol­ved in the field of impact inves­t­ing. With commer­cial insti­tu­ti­ons now pursuing measura­ble social and envi­ron­men­tal goals, foun­da­ti­ons also need to empha­sise their own added value. Phil­an­thro­pic impact inves­t­ing, parti­cu­larly by chari­ta­ble foun­da­ti­ons, plays a very special role in this respect compared to commer­cial inves­tors. Although foun­da­ti­ons also strive to get the capi­tal they invest back so that it can be reinves­ted for further impact, phil­an­thro­pic funding remains focu­sed on impact. There is less time pres­sure and expec­ta­ti­ons regar­ding returns are more reali­stic, even play­ing a secon­dary role in cases of doubt. At the same time, foun­da­ti­ons often support long-term colla­bo­ra­ti­ons over seve­ral years, working closely in terms of content and provi­ding entre­pre­neurs with addi­tio­nal support in the form of coaching or networking. 

Fit for the future

Phil­an­thro­pic impact inves­t­ing, loans or conver­ti­ble bonds are not suita­ble for every foun­da­tion and every start­ing point. And for those who choose this path, the chan­ges invol­ved can be chal­len­ging. In order for foun­da­ti­ons to respond to the new situa­tion and exploit the poten­tial for them­sel­ves and society, they need to get ready now, or else team up with other play­ers who are alre­ady well versed in the field.