Beacon Admin

How Better Data on HNW Giving can sustain Giving Trends

January 10, 2022 by Beacon Admin

Seven cycles of pulse surveying among high-net-worth individuals in the UK, from the height of the pandemic until now, suggest regular giving is increasing among those with higher levels of investable wealth. The results also highlight the need for improved monitoring of giving patterns among the asset rich if we want to sustain growth momentum.

Our latest quarterly survey results – covering the period September to December 2021 – show the effects of the pandemic are receding on giving patterns, revealing underlying trends in recent UK philanthropy.

The run-up to Christmas 2021 saw an uptick in the number of big gifts by wealthy individuals. With an increase in the average level of giving in all wealth bands, the results suggest growth in seasonal giving was closer to pre-pandemic levels.

The average level of giving jumped to £6,400 in the three months to December, with more than 25% saying they gave more than they had planned.

The median level of giving has also continued on a steady upward trend, reaching £400. The last time the median was at this level was in September 2020 as the pandemic peaked in the UK.

These results come from the Beacon Collaborative’s quarterly pulse survey of high-net-worth giving trends, conducted in partnership with Savanta. The December results are based on survey responses from 514 high-net-worth individuals in the UK[1].

Median Level of Giving by HNWs - philanthropy data

^{Figure 1:}^{Median level of giving by HNW individuals from June 2020 to December 2021.}

Mean Level of Giving by HNWs - philanthropy data

^{Figure 2:}^{Mean level of giving by HNW individuals from June 2020 to December 2021.}

Growing evidence that more wealthy people are starting to give more, more often

While sporadic big gifts are a consistent feature in philanthropy, and are actively sought by most philanthropy fundraisers, it is the gentle increase in the median giving level that offers significant potential. Since June 2020, the survey results suggest compound quarterly growth of around 12% in the median level of giving, from £200 to £400.

Median Level of Giving by all HNWs - philanthropy data

^{Figure 3:}^{Median level of giving by all HNW individuals from June 2020 to December 2021.}

While the quarterly level of giving is still proportionately low in the high-net-worth population, at £400 in December 2021, the median trend suggests more wealthy people have been giving more often at higher levels each quarter since June 2020. This bodes well for engaging more wealthy individuals on their philanthropic journey.

Propensity to give is linked to asset levels (not income)

We began this quarterly analysis at the start of the Covid crisis in order to open a window on the giving trends among high-net-worth donors.

Over this period, a number of distinct patterns are emerging, most notably that those with higher asset-levels do give more – not a lot more, but there is a higher propensity to give major gifts and larger regular gifts.

The consistent upward trend in the median giving level is also noteworthy, particularly as recent analysis from Pro Bono Economics has shown giving levels decreased among top earners between 2011 and 2019.

Mind the Giving Gap uses HMRC income and tax data and determines that those with a median income in the top 1% of earners saw their earnings rise from £247,000 to £271,000 during this period. During the same period, their typical donation fell 20% to £48 per month.

The detailed analysis contained within the report underscores multiple worrying trends that have characterised British giving across the wider population since the financial crisis of 2008, resulting in lower participation rates and lower levels of giving. It also makes a number of valuable suggestions for changing the dynamics of philanthropy in the UK.

The analysis by Pro Bono Economics is thorough and comprehensive, but it is important to note that the conclusions on high-net-worth giving rely on income data and donations reported in self-assessment forms. This represents only a segment of the wealthy population.

The high-earner category includes a sizeable population in the UK that is typically referred to as “cash-rich and asset-poor” by the wealth management community. This means they have high incomes, but their income funds their daily life expenditure and they do not have the extensive savings and investments that provide financial security.

As we can see in Figure 1 and Figure 2, those with lower asset levels typically display a lower median giving level and give fewer large gifts. Among the asset-rich, the dynamics are more positive.

Pro Bono Economics’ analysis will miss significant segments of UK’s asset-rich population, such as those on low or moderate incomes who draw down from investments what is needed for their daily life needs.

Our analysis suggests that an increasing number of individuals in this population are giving more, more regularly. If we want to encourage this trend, then it is imperative that we encourage philanthropy to be seen as a normal part of a “wealthy lifestyle” in the UK, so that income is drawn down to cover their annual gifting goals.

It will also have captured only a proportion of amounts given by wealthy individuals from giving structures, such as donor-advised funds or philanthropic family trusts. These vehicles typically receive infrequent large lump sums that are then gifted out over a period of time.

Key lessons from emerging data on high-net-worth giving patterns

There are a number of key lessons we can draw from these two separate analyses.

Firstly, understanding how much is given philanthropically, and by whom, is a complex challenge requiring multiple data sets that are not easily available.
Secondly, if the asset-rich population shows the highest propensity to give in larger amounts, this population merits greater study for their philanthropic activity.
Thirdly, regular high-net-worth giving, measured by the median, should be monitored as a significant indicator of philanthropic growth. This indicator is more helpful to understand what is happening in the wider wealthy population than tracking one-off big gifts or monitoring the mean (average), which fluctuates significantly in response to sporadic major gifts made by a tiny fraction of any sample group.

If we want to understand the contribution to civil society of the wealthy population, we need to understand how median giving varies across different wealth bands, measured according to their investable assets.

It is only with this insight, measured consistently over time, that the fundraising community and the philanthropic sector will be able to establish and monitor the success of their growth strategies among those with the potential to become significant long-term supporters.

Until we have a baseline, we simply will not be able to assess “what works?” when it comes to growing UK philanthropy.

[1] Given the size of the UK wealthy population the confidence interval in the data is 4%, with a 95% confidence level. This means we can have a good level of confidence that the median figure is accurately within a tight range around £400. Sample sizes for previous quarters have varied from 303 – 514 individuals.

A note on the median and mean

* The median provides an indicator for what is happening to giving across the whole of the wealthy population. The median refers to the exact midpoint of the dataset, with half of respondents giving above this level and half below.

** The mean is sensitive to levels of giving among the most generous in the wealthy population. This is the average as calculated by adding all datapoints together and dividing by the number of datapoints in the set. It can easily be skewed by a small number of very high-level donors.

Philanthropy Right Now: The Future of Philanthropy

December 21, 2021 by Beacon Admin

‘Philanthropy Right Now’ is a regular column for Beacon Collaborative by Marie-Louise Gourlay, Managing Director of Europe for The Philanthropy Workshop.

The report of the recent 21% decline in charitable donations by top earners, despite growing wealth, is deeply disappointing, though no surprise.

Talking about, let alone engaging in, philanthropy, is alas, usually a journey of many years. As a culture we share a deep discomfort in discussing money in any of its roles, creating taboos, even when it comes to giving money away.

Even our organisational credit card from a reputable bank, has misspelled our name, calling us ‘The Philantrophy Workshop’. They weren’t in the slightest bit concerned when we pointed it out; so we live with it.

That this mistake includes the noun ‘trophy’ got me thinking – our American cousins celebrate philanthropy far more than we do; with names emblazoned on buildings and widely-publicised patronages of large cultural institutions.

Are those the trophies of philanthropy? Trophy can be synonymous with status symbol, or, per the Ancient Greeks, a memorial of victory – neither of which we aspire to.* But what is it that really incentivises giving? And how do different cultures influence this?

