Tracy Elsen

At GPF 2012, Business and Philanthropy Mingle ‘Toward a New Social Contract’

The Global Philanthropy Forum has served as a catalyst for social change over the past decade by bringing together donors and social investors with global leaders in business and government at its annual conference. This year’s forum, built around the theme “Toward a New Social Contract” will be held in Washington D.C. from April 16-18. I had the opportunity to speak to Jane Wales, the president and CEO of the Global Philanthropy Forum and the World Affairs Council, about the current intersection of business, philanthropy, and social change.

TE: What role is the private sector playing in the trajectory of philanthropy at the moment?

JW: There are really three roles the private sector currently plays: as a direct actor itself, as a partner to governments, and as a source of models and mechanisms for achieving philanthropic goals.

In the first role, as a director actor, there is the shared value agenda. I note the ways in which private sector leaders are putting their companies to the service of social goals. Examples include Unilever choosing to employ 30,000 rural women in the developing world to sell their products door to door. This model addresses an employment need and a company’s fundamental goals of marketing and distribution. Google is addressing its environmental footprint because computing is an energy-intensive activity – if they can figure out how to do this, it will have enormous effects. GE is investing $6 billion into creating new products that address income needs of low-income populations, such as an inexpensive ultrasound scanner that transmits its pictures over the Internet without needing a computer.

In the category of partner, ever since the Green Revolution we have known that there is an enormous opportunity to tap the capacity of corporations, particularly in realm of research and development, to achieve social outcomes. The Rockefeller Foundation and the Gates Foundation want to address diseases of the poor, but they don’t have the R&D capacity to develop new vaccines, medications, or means of diagnosis. So they turn to pharmaceutical and biotech companies to work on these issues. In the case of Rockefeller, they will provide upfront capital, and will make an equity investment in a company if this company will devote some of its capability to addressing the needs and diseases of the very poor. And then the Gates Foundation will make a commitment in advance to buy products such as vaccines, medications and diagnostic tools in order to justify production at a large scale.

Finally, the philanthropic sector is borrowing models from the private sector all the time – so often that we almost forget that the private sector is the original source of things such as impact assessment and floating bonds as a means to raise capital. These methods have been appropriated by the philanthropic and social sectors achieve social goals.

What the private sector brings to the table is a combination of efficiency and scale. What public and social sector will focus on is the question of equity – how do we make sure that, as economies grow, participation in those economies is broadened, wealth does not just go to a tiny few but is accessible and can be accessed by all parts of society.

TE: What are some of the most innovative new ways you have seen philanthropists finance social change?

JW: The most appealing is yet to be fully tested: the concept of social impact bonds. In Massachusetts they are testing a model in which governments contract with intermediaries for the delivery of services, but only pay on delivery, not upfront. So intermediaries contract with organizations for services, and then float bonds to raise the upfront capital needed, and those who buy the bonds gain a percentage of the ultimate payment. The organizations that deliver those services can use that upfront capital to get the job done. That’s a really inventive idea.

We are also seeing the establishment and growth of a multitude of funds that aren’t bond funds, such as the California FreshWorks Fund. This is a $264 million public-private partnership fund to increase access to healthy food in underserved communities. The California Endowment made grant and a loan to this fund, which then attracted financing from investors such as Kaiser Permanente and JP Morgan Chase. There are other good efforts to create jobs using funds, such as Starbucks’ partnership with the Opportunity Finance Network for Jobs USA that creates jobs in underserved communities. We are seeing new ways to address some of harder problems in society that are at the top of agendas of policy makers. Government action alone isn’t going to generate jobs at scale and in places they are most needed.

TE: How can those focused on growing impact investing best work with the philanthropic community to achieve social and environmental outcomes?

JW: There is a robust conversation already underway about this. The harder question how to attract institutional investors. Using foundations and individual philanthropists, who have at their core the mission of affecting social change, as a starting point is the smart first stop.

Just as in the developed world, developing world enterprises go through stages from idea to business plan to proof of concept to scale. Patient capital is needed in those first three phases, while traditional investors stand on the sidelines waiting for that moment of scale. Philanthropic dollars in the form of grants are needed in those early phases. These enterprises can turn to philanthropic community both for grants and Mission Related Investments that can take the form of loans or traditional investments. If we wait for a company to be investment-ready without this early capital we’re going to be waiting for a very long time.

TE: How are emerging markets playing a role in the development of new forms of philanthropy?

JW: Emerging markets are growing their economies, and are also broadening participation in their economies, which helps to address most fundamental form of poverty. Brazil is an example of a country that had a long history of pretty significant inequities that almost felt inevitable at a certain point. It has changed course dramatically, rejecting the idea that inequities are inevitable, and following policies on building a middle class and opportunity for all. This is a country that is an emerging market that offers real opportunities.

At the same time we are seeing a great growth of the entrepreneurial sector, and of SMEs that are both generating economic activity – which in itself is a positive thing – but also providing products and services and income-generating opportunities for the poor. In Brazil we are working with an organization that seeks to replicate our forum model in Brazil, and will be taking part in the first conference this fall in Sao Paolo. Jump to a country like Nigeria. It too has been experiencing a good deal of growth, and in the past few years has seen the philanthropic sector emerge. For example, Tony Elemelu is someone who transformed a failing commercial bank into a $2 billion powerhouse with reach across the continent. He is focused on training business leaders and building enterprises that can contribute to economic prosperity. As he says, he wants to support companies and people that contribute to economic prosperity and social wealth. He’s coined the phrase Africapitalism as a way to ensure that economies will grow and that the participation in those economies will expand. We are seeing similar activities in India, South Africa and other emerging economies. The growth of the Aspen Network of Development Entrepreneurs (ANDE) throughout these emerging economies is a powerful indicator of just how attractive leveraging markets is. It is a real indicator of the growth of a hybrid approach of achieving social goals.

The key is that, in these economies, philanthropists are basically leapfrogging from good old-fashioned charity to strategic philanthropy without passing go. They’re starting where we ended up.