Modern philanthropy

Alongside classical forms of donating and endowing through the provision of funds, founders and donors are increasingly trying to forge new paths in philanthropy. More and more philanthropists are striving to contribute the knowledge, contacts, and know-how gained in their professional life as intellectual and social capital to the organisations they support. Aspects of responsible and sustainable investing are increasingly also found in the traditional world of philanthropy. In line with the principle of “give money and step in”, the theory and practice of long-term and responsible investing (SRI) and venture capital approaches are increasingly being transferred to the non-profit sector (venture philanthropy).

Venture philanthropy (VP)

The approach of engaged philanthropy, also known by terms such as venture philanthropy, high-engagement philanthropy, or strategic philanthropy, sees its activities as a social investment in organisations dedicated to the common goal. For this purpose, it draws on methods known from venture capital and business management. Non-profit organisations are assisted beyond financial contributions through support on a long-term, expert, and personal basis. The goal is to strengthen fulfilment of the organisation’s purpose and to supplement classical forms of donations over the long term.

Sustainable, responsible investing (SRI)

Recently, more and more philanthropists are discovering a new way to “do good”. They include socially responsible investments or sustainable and responsible investments (SRI) in their actions. This increasingly blurs the traditional boundaries between profit-making investment on the one side and the traditional understanding of donations and endowments on the other side. This new understanding of philanthropy also takes account of sustainable and responsible investments with a positive capital impact. Socially responsible investing combines the sphere of social and ecological impact with that of financial success, allowing philanthropists and founders to pursue new opportunities for action. The new generation increasingly uses not only donations, but also investments to do good.

Investing with a positive capital impact (impact investing)

Sustainable investment approaches are increasingly evaluated in terms of the immediacy of their impact in terms of ethical, social, ecological, and governance aspects. This means they are growing more and more beyond mere investment styles and products. While, for instance, the employment of exclusion criteria works indirectly via a company’s capital costs, impact investing generates an immediate positive ecological or social impact. In the ideal case, this impact can be measured and reported to investors, for instance by assessing the number of microcredit recipients and the type of projects funded. The impact issues offered, reflected in their immediate impact, are meanwhile very diverse and increasingly popular on both the supply side and the demand side.

Programme- and mission-related investments for foundations (mission investing)

Programme-related and mission-related investments have especially gained in popularity in the world of foundations, serving as umbrella terms for the efforts of foundations to harmonise their appropriation of assets with capital investments. Programme-related investments (PRIs) are investments immediately or very closely connected with the purpose of the foundation, promoting that purpose directly by the way capital is invested. Generally, this type of investment also accepts returns lower than the market and is usually made in the form of loans, guarantees, direct investments in companies, and even participation in venture capital and private equity funds. Mission-related investments (MRIs) make it possible to overcome certain regulatory barriers through market returns and to additionally promote the ecological and/or social purpose of the foundation through the type of investment. This helps, for instance, achieve consistency between institutional self-conception and investment policy, avoid hidden reputation risks, expand risk management by including ESG criteria (environmental, social, governance), and even achieve diversification effects.

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