The media’s take on last week’s Law Family Commission report emphasises that for giving to go up, it’s up to the charities to build back trust. That is indeed a part to it, and whilst not condoning the actions of some NGO staff which have served to undermine public trust, we must move forward.

As the late bell hooks wrote:

“For me, forgiveness and compassion are always linked: how do we hold people accountable for wrongdoing and yet at the same time remain in touch with their humanity enough to believe in their capacity to be transformed?”

My own perspective, whilst admittedly too narrowly focussed on the role of philanthropy, comes back to the need for the culture of generosity to be built. And how can this even begin to happen when we lack any degree of open-ness with anything linked to money?

Culture change starts with openness. To be open to listening, learning and sharing with great vulnerability and honesty. To recognise that sometimes we don’t have all the answers inside us already. Coupled with a willingness to challenge our values, assumptions, traditions, attitudes. We also need to address our money shame, for that can often be the cause of debilitating inaction.

Transparency is the core of this; urgently required from every angle. Philanthropists benefit from knowing what others are doing, by being able to learn from peers, to leapfrog often siloed journeys of giving in order to accelerate their own positive social impact.

And for those on the outside looking in, it would be hugely beneficial to have greater visibility over what benefits private capital can provide for public good, enabling the public to benefit from knowing how and where to hold philanthropists to account.

Looking forward to 2022, observing the behaviours that changed over the darkest times of Covid, and knowing that nothing’s ever certain, not least with Omicron infections steeply rising as I write this, reminds me of the basic need to be as transparent, flexible, collaborative and long term as we possibly can be.

Simply put, for philanthropy that means flexible, unrestricted, multi-year funding. Basic – yes. But is it common practice? Alas, not yet.

Traditionally, this is the time of year for giving. Let’s each ask ourselves what more we can – and should – do, and start to build on this, year on year.

^{*Side note on trophies; not a moment too soon on the new UK legislation banning the import of hunting trophies of endangered and threatened animals.}

Marie-Louise Gourlay

Marie-Louise Gourlay is the Managing Director of Europe for The Philanthropy Workshop. Find out more about The Philanthropy Workshop’s activity here.

Why match funding works for philanthropy

November 25, 2021 by Beacon Admin

Alex Day, Director of the Big Give, writes for Beacon on how match funding is increasingly being used to encourage more philanthropy and as a vehicle for philanthropists to give money away.

Como, Italy c. 100 AD. An Italian lawyer, author, and magistrate named Pliny the Younger receives a visit from his friend’s son. In their conversation, the boy shares with him that he has to travel over 40km to receive his education in Milan as there is not a school in their hometown.

Moved by his plight, Pliny writes to his influential friend, Cornelius Tacitus, and promises to contribute funds to establish a school if other parents in the local area also give:

“I, am ready to give for the benefit of the municipality, one third of any sum it will please you to assemble… Then agree among yourselves, unite, and draw increased spirit from mine, for I am desirous that what I shall have to contribute shall be as large as possible…”

This is, perhaps, the first-ever documented example of the idea of match funding, and in the words of Quentin Tarantino, “the good ideas survive.”

But match funding as an idea is not just surviving. It’s growing. In the US, for example, 65% of Fortune 500 companies offer a corporate matching donation programme and an estimated $2-3bn is donated through employee matching each year.

The organisation which I run, the Big Give, is the UK’s biggest match funding platform. We have seen tremendous growth in the past 5 years, from raising £9m p/annum on our platform through match funding campaigns to over £25m in 2020.

Why? Because it works. Match funding is a proven way to encourage more people to give and people to give more. We surveyed over 1,000 donors to ask about their attitudes towards match funding. 84% said they would be more likely to give if their donation was matched and one third said they would give more than they usually would.

Match funding is being applied in a myriad of ways across the philanthropy sector. It has become an increasingly popular mechanism, not only to incentivise philanthropy but also as a vehicle for philanthropists to utilise to make a positive impact. It is my hope that these examples below might inspire you to consider match funding in your philanthropy as a way to achieve greater impact.

Match funding to encourage philanthropy:

Government matching:

The UK government regularly uses match funding as a public/private blended approach, such as the UK Aid Match programme run by Foreign Commonwealth & Development Office. Over the last six years, 64 organisations from across the UK have run UK Aid Match projects in 38 countries, helping around 25 million people.

Endowment matching:

The “Catalyst: Endowments”, a £36m National Lottery Heritage Fund initiative, closed in 2017. It was set up “to encourage more private giving to culture and heritage, and to build the capacity and skills of these organisations to fundraise from private donors, corporate sources and trusts and foundations.”

The results? According to an independent evaluation from the University of Kent, the fund “literally had a catalytic effect on grantees, who describe the programme as having had a ‘galvanising’ and ‘transformational’ effect on their organisations, including cultural shifts’ in terms of attitudes to fundraising.”

Corporate matching:

An increasing number of companies offer their employees the opportunity to have charitable gifts matched whether donated directly, through payroll or raised funds. It’s a proven method to build employee engagement and advocacy for the company.

Aviva, which offers up to £1,000 of matching per employee, say “The matching is part of our desire to drive pride in working for Aviva. It’s almost a bonus, a thank you from Aviva, and it makes them feel proud of working for Aviva and gives them a bit of recognition.”

Match funding to disburse philanthropy

More and more philanthropists are now utilising match funding as a way of disbursing their philanthropy.

Perhaps the best example is the Big Give where “Champions” can offer to match fund a portfolio of charitable organisations through campaigns which the Big Give runs throughout the year. Their biggest and best-known campaign is the Christmas Challenge but they also run campaigns focused on the environment, child poverty in London in partnership with The Childhood Trust, international and domestic emergencies and women and girls.

Grant Gordon, Chair of The Childhood Trust, says:

“Match funding through the Big Give has enabled the Trust to deliver valuable resources to our partner charities – improving the lives of young people in London.”

We are now seeing an increased drive to collaborate within the philanthropy sector. The pandemic has caused us to step out of our silos and work together to support society’s most systemic issues.

Match funding offers a logical way to harness this collaborative spirit by making your money go as far as possible.

One donation; twice the impact.

^{About The Big Give Christmas Challenge}

The Christmas Challenge is the UK’s biggest digital match funding campaign. All public donations made to participating charities via theBigGive.org.uk during the week of the campaign (30 Nov – 7 Dec) will be matched up to a specific amount. In 2020, the campaign raised over £20m for 764 charities. This year over 900 charities will participate. The campaign supports a huge variety of causes.

Match funding is provided by a range of philanthropic organisations, called ‘Champions,’ including the Reed Foundation, Julia and Hans Rausing, the EQ Foundation, Candis, The Childhood Trust, The Hospital Saturday Fund and The Waterloo Foundation, amongst others.

One donation, twice the impact – #ChristmasChallenge21

Alex Day

Director, The Big Give

Alex has spent the majority of his career in the not-for-profit sector. He has worked for a number of international development and humanitarian NGO’s including Tearfund and Medair. He recently completed a one-year secondment to REED as Director of Social Impact.

Alex holds a BA Hons in Business & Geography from Exeter University and MA in Charity Management from St Mary’s University which included a thesis entitled ‘Impact Bonds: The future of disaster resilience funding?’. He is Vice Chair of Excellent Development, an international development charity specialising in water conservation, and lives in Surrey with his wife and young son.

The Beacon Forum & the vitality of collaboration.

