Philanthropy: it’s time for a renovation

Generally, the word “volunteering” suggests the classical definition of voluntary work – an activity in which gentle people make themselves, their time, and their energies available to somebody else’s needs (old people, disabled, and immigrants).

But the kind of voluntary work just described is not the only one existing. In fact, there is another volunteerism which is less visible and less boasted. This other volunteerism tries to work on the causes of social issues and not directly on the emergency itself. Considering the past, too often volunteers have acted on behalf of the State, trying to fill the gaps where Governments fail, without having the power and resources to completely solve a problem that would just keep on occurring again and again.

The Scottish economist Angus Deaton, who was awarded with the Nobel prize, believes that giving aid directly to developing countries does not represent a positive investment, since that money will have positive effects on the short run, without addressing important underlying economic matters.

The new type of socially motivated activity must not replace the traditional one, but simply collaborate side by side with it: in fact, the traditional one represents something we cannot do without, since what every emergency needs first of all is a direct response.

Another cultural change volunteerism should operate regards money. Some volunteers think this is a forbidden topic they don’t want to deal with. On the contrary it is an important matter they should pay attention to, since funding is what they need to carry on their activities. Generally, they ask the Municipality or another Institution or some private donator to finance their work. The problem is that philanthropic donators have many other requests to consider, while a Public Institution does not have money at all. At least not as much as it used to have in the past. And this is true not only in Italy.

What we need to do is to think about a new kind of investment “suitable” for this historical period.

Considering the world economic situation, forecasts on social programs represent an important variable we must pay attention to. In according to the ones provided by the Oxford Economics, one of the most important advisory firms, in European countries – particularly UK and Germany – the cost of basic services (such as housing, clean water, electricity, gas, sanitation, and education) will face an increase.

Since basic services are what household consumption starts from, European countries must find a solution to change the present situation in order to change the future, otherwise there will be social problems – concerning for example welfare and social distress. For this reason, the United Kingdom started researching on new and sustainable development programs.

The result is known as Social Impact Innovation. In Italy we haven’t yet understood how important the social impact factor is, investing for social good means not only addressing directly a social emergency – i.e. migrants –, but trying to prevent it, in order to seek a positive impact for the entire community.

To make it possible, innovation – and development – needs new forms of financial support, besides the limits of the private and public ones. The answer is what Rockfeller Foundation and J.P. Morgan called Social Impact Investing. Banks had to provide new strategies for their clients’ portfolios in order to find high and quick market-rate returns, but considering also their volatility and the level of risk – we still have clear in mind the financial crisis of 2008.

Considering the philanthropic inclination of investors, the aim was to invest a little part of those portfolios in enterprises that provided useful products and basic services in developing countries. The results were surprising: while all traditional private investments were negative, philanthropic impact investments were positive and slowly growing. Of course, this kind of investment has lower financial returns and needs more time than a traditional investment seeking market-rate returns, never the less they are considered in a positive way by many investors, since there is no connection with the country risk. Many experts realized that this type of investment could have been a positive one also in developed countries, like European ones.

This kind of operation represents a complex instrument but its principles are simple, and socially motivated organizations should be careful but open and not afraid of nor suspicious.

First of all, public and private sectors should no more be alternatives nor opposed to each other: private sector is not better than the public one. In fact, the private sector pursues interests different from the achievement of common good and, as well as the public sector, it is affected by corruption.

The new financial instruments concerning social impact innovation involve many main actors: the Public Institution, the private investor, the philanthropist, the no-profit organization, and the evaluator. None of them can face up all the social issue on its own; to be efficient, they must cooperate together.

In a nutshell, the State will invest in social problems less money compared to the amount spent in the past, letting private investors help the public sector for example in the activity of saving abandoned and deteriorated public spaces; the money not spent by the government will be the guarantee for the private investors in case the project will not have a positive result.

The Philanthropist – which can be a Bank Foundation – also can choose to participate as a private investor.

In the public spaces saved, No-profit organizations will provide the services and projects financed by the State and the private investors, for example transforming them in places dedicated to old people not self-sufficient or to children. And an external independent evaluator will determine if the organizations have achieved the predetermined performance targets.

Where do the private capital returns come from? The answer is simple: from the social service provided through the saving of the public space, in fact it might be transformed in a museum ran by young people without a job or in a recreation centre or in an afterschool club. The money gained from the payment of a low, or very low, entrance ticket will reimburse the invested capital.

The external evaluator will determine the realization, the correctness and the impact of the project, because philanthropy and volunteerism must change their mentality: the effectiveness of the money donated must be measured.

This social impact is clearly more successful than a reclamation of a disused and deteriorated public space: the neighbourhood will be more liveable, active, pleasant, rich, and secure.

This is just one of the many examples of successful Social Impact Investing. We only need to start.