The next generation is challenging the meaning of impact
Among the many trends in impact, we continue to see the younger generation of entrepreneurs and investors use their businesses and personal wealth to make a positive impact on society. These entrepreneurs are choosing to tackle some of the world's biggest challenges and, as a result, tend to focus their initiatives on one or two key areas, such as education, the environment or healthcare.
"Our clients are global citizens and embrace globalisation in how they give,' says Dorothy Chan, Head of Philanthropy Advisory and Charitable Services at HSBC Private Banking in Hong Kong. "There is a lot of emphasis on education, for example, as many believe that that's an area where effects can be amplified."
Because these topics can be both global and local in scale, many become 'philanthropic entrepreneurs', devoting their energies while in the prime of their lives to set up and direct their charities or foundations alongside their main businesses.
Carly Doshi, Head of Philanthropy, Family Governance & Family Office Advisory at HSBC Private Banking in the US has witnessed this inter-generational shift in mindset. "Historically, investors would consider the immediate purpose of an investment: pure financial returns or pure philanthropic motivations. Today, we see many socially-minded investors apply a more sophisticated analysis – blending investment return goals with social impact considerations – to arrive at a more holistic spectrum, rather than a bucketed approach. This is particularly true among Silicon Valley entrepreneurs, who are generally comfortable challenging accepted norms and applying strategic problem-solving to all of their work, including their philanthropy."
A sense of urgency is leading to innovative new approaches
Unlike previous generations, the desire to see results achieved in their lifetime has led to an evolution in the type of impact-focused organisations being set up. The most noticeable is the move from foundations set up in perpetuity, which spend only the income or a limited proportion of capital each year, to 'time-limited' or 'spend-down' foundations. An example of the latter type is the Bill & Melinda Gates Foundation, which intends to wind down its resources within a set timeframe.
"Clients are increasingly focusing on the purpose of their wealth," says Sophie Ward, Head of Charities and Education at HSBC Private Banking in the UK. "This runs through both the way it is invested and how it is disbursed to philanthropic causes."
"Today, individuals want to target their capital towards specific causes, like climate change or to support a specific UN Sustainable Development Goal, which is currently facing a USD2.5 trillion annual financing gap. If you think about it, 100 years from now will be too late, so the number of years to make a difference is limited and clients understand that it requires serious investment across all of their financial assets."
Foundations with a perpetuity timeline still comprise approximately 70 per cent of all foundations. However, of newly-established foundations, almost half are time-limited. Ten years ago, that figure was 20 per cent.
Among the ultra-wealthy, there is also a rise in the number of people making a promise to dedicate at least half of their wealth to charitable causes during their lifetime or in their wills via The Giving Pledge.
Today, there are over 200 signatories from 23 countries pledging over USD500 billion to a wide range of causes.
In Dorothy's experience, the sense of urgency felt globally is helping to mobilise resources: "We're hearing more clients say they want to spend down their funds. They've been around for some time and are eager to see change. And in the greater scheme of things, they don't feel the need to leave a legacy. They don't see themselves as a Rockefeller or a Ford, so want to put their resources towards good causes now."
The most impactful ventures are collaborating to solve challenges
Entrepreneurs with a passion often want to maintain close involvement with the initiative they're funding and its strategy. To amplify impact, an increasing number choose to pool resources and collaborate with like-minded private investors, either through specialised multi-family offices or venture capital (VC) arms, like CREO Syndicate or Breakthrough Energy Ventures.
The sentiment is that entrepreneurs – who have the conviction and vision to create a thriving business – can effectively use those same skills to transform social missions with previously unquantifiable metrics into tangible contributions to society.
"We have clients who have a business, foundation and a venture capital fund, so they're using all tools at their disposal to bring about change," says Dorothy. "Models like Breakthrough Ventures is how multi-family offices tend to operate. VCs are extensions for philanthropists, and foundations and their investment arms complement each other."
While there is no definitive blueprint for change, philanthropic entrepreneurs are using the full spectrum of resources available to build a better future. By aligning investments around social values and developing a roadmap for how progress can be measured, this new generation of leaders is expanding the capacity in which change can be delivered – and accelerating its timeframe.