November 23, 2021 by Beacon Admin

In Beacon’s first face-to-face event since the pandemic, philanthropists identified that collaboration was key to supporting the Covid-19 recovery. Some observed a greater movement towards collaboration during the last 18 months, while others felt good intentions had not manifested in donor practice.

We reflect on the Forum to identify why collaboration emerged as the key theme and how the sector can support a drive towards more teamwork.

In the Beacon Forum’s introductory speech, Danny Kruger (MP for Devizes and Parliamentary Private Secretary of the government’s newly formed Department for Levelling-Up, Housing and Communities) spoke of the need for philanthropists and the state to align towards a common mission of supporting left-behind communities.

Collaborative sentiment was further echoed by Dr Beth Breeze (Director of the Centre for Philanthropy and author of In Defence of Philanthropy). Beth highlighted that we must work together to challenge negative narratives around high-net-worth charitable giving.

The real ode to collaboration, though, emerged during the day’s 26 roundtables, addressing 13 topics from across the breadth and depth of the philanthropic sector.

Despite the existence of a specific roundtable on collaboration, the theme ended up permeating a variety of discussions – a nod to its increasing importance in philanthropic circles.

Delegates were effusive in their praise for the resource-pooling, co-funding, best practice-sharing and mentoring which had emerged during the pandemic. Many suggested ways for building on this, including whether inspiring collaboration around geographic regions (rather than only causes) may help in the drive to support local giving.

Others highlighted the essential role that collaboration between grant-makers and beneficiaries had played in providing agency to local communities; it was suggested that donors may feel more comfortable in providing unrestricted funding if they spent more time working alongside those who benefit from their grants.

Cooperation was not limited to donor partnerships, either – the importance of teamwork between sector organisations also shone through. Indeed, conversations highlighted that no less than three philanthropic commitments on climate change, as well as a Commission on unlocking the benefits of individual impact investing, had emerged as a direct result of coalitions between charities, social enterprises and member networks.

Beyond infrastructural developments, Forum delegates opened-up about their increasing desire to engage with peers – many highlighting that this was the first peer-to-peer philanthropic event they had been involved in since before Covid.

As sector organisations, we need to provide platforms for donors to meet, interact, and share their journeys with one another. This will remove blockers to philanthropic giving and open the valve for more private money to flow into the charity sector. It is also essential that we communicate with one another more in our own workflows, accelerating our respective missions to remove impediments to the growth of philanthropy in the UK.

Philanthropy evidently flourishes when it is a team-sport, not a solo endeavour. The desire for greater collaboration can be seen from all sides of the landscape. But desire without action is useless. We urgently need to find mechanisms that connect philanthropists to one another and to those seeking to support them. The time for action is now.

Beacon Forum: Keynote Speeches

Danny Kruger MBE, Member of Parliament for Devizes; Parliamentary Private Secretary for the Department of Levelling-Up, Housing and Communities; author of ‘Levelling-Up Our Communities.’
- Danny spoke about the true value of philanthropy and the role he believes government can play in helping to unlock it, especially in left-behind communities. View speech (starts at 11:06).
Dr Beth Breeze, Director of the Centre for Strategic Philanthropy at the University of Kent; author of ‘In Defence of Philanthropy.’
- Beth challenged us to consider the criticisms of philanthropy, the arguments against them, and how we can play an active role in changing the narrative. View speech.
Sir Paul Collier CBE, Professor of Economics and Public Policy at the Blavatnik School of Government; Director of the International Growth Centre, and the ESRC research network, Social Macroeconomics.
- Sir Paul’s address implored philanthropists “don’t blunder in,” instead asking us to realise how thoughtful and considered giving can play an essential role in rejuvenating broken places. View speech.

Beacon Forum: ‘Challenge Talks’

Paul Callaghan CBE on fighting the tax vs philanthropy argument and encouraging government match-funding. View speech (starts at 37:12).
Leonie Taylor on the necessity of the sector reckoning with its own contradictions. View speech (starts at 48:45).
Tom Ilube CBE on the vital importance of incorporating AI into the future of aid. View speech (starts at 55:17).

^{Thank you}

We remain incredibly grateful to the generosity of our event sponsors – Barclays Private Bank, City Bridge Trust, EQ Investors, I.G. Advisors and Schroders – for making this event possible. Thanks also to our media partners Alliance Magazine, event management organisers Owen James and catering partners The Clink Charity.

We would like to extend our appreciation to all delegates, speakers and moderators for your attendance and enthusiasm in bringing the day to life.

If you have ideas on taking any of these discussions further and advancing philanthropy for the public good, please feel free to email us at info@thinkNPC.org

Philanthropy Right Now: Democratising Philanthropy

November 16, 2021 by Beacon Admin

‘Philanthropy Right Now’ is a periodical column for Beacon Collaborative by Marie-Louise Gourlay, Managing Director of Europe for The Philanthropy Workshop.

The prefix co- can be defined as “with, together, joint” and even “one that is associated in action with another” according to the Merriam-Webster dictionary.

The last blog touched on the importance of community in philanthropy. In recent weeks, the world’s eyes have been watching a small community of leaders making hefty decisions to tackle climate change and justice.

We desperately – urgently – hope it translates into action. But how do we bring people together around the metaphorical table and ensure that all voices are heard in shaping our future? How do we avoid simply reflecting the ideals of the statesmen and -women of the western world?

Ahead of COP26, we saw many within the philanthropy, public and not-for-profit sectors trying to figure out how to be a part of the conversation. Navigating just this one space felt like a microcosm of the challenges of navigating the wider social sector. The complexity and vastness, coupled with the all-too-often siloed and deeply private nature of philanthropy, can mean it’s a quagmire.

Even more challenging, is finding the spaces where all voices are equitably heard. In the now outdated system of hierarchy, meritocracy gets in the way. It gives louder voice to those with longest experience – but these are not always the people with the best ideas. When length of service trumps innovation and bold thinking, something isn’t right.

How do we ensure that there is always space for diverse opinion, knowing it furthers our discussion and expands our thinking? What is democracy if not sharing thoughts and ideas from across the spectrum in order to move us forward? How do we move away from purely intellectualised and theoretical discussion and refocus attention on the communities with lived experience of the issues we are trying to resolve?

People often refer to needing a case study to understand something. To take it from abstract theory, to real life example. In speaking with non-profit partners in Madagascar recently, they shared the distress of climate migration already underway. As men move inland to find work, forced from their homes by severe drought and ensuing famine, women and children are left behind – and we heard of women selling their unborn children in order to buy food and charcoal for their existing children.

And that’s just one example from one region. Do we have to wait until there are more tangible and hard-hitting examples before we move to action? Or can we build deeper trust with the voices from the communities that are closest to the challenges, and believe in the urgency?

The vitality of activists and movement builders is gaining in traction and voice, and they are not afraid to challenge. Space needs to be made to hear their demands. We have heard from philanthropists in the past that activism can feel ‘aggressive’ and can put people off funding such an approach – that narrative needs to change.

We need to listen. And then we need to move.

Marie-Louise Gourlay

Marie-Louise Gourlay is the Managing Director of Europe for The Philanthropy Workshop. Find out more about The Philanthropy Workshop’s activity here.

Is responsible investing “fit for purpose”?

October 12, 2021 by Beacon Admin

This article was written by Scott Greenhalgh for Beacon Collaborative. Find out more about the author below.

