One of the defining features of today’s billionaires is entrepreneurship, and in the same way that tech and retail entrepreneurs have disrupted the status quo to scale businesses, they are bringing their calculated know-how to philanthropy.
“We are experiencing a new wave of innovative entrepreneurship worldwide”, explained Josef Stadler, head of UHNW at UBS Global Wealth Management. “Entrepreneurs are creating jobs and prosperity, but this new generation see an opportunity to tackle the environmental and societal challenges facing humankind”. Dr Marcel Widrig, partner and private wealth leader, PwC, agreed adding “the younger generation actively want to change the world, making their impact through family offices and philanthropic organisations, giving expertise and ideas alongside their monetary donations.”
According to Dhana Sabanathan, partner at Winckworth Sherwood, one of the now established trends in the UHNW sphere is the growth of impact investing, this is where initiatives create positive economic, social and environmental returns. She explains the change, “social giving has become part of the investment strategy of investors, rather than just an ancillary project.”
Getting involved is straightforward, according to Sapna Shah, director of strategy at the Global Impact Investing Network, better known as the GIIN. Her advice for those taking their first steps is to “simply ask questions. What am I investing in? Is it aligned with my values? What options do I have to better integrate the two?”
Managers step up
As interest has grown, so has the product offering available, according to Mary Humphreys, manager, Client Services at Equiom Guernsey. “Investment management companies, banks and other intermediaries have responded to the demand for funds which invest in socially and environmentally conscious ways. The focus is on bonds and other investment vehicles that directly finance socially orientated projects”.
Big data, little data
However, the rise of impact investing brings a new problem: how to measure returns. A particular challenge appears to be assessing how much impact reporting is needed from the ventures that are invested in. “The financial services market is making concerted efforts to develop a shared framework and criteria to identify sustainable investments and the nature of social return and real ‘change’ to address these challenges”, said Sabanathan.
Overall, Sabanathan said “This is a sticking point with entrepreneurs who are more demanding in terms of the results and accountability they expect. It’s because of this we are getting more requests for bespoke planning and philanthropic foundations”.
Get with the programme
A further element of entrepreneurship which is being carried over to impact investing and philanthropy, is a higher risk tolerance.
“Not being fazed by the fear of failure, entrepreneurs are often looking for faster results which can mean more testing of projects. Because of their mindset, they are more likely to be involved in riskier projects, which traditional charities may be too cautious to touch. This approach also means coming up with breakthrough solutions using software or technology. However, not all projects are suited to such a mind-set and if entrepreneurs don’t see the desired results, they are more likely to accept failure and move on”, explained Katya Vagner, an associate at law firm Mishcon de Reya.
Fidelity lead the crypto charity charge
As for what’s next, there is much talk of how crypto and blockchain could be used in philanthropy to create more direct and transparent giving with blockchain-based platforms. Fidelity Charitable in the US which houses the nation’s largest donor advised fund, received $69million in cryptocurrency donations in 2017, up from $7 million received in 2015 and 2016 combined. Yet with the volatility in the cryptocurrency market, widespread adoption may still be a way off. As Vagner reasons, “It can only be hoped that others, including traditional businesses, will learn from entrepreneurs and will actively seek opportunities that allow them to do business and do good at the same time.”