Responsible investing¹ (which I define to include ethical, sustainable, impact and social investment) and the pursuit of profit with purpose has grown exponentially in recent years. It has many supporters who believe business and investment can be a force for good and help contribute solutions to our pressing environmental and social challenges.

It also has detractors who worry that shareholder primacy and the consequent prioritisation of profit over purpose, at best limits the ability of business and investment to be a force for good and at worst provides false comfort as to the contribution business can make.

Ahead of the October 2021 Beacon Forum, this article examines some of the key issues in this debate and the role that philanthropists and private wealth can play.

1. The Growth of Responsible Investing

Growth in this sector has been substantial, particularly in 2019 and 2020.

There has been a circa tenfold increase in the size of the responsible investing market over the past 10 years in both Europe and the US. In Europe, there are now some 3000 publicly traded mutual funds with over €1 trillion AUM and in the US almost 400 mutual funds with c $250billion AUM that pursue a core responsible agenda². The table below highlights the strong growth in Europe.

In private markets, Phenix 2020 data lists³ some 1600 funds worldwide with $330 billion AUM as pursuing a responsible investment strategy.

This explosive growth with the range of active and passive funds covering (almost) all investment strategies offers investors and their wealth advisers a huge choice on how and where to invest in both the public and private markets.

In the UK, in addition to a wide range of responsible mutual funds, there is strong activity in the ethical bond, early stage “tech for good” and social property arena.

2. Does values-based investing generate financial alpha?

The short answer is “yes, but…”

There are many studies that have analysed the return performance of responsible investment funds. Most show outperformance or at least performance equivalent to that of their “traditional” benchmarks⁴.

A 2019 Morgan Stanley report analysed performance of some 11000 mutual funds over the period 2004 to 2018 and concluded that investors could expect returns equivalent to those of traditional fund counterparts and that responsible investment strategies offered better downside protection to investors in periods of market volatility.

Intuitively this equal or outperformance feels right. The environmental and societal challenges we face are throwing up huge opportunities for those businesses that can adapt and/or innovate to provide solutions to these problems.

Similarly, companies that engage positively with their wider stakeholders and actively consider the ESG factors that affect their business have a better chance of building shareholder value than those that do not. A recent McKinsey⁵ survey of business leaders shows a clear majority agreeing that pursuing ESG programmes creates shareholder value over the medium to long term.

However, the “but” in the “yes, but” above comes in two parts:

First, there are studies that disagree with the conclusion that responsible investing has led historically to outperformance. These studies⁶ do not dispute that Responsible Funds have outperformed in recent years, but they argue that this outperformance is not the result of the pursuit of a responsible investment strategy, rather the outperformance is the consequence of other more traditional investment criteria being used in the stock selection process by these funds. By the same token, these studies do not believe that responsible investment strategies offer better downside protection.

The second part of the “but” is that most mainstream fund managers market responsible funds based on the potential alpha or outperformance that they offer. This approach ignores other investor motivations for responsible investing, such as the desire of investors to align their investment strategies with their values and the wish to influence investment funds and businesses to pursue more sustainable agendas. This marketing approach also raises the concern as to what will happen to investor appetite if outperformance were to cease.

3. Do responsible investment strategies have a positive impact?

Here, I will argue the picture is mixed with quite a few positives and some large (current) concerns.

Let us start with the concerns. There has been much in the press about “greenwashing” or “impact washing” with the accusation that fund managers have over-claimed their environmental or social credentials.

In part, this reflects the rapid growth in the responsible investing market and the desire for fund managers to have an investment offering that can participate in this trend; put another way, some managers may not have fully developed their impact strategy, metrics and measurement ahead of the fund launch. It also reflects the challenge of measuring impact, the lack of agreed standards and the different interpretations that can therefore be used to define and articulate impact.

A second fundamental concern relates to the question- does the purchase or or divestment by a responsible investor of an existing share (of fund position) have any impact? The sale or purchase of that share will presumably have no effect on the issuing company’s activities and so on the positive or negative impact of that company.

Arguably it is only if there are enough sellers of a (negative) company’s shares, that access to the capital markets for that company is endangered and so the company’s behaviour is forced to change. This question of the impact or additionality of secondary market transactions can be debated at length.

But there are some positives. These include the efforts by regulators to bring greater transparency, for example through the EU Sustainable Finance Disclosure Regulations that are now coming into force⁷.

In public markets, data analysis organisations such as Morningstar and Sustainalytics are producing impact metrics and measurement both at a fund and individual (major) company level, enabling comparative performance and changes over time to be measured.

In private markets, there are a number of impact measurement tools in use that allow fund managers to show the impact and changes thereto both of individual investments and aggregated at the fund level. With a few notable exceptions, most private market impact measurement is done by the fund manager and so runs the risk of not being impartial.

It is important therefore, in my view, for investors to help drive positive change by asking fund managers (and through them the companies in which they invest) to explain in detail how they define and measure the impact they have, how they factor ESG criteria into their decision making and then to hold those managers to account for the impact they report.

4. Shareholder v Stakeholder Capitalism and will the latter lead to sufficient change?

It is 50 years since Milton Friedman’s essay that argued that the social responsibility of business was to maximise the financial return for shareholders and that decisions should be taken by the directors of companies on the basis of what would be best for (long-term) shareholder value.

In more recent years, in line with the growth of the responsible investing movement, there have been increasing calls for business to adopt an approach of stakeholder capitalism whereby decisions are taken with a view to their impact on all key stakeholders (for example, customers, employees, the environment, the community) as well as on shareholders. The US Business Roundtable declaration in mid 2019 by the CEOs of major US companies and the manifesto of the 2019 World Economic Forum calling for business to embrace a stakeholder rather than shareholder capitalism model offer important milestones and evidence of this trend among global business leaders.

Stakeholder capitalism seems therefore to be winning. But will it really make a difference as to how investors and businesses operate? And will that difference be enough to address the challenges we face? These are massive questions that merit careful debate beyond the confines of a short article.

My own view is that much of the current thinking around stakeholder capitalism follows a ‘business as usual” approach that does not go nearly far enough in rethinking our economy, the role of investors and investment and the constraints on their ability to be a force for good. Let me set out my reasoning below:

Company Law

For the most part company law continues to give primacy to the interests of shareholders. For example, in the UK, the 2006 Companies Act requires directors to consider a range of factors (employees, community, environment) in their decision making in order “to promote the success of the company for the benefit of all its members/shareholders”.

In the US, Delaware law (where many companies are incorporated) also gives clear primacy to shareholder interests. It can be argued therefore that the law limits directors in their consideration of stakeholder interests to those that do not adversely affect shareholder returns.

Lockstep

It is often argued by responsible investors that commercial success and positive environmental or social impact go hand in hand.

This means there is no trade-off between doing the “right” thing and doing well. Work by McKinsey suggests that this holds true especially over the long term of 5 to 7 years⁸. Clearly to the extent lockstep exists, the limitations of shareholder primacy can be mitigated.

However, one only has to look at the substantial negative externalities across a range of industries (for example tobacco, social media, mining) to make a powerful case that lockstep is more the exception than the rule, especially over the shorter term and that there are trade-off’s between maximizing social and/or environmental impact and financial returns.

Incentives

For the most part, incentives for directors of companies remain financial and share-value based.

Career progression-related incentives are similarly largely driven by measures of financial success. At the major fund management firms, individual fund manager and fund performance is typically based on benchmarking that fund’s performance against its peer group (we are back to alpha) and growing the AUM of the fund and so the fees the fund generates for the firm.

Even in the world of impact investing, performance incentives based on impact rather than financial success remain relatively rare. Remuneration in the fund management industry therefore reinforces shareholder rather than stakeholder primacy.

Alternative corporate forms

There are alternative corporate forms that allow for greater balance between stakeholder and shareholder interests. All of these different corporate forms are growing in number, but they remain a small part of the overall private sector.

For example, in the US, Public Benefit Corporations are for-profit entities that call for decisions to be based on balancing shareholder and stakeholder considerations and for profits to be based on delivering positive societal or environmental impact. However, these PBCs remain few in number with c 10 publicly listed and some 4000 overall⁹. PBCs are authorized by laws in many US states and so offer an established and “enlightened” corporate form; rapid expansion of PBCs (and their equivalents in other countries) might allow business to play a far greater role in addressing our environmental and social challenges.

The BCorp movement is a well-regarded accreditation process that allows companies to seek certification as a responsible business. However, BCorps do not have the force of company law behind them. In the UK, the Employee Ownership Association lists 730 employee-owned businesses, John Lewis being the largest and most well-known example¹⁰. Such businesses will, of course, focus on employee interests as opposed to those of other stakeholders.

In the impact investing world, most funds seek market-based returns. This leads to them operating within the same constraints as traditional investors. There are however a few funds that place impact first, offering investors a lower but “sufficient” financial return in the belief that this allows the fund to help generate greater impact.

I ran one such fund; the key challenge lies in making transparent the judgments and trade-offs between financial and impact returns. I was also fortunate as the fund performed well (above its’ financial target of 9% p/a net return to investors), so we never had to face the challenge of maintaining impact returns in the face of weaker financial ones.

My argument is therefore that current legal and incentive structures serve to reinforce a shareholder primacy that limits wider stakeholder considerations to those that do not jeopardise the ability to maximise financial returns. The good news is that alternative models exist; we need to see their widespread adoption.

So, what can philanthropists and private wealth do?

The above article has given a brief overview of some of the key challenges and debates within the responsible business and investment communities. Views will vary on all of the above points and the role that business and investment can and should play in addressing our environmental and societal challenges.

Among the actions that philanthropists and investors might take are the following:

To engage with the debate about corporate purpose, corporate legal form and the opportunities, limitations and challenges of our current economic system.
To scrutinise wealth managers, funds and companies in which one invests to understand how they address the stakeholder/shareholder primacy question.
To engage with the measurement of impact and to push for as much transparency on this as possible.
To consider the trade-offs inherent in investment portfolios and the extent to which one can allocate (part of) a portfolio to higher impact investments.
To consider* whether a change of statute/corporate form or BCorp certification would be helpful in building long-term value and delivering greater environmental and/or social impact.

^{*in a business the philanthropist controls.}

^References

^{Throughout this article I use ‘responsible investing’ as the overarching term for ethical, sustainable, impact and social investment. It therefore incorporates investing that uses Environmental, Social and Governance factors to inform decision-making.}
^{Morningstar Direct 2020 data.}
^{Phenix Capital Jan 2021 Impact Fund Universe Report.}
^{For example see Morgan Stanley “Sustainable Reality” 2019 or an older systematic review “ESG and financial performance: aggregated evidence from more than 2000 empirical studies” by Friede, Busch and Bassen Journal of Sustainable Finance and Investment 2015.}
^{McKinsey 2020 “The ESG premium: New Perspectives on Value and Performance.”}
^{For example, see Scientific Beta 2021 “Honey I Shrunk the ESG Alpha”.}
^{EU SFDR phase 1 became applicable in March 2021.}
^{McKinsey November 2019 “Five Ways ESG creates value.”}
^{Forbes June 2021.}
^{See John Lewis’ Employee Ownership Association}

Scott Greenhalgh

After a career in private equity, Scott started working 12 years ago with a number of wonderful not-for-profit organisations that opened his eyes to the scale of social inequality and need in the UK. In 2016, he was fortunate to be able to combine these “two worlds” and lead Bridges Evergreen Holdings from inception. Evergreen is the UK’s first long-term capital investment vehicle for social impact investing. Scott stepped down from this role earlier this year.

The views in this article are the author’s own and expressed in a personal capacity.

Changing Lives; why philanthropy is vital in giving young people a chance.

October 7, 2021 by Beacon Admin

Changing Lives; why philanthropy is vital in giving young people a chance.

^{‘Changing Lives’ was written for Beacon Collaborative by Daniel Flynn, CEO of YMCA North Staffordshire. Find out more about Daniel below.}

Opportunities for young people to change their path in life are not easy to come by, particularly for those without the networks and support to effect change.

There is often an assumption that young people know what they want and have the capacity to make the correct decisions for themselves. But young people do not know what they do not know. How can we expect them to achieve a better life without the relationships and people to help them?

For those young people with parents that have high social capital, they have one key thing – access. Access to opportunities, travel and vast networks which allow them to make positive choices based on their extensive experiences. Access to try things out, have a go and take that first step. These opportunities are simply not available to their poorer and less connected counterparts.

Many interventions have attempted to address the issue of social mobility but have not quite succeeded. But where broad initiatives have failed, philanthropy has often succeeded. Philanthropists have the flexibility to apply their funding in a variety of ways, based on what the situation demands. For this reason, philanthropic money can play a pivotal role in changing the life chances of young people. Here are a few tips for how to use your money to promote social mobility and change the lives of young people…

1. Creating the capacity to engage and learn.

For so many young people our educational system does not work. We need to think about how we create the space to learn in different ways – through art, sport, nature and more. The capacity to learn is a gift young people will take with them throughout their life. Let’s make sure they are engaged and understand the value of learning and education.

- - What you can do: Funding Arts initiatives, nature groups and sports schemes are great ways to build the confidence of typically disadvantaged young people and engage them in learning.

2. Promoting Travel

Travel changes lives. Culture enriches our soul. The more we learn about our world, the more fulfilled our lives can be. Many young people are trapped by poverty,  but poverty is not limited to financial opportunity. It is also the poverty of never seeing the countryside, never experiencing another culture. Travel promotes equality and inclusion and can often be a turning point in a young person’s life, providing different perspectives and stimulating exploration.

- - What you can do: Fund a national/international residential. Offer opportunities to visit/meet extraordinary people and places through networks. Sponsor a young person on an oversees placement.

3. Building Networks

Children of middle-class parents have access to a vast array of people who can help them on their way. Want to be a doctor, lawyer, business owner? Those parents will know someone who can help and will rightly use these networks to help their children. What about children who have no parents – or are carers/care leavers? How do we use our networks for them too? Relationships change people’s lives. How do we increase young people’s social capital to improve their life chances?

- - What you can do: Offer work placements/work experience. Host events which young people can attend to meet new people. Offer coaching/mentoring. Connect with schools and charities, meeting young people directly to hear their stories and share yours. Open up your business to do a show and tell. Expose young people to your networks and your worlds.

4. Providing Resources

A huge barrier to anyone’s next step in life – particularly a young person’s – is having the resources to follow their passions. Bursaries can provide a huge cushion for young people and can be used in multiple ways to help them progress. This can mean many things, from driving lessons to a laptop, to furnishing their student accommodation. Not having the resources to take your next step is so limiting. Let’s work to change that.

- - What you can do: Provide bursary funding to young people. Make it largely unrestricted so they have access to funds which cover a large area of their need.

A young person’s future should not be determined by their past. With the right love, support, opportunities and people, every life can be positively changed.

To quote Rupi Kaur…

“We are all born / so beautiful / the greatest tragedy is / being convinced we are not .”

^{Daniel Flynn is CEO of YMCA North Staffordshire, he has worked in the charitable sector for the last 35 years. His work has focused around social housing and homelessness, and he clearly understands the linkages between design and outcome. YMCA is still the biggest youth based charity in the world based in 138 countries servicing 50 million people every day, He works nationally and internationally for YMCA, working in West Africa and Israel/Palestine. He is committed to the area and loves to see the green shoots of creativity that he believes will unlock the prosperity of all.}

Philanthropy Right Now: The Power of Community – by Marie-Louise Gourlay

September 14, 2021 by Beacon Admin

Philanthropy Right Now:

The Power of Community

^{‘Philanthropy Right Now’ is a periodical column for Beacon Collaborative by Marie-Louise Gourlay, Managing Director of Europe for The Philanthropy Workshop.}

The power of community: a topic that’s risen time and again over the last 18 months. The twin pandemics of Covid-19 and the profound racial injustice that spurred the Black Lives Matter movement simultaneously tore us apart and flung us together.

Who were we when shut in our homes, hooked to the news? Was our community our household, our neighbourhood, our country? Or had our community expanded – a single community bound by a global pandemic, with a collective urgency to tackle the world’s issues?

For me, the notion of community has always been more a feeling than a tangible set of parameters. Dictionary definitions all feel overly passive, such as “the condition of sharing or having certain attitudes and interests in common”. It’s precisely that passivity that we wrestle with when we think of philanthropy. When does a shared attitude or interest progress from being passive to being active? And it’s fair to say that community can and does influence behaviour change.

Since Covid began, we’ve turned to one another in ways never seen before – seeking and sharing advice, advocating for trust-based approaches, and even informing one another about strategies which have proven successful – and those which have failed. It led me to question whether community is only formed out of necessity; when each of us needs something from one another in order to survive. With greater urgency, and an increased openness to the value of cross-border learnings and solutions, it seems this necessity has allowed the door to philanthropic collaboration to creak open.

Knowledge comes in many parts – and community is one of those parts. It’s often not the obvious interactions that are most fruitful – but those that are serendipitous, or fleeting, that lead us to explore, to challenge, to question and to innovate. For when we stop innovating, we become redundant. The last 18 months have taught us that having a community of ever-evolving thoughts and ideas, of support and of critical challenge, truly is irreplaceable.

At The Philanthropy Workshop, whilst our community was previously a long-standing, strictly enforced ‘no pitch zone’, increasingly members are seeking opportunities to co-fund, putting aside their individual strategies and recognising the role that collective action can play in multiplying impact, as well as acknowledging the power which must be ceded to enable that.

Long-term behavioural shifts take time. But the hope is that the movement towards collaboration and away from isolationism will continue in the direction that it has started. Reflecting further, I wonder whether the active shift we ultimately make will take philanthropy from being a community to being a movement, in order to achieve the changes we seek in the world.

We flourish when we’re part of something bigger than ourselves. We should be asking ourselves not only what we gain, but what we contribute. For there is a place in philanthropy for everyone.

^{Marie-Louise Gourlay is the Managing Director of Europe for The Philanthropy Workshop. Find out more about The Philanthropy Workshop’s activity here.}

4 ways charities and donors can collaborate better

September 2, 2021 by Beacon Admin

4 ways charities and donors can collaborate better

^{This article was written by Becky Cackett for Beacon Collaborative. Becky works as a Prospect Development Manager within the UK philanthropy sector.}

During the pandemic we saw philanthropists truly step up and show solidarity with charities. We also saw big changes to the way funds were donated, and the number of grant-giving trusts and foundations established in 2020 hit an eight-year high.

But the fight isn’t over. The pandemic has had a significant impact on the income of charities at a time when people need them more than ever. Data from NHS England, for example, confirms that 2020 was the worst year on record for cancer waiting times in England and saw the lowest number of people starting cancer treatment for 10 years.

To address the significant challenges ahead we seriously need to consider how to strengthen the relationships between charities and philanthropists, in a way that meets the needs of both. Here are four areas of improvement with actionable recommendations for charities and donors alike:

1. Develop a shared understanding

A 2019 report commissioned by Barclays Private Bank identified an ‘us and them’ gap between philanthropists and charities as a key barrier to philanthropic giving. In addition, it showed that 23% of HNWIs outside of the US feel they do not have enough knowledge or experience with charities to make a larger gift.

It’s clear that we need to overcome this disparity so we can attain the most effective outcomes for our beneficiaries. Charities sometimes take an approach which can feel transactional, when they should be getting to know the philanthropists they partner with more holistically, understanding their individual skills, interests and motivations.

Philanthropists should feel comfortable being more inquisitive. There are often many opportunities for you to learn more about the organisations you support, including meeting senior staff from within the organisation and visiting their services to deepen your understanding.

Donors: Utilise the resources charities provide to understand the issue in greater depth.

Charities: Dedicate more time to getting to know your donors and what drives them.

2. Know that communication is key

Feeding into the above, we know that developing trust between philanthropists and charities is vital to forming strong and impactful relationships, which will ultimately have the best outcomes for those we support.

In the Barriers to Giving report, 25% of HNWIs cited a ‘lack of control over how the money is spent’ as a barrier to giving. Openness and communication can help to build trust and to overcome obstacles like this. Philanthropists shouldn’t be afraid to ask questions about how their money will be spent, or how a charity is financed or governed. Charities do not want to lose donors and will often be willing to go above and beyond to address any issues.

In return for this openness, donors deserve transparency and accountability from the charities they choose to support. It is incredibly important to feedback to your donors when something is not going well.

Donors: If you’re not sure about something, ask the charity for clarity.

Charities: Don’t hide your failures from donors – they appreciate and deserve honesty.

3. Understand the importance of flexibility in funding

As Clare Wilkins from New Philanthropy Capital says, Covid-19 has been a ‘testing phase’ for the charity sector. During this phase donors have given more flexibly to charity than ever before.

Now that it’s clear the effects of Covid-19 will endure for years to come, it is vital that philanthropists continue to stand with the organisations they support and help to secure their future sustainability. For donors to do this effectively, charities need to help them to understand the value of unrestricted funding, which allows money to be spent when and where it is needed most.

But charities also need to reward the trust which has been placed in them by supporting philanthropists’ desires to be change-makers, and there are many opportunities to be part of innovative work if this is their preference. Beyond this, charities would benefit from identifying where individual philanthropists have skill sets which would complement specific projects.

Donors: Consider if you can support organisations more flexibly, for example by funding core costs.

Charities: Educate donors on why core funding is so integral to your work.

4. Be proud of what you’ve achieved together

This year, for the first time in its history, The Sunday Times Giving List saw donations from the UK’s top 200 philanthropists reach an amazing £4.3bn. In the UK, philanthropists and charities achieve so much together, but celebrations of these successes in the media are relatively rare. This contrasts with the US media where these stories are commonplace.

Philanthropists may feel understandably reticent for their stories to be shared in the general media. Charities can support this by opening their own external communication channels and telling these shared success stories in the most appropriate way for both sides, with a focus on the transformative impact of a large gift.

It’s so important that charities and philanthropists feel able to shout about their successes together. This encourages others to give, and to have the opportunity to experience the fulfilment that comes with developing a deep relationship with a charity and its people.

Donors: Seek to inspire! Look for opportunities to share your giving stories.

Charities: Tell the stories of donors, not just beneficiaries; develop giving role models.

Final thoughts

In the past 18 months, charities saw an increase in support from philanthropists when other income was severely reduced. But how can we sustain this momentum? Together, charities and philanthropists should nurture their relationships with open communication, honesty, and understanding, and celebrate when they’ve achieved something together. Let’s never forget that we’re working towards a shared goal.

^{Becky Cackett works as a Prospect Development Manager within the UK philanthropy sector. She has worked and volunteered for some of the UK’s largest charities spanning a wide range of different causes. You can connect with Becky here.}

Giving effectively: can data play a bigger role in decision-making?

August 27, 2021 by Beacon Admin

Giving effectively: can data play a bigger role in decision-making?

^{This article was written for Beacon Collaborative by Sarah Thelwall, founder of MyCake. See bottom for more about MyCake.}

It will come as no surprise to anyone reading this article that it can be challenging to decide the best way to help a cause that you believe in. Determining what you want to support is quickly followed by the problem of resource allocation: the questions of where, who and how.

The social sector – charities, social enterprises and community groups – has traditionally been queasy about using metrics to assess, rate and compare organisations. As such, there is often little data to enable this. For philanthropists more familiar with a world of metrics and analysis, this can be a frustrating experience – and may be holding back some from giving.

Things may be beginning to change. Data is more available. A growing cadre of trustees and managers are more interested in data and indicators as they double down on impact. If more analysis is possible, what indicators should we look for if we want to give effectively?

Perhaps the most critical issue to understand when deciding to support an organisation is whether it is viable: are they likely to still be here in five years? Is the operating model inherently riskier or less sustainable? If we can establish whether an organisation is resilient, we can then consider the effectiveness of the organisation’s activities or the impact and effectiveness of philanthropic giving. So, how can data and indicators help us to do this?

How to identify sustainable organisations

The sustainability of an organisation reflects many factors, from the quality of its leadership team to the strength and reach of its relationships. It also includes the merits of its operating model. The Arts Council and the Bechtel Foundation are funders who have explored what resilience looks like in practice, but there remains no single definition of organisational sustainability. As a result, the social sector lacks a set of commonly agreed metrics that we can use to assess sustainability and resilience.

We think this needs to change.

Research by MyCake is now exploring the role of metrics and whether they can help us understand resilience. Using data from a large-scale sample of social sector organisations, we have found the following metrics are particularly beneficial when evaluating operating models:

Turnover – what is the five-year trend: growth, stasis, decline or volatility? Do trends reflect or differ from the sub-sector the organisation operates in?
Contribution to reserves (net margin, or profit by another name) – what is the five-year trend? A negative contribution to funds is relatively common, as organisations may be investing in some years. Negative contributions should prompt questions about why (planned or unplanned?) and whether they are likely to continue.
Working capital or liquid unrestricted net assets (LUNA) – low or negative reserves levels are a warning flag. When looking at reserves levels on the balance sheet, double-check to see whether any bricks and mortar assets are described as restricted or unrestricted: accounting errors are common. For charities, covenants may restrict the sale of buildings, limiting the repayment of any debt. Figures for net current assets are also helpful: a negative amount may indicate the risk of trading insolvently.
Staff costs – this is commonly the most significant single area of expenditure in an organisation . In our latest research, we’ve demonstrated a correlation between proportionately high staff costs and an increased risk of closure.
Income concentration – income diversification is a familiar strategic goal in the social sector, albeit with diminishing returns. Organisations with a high proportion of turnover from a single client or single income type are likely to be less resilient. Measuring income concentration gives us an indication of this risk.

Funders and philanthropists may find that these metrics are enough to inform decision making. We think there is room for more detailed analysis and financial benchmarking in the social sector, in contrast to the private sector in the UK and the nonprofit sector in North America. MyCake’s specialist area of expertise is financial benchmarking: we collect and analyse data on over 40 income and expenditure types, alongside a suite of 30 metrics and KPIs. Our research programme aims to refine these and apply them across different places or sub-sectors. We have developed forecasting tools – a risk rating and a resilience rating – which improve the ability of the sector to identify financial fragility and address it before organisations fail.

Understanding how philanthropic funds can make a difference

We have argued that data and metrics can help identify and select organisations that are most likely to be sustainable. The next step for funders and philanthropists might be to understand better how their support contributes to the organisation’s sustainability.

A starting point is to ask how the organisation will use any support. One way of thinking about this might be:

Capital – money used to buy or refurbish physical assets such as buildings and land or improve it through activities such as setting up energy generation (solar, wind etc.)
Delivery of services – funding the costs of ongoing activities which sit at the core of the organisation, such as services to a particular community
Innovation – monies used to undertake research and development that will lead to next-generation solutions and activities

The outcomes of the three purposes are notably different. Supporting the acquisition of capital assets will likely support the delivery of activities and impact over multiple years. However, asset purchase may not translate into more revenue or better outcomes: the organisation may not have the skills or expertise required. The business model for a community café may deliver social impact but little revenue.

A contribution towards the cost of service delivery is likely to have a clear link with outcomes and impact. Further analysis can help understand whether the funds cover current service provision levels or enable extended provision. Both are useful as the demand for services often exceeds the funding available.

Few organisations have the funds available to cover the cost of innovation, just as few can generate the surpluses on regular activity that enable capital purchases: philanthropic support can make a real difference in such cases. The challenge is how to appraise proposals and test the assumptions that underpin the business model. Are suggestions for long term innovations that are high risk and high return? Or tweaks to existing activities which are lower risk but potentially lower return?

Any decision necessitates a fit between the philanthropic interests and what the organisation perceives it needs: mission drift or developing programmes to match the money on offer are a known problem in the social sector. Again, metrics and indicators can help. We can use metrics to evaluate the health of an operating model and the uses to which philanthropic funds could be put in that model. We can establish a sense of what ‘normal’ levels of progress are across a sub-sector, size of organisation or place, and the role of philanthropic funds within those groupings. Financial analysis won’t make a decision about whether philanthropists and funders should support an organisation or a cause. Still, it will help them to understand what value they add and what role they can play.

An increasing role of metrics and indicators

We are seeing an increasing interest in using data, metrics and indicators to understand the social sector: its capacity, financial health and, ultimately, its contribution and impact. The financial analysis traditionally undertaken in other sectors is increasingly being used to inform local and national government strategy. It is also being used to evaluate the impact of public and private grant funders and as an input to operational and business planning in individual organisations. As the sector focuses more on delivering impact, data and metrics are helping all stakeholders to make better decisions.

^{What is MyCake?}

^{MyCake was founded in 2007 to provide data to support business development consultancy to nonprofits around the area of trading and earned income development. Since then, we’ve built a series of data tools focused on financial data on non-profits that support data-enabled strategic decision making. Our tools and insights are increasingly used to support strategic decisions across the sector by central & local government, grant funding organisations and philanthropists who commit significant funding to achieve specific social and environmental outcomes. To find out more about our suite of key financial metrics and online services, visit www.mycake.org}

A different approach to funding charities…

July 29, 2021 by Beacon Admin

A different approach to funding charities.

Charity Bank is a bank designed exclusively for charities and social enterprises. It offers funders the chance to support social impact by investing in the bank itself. We speak with Charity Bank CEO Ed Siegel to learn more about this unique approach to third sector financing…

What is Charity Bank and how does it work?

Charity Bank lends money to charities and social enterprises to enable them to strengthen and expand their services. Like any other regulated bank, Charity Bank’s ability to lend is limited by the amount of capital it has on its balance sheet. To lend more – and thereby enable more social impact – it needs to grow its regulatory capital base. The more regulatory capital the bank has, the more loans it can make to charities and, therefore, the more social impact it can have.

Because Charity Bank can leverage its capital with deposit raising, the impact of a capital investment is more powerful. Roughly speaking, the bank can make £8 in loans for every £1 in regulatory capital it holds. It does this by issuing shares, mainly to trusts and foundations, and through the private placement of subordinated loan notes to eligible high-net-worth and sophisticated investors as a social investment, an investment which also takes advantage of Community Investment Tax Relief (CITR).

CITR is a 25% tax credit given by HMRC on the face value of the investment. For example, for UK tax-payers, over a 5-year term instrument, this is the equivalent of a tax-free income of 5% per annum. The value of the loan note investment and the leverage it enables is put to work to provide funding for UK charities and social enterprises supporting disadvantaged communities.

Which organisations does Charity Bank lend to?

The bank supports a diverse range of charities and social enterprises. Considering that there are over 100,000 community interest companies and social enterprises in the UK – and around 169,000 registered charities – a rough estimate puts the bank’s total potential loan-base at around a quarter of a million organisations.

Among these, Charity Bank is particularly active in lending to the affordable housing sector. It works with a range of organisations in this space, from YMCAs housing people lacking secure accommodation and almshouses providing housing for the elderly, to smaller organisations supplying critical services, including one of Ed’s favourite client organisations – EVA Women’s Aid:

“EVA is a small social enterprise in Redcar supporting victims of domestic and other gender-based violence. We first helped EVA five years ago with a loan to purchase a property to use as a specialist safe house and recently approved a further loan for a second property which will provide more safe accommodation for women. Compared to some of our larger charity borrowers, EVA is relatively small; however, the immediate impact they have can be life-saving and the generational impact beyond this is phenomenal.”

What makes Charity Bank a unique solution for the sector?

Most mainstream banks are naturally focused on – and their processes largely designed for – larger, profit-driven businesses. By contrast, Charity Bank is designed to meet the specific needs of charities and social enterprises. Ed explains that whilst these organisations are not managed to maximise profits, many are still viable as potential borrowing customers of the bank, albeit ones sometimes requiring more guidance:

“There can be a fair bit of hand-holding involved in lending to charities or social enterprises. Many of our borrowers have not previously taken out a loan. We guide applicants through the credit and legal due diligence processes, something that mainstream lenders are not always prepared to do. Our aim is to make the applicant’s journey as smooth as possible.”

While traditional banks are driven by financial return for themselves and their investors, Charity Bank’s raison d’etre is the social impact that its lending can have. The bank prioritises social impact while seeking to lend sustainably, aiming to preserve its capital and make a modest financial return. This is why CITR is such a critical component of the loan note structure, offering an interesting taxable equivalent yield to investors while also keeping the bank’s cost of funds to a minimum.

What about the security of Charity Bank loans, especially after Covid?

The social sector has been hit hard by the pandemic. Some loans which organisations could afford a year ago are no longer viable options for them. We asked Ed how this will impact Charity Bank’s loan recovery rate, and what it plans to do to counter a potential dwindling demand for loans.

Charity Bank’s historical loan loss rate is incredibly strong, at just 0.3%. Ed attributes this in-part to a very thorough approach to credit evaluation, and the fact that the vast majority of the bank’s loans are well secured with real property. But beyond this, he cites the strong, mutually-beneficial relationships Charity Bank has with its portfolio enterprises:

“When things don’t go to plan at one of our borrowers, rather than go into automatic risk-mitigation mode, as we often see conventional lenders doing, we actually find ourselves drawing on our close relationship with the borrower to do what we can to help them. Many of these organisations feel a strong obligation to honour their commitments to us because of this close-knit relationship and the fact that the bank itself is an impact-led organisation. We go hand-in-hand with the charity in good times and bad.”

However, Ed also recognises that many organisations will not be in a position to take on pure loan financing, especially in the post-Covid environment. To get stalled projects off the ground, a combination of grant and loan funding may be a more viable option. With this in mind, Charity Bank is currently working to secure funding to roll out a blended finance offering that will be able to combine grants with repayable loans. Ed says:

“The hope is that this approach will make some charities’ projects viable again. For example, if a charity needs £100,000 but can only afford to borrow £50,000, a blended finance offering could see them given a £50,000 loan from Charity Bank alongside a £50,000 grant from a charitable trust or foundation funder.”

Looking to the future, Ed is positive. He draws optimism from the fact that – at the time of writing – no Charity Bank borrower had failed as a result of the pandemic. In fact, rising demand for loans has seen Charity Bank grow significantly over the past twelve months. Such a testament to the resilience of the third sector demonstrates the effectiveness of applying different approaches to financing charities, especially in times of crisis.

^{Ed Siegel is the CEO at Charity Bank.}

^{Charity Bank on Twitter}

^{Learn more about Charity Bank}

Audacious Philanthropy: 5 ways to improve your giving

July 23, 2021 by Beacon Admin

Audacious Philanthropy: 5 ways to improve your giving

^{This article uses copy, content and insights from Audacious Philanthropy: Lessons from 15 world-changing initiatives, by Susan Wolf Ditkoff and Abe Grindle, which was originally published in the Setp – Oct 2017 issue of Harvard Business Review. The full text is available to read here.}

Audacious philanthropy has helped to propel some of the most important social-impact success stories of the past century: virtually eradicating polio, providing free lunches for needy schoolchildren and securing the right for same-sex couples to marry, to name just a few.

Many of today’s emerging philanthropists aspire to similarly audacious successes. They don’t just want to fund homeless shelters and food pantries; they want to end homelessness and hunger. Steady, linear progress isn’t enough; they demand disruptive, catalytic, systemic change—and in short order.

But a growing number of these donors are frustrated. Despite having written big cheques for years, they aren’t seeing transformative successes for society. When faced with setbacks and public criticism, the best philanthropists re-examine their goals and approaches. But some retreat to more traditional fields of giving such as education, arts and culture. Others withdraw from public giving altogether.

Audacious social change is incredibly challenging. Yet history shows that it can succeed. To better understand why some efforts defy the odds and what lessons you can learn from the triumphs of the past, Susan Wolf Ditkoff and Abe Grindle conducted research into breakthrough initiatives which have been fuelled by philanthropy.

Their research gives 15 examples of philanthropy that changed the course of history and five changes you can make to achieve large-scale, swing-for-the-fences-change. Here’s how to optimise your strategy for audacious philanthropy.

5 ways to improve your giving

Explore the full research

Do you have research or stories you’d like to share with the Beacon network? We’re interested in promoting positivity around philanthropy and encouraging more people to get into giving. Send us a message at info@thinkNPC.org