Philanthropy: The cost of giving

Date: 13 Mar 2024

Citywealth

With the rise in costs of living, Citywealth speaks to philanthropy experts to understand the challenges and current trends in philanthropic giving. We address the overlap with ESG, arguments of undue influence in the art world, rules, regulations, and more.

Philanthropy during geo political uncertainty

We began by asking the experts how their clients are reacting in the face of uncertainty. Are current political and economic concerns having any significant impact on those wishing to give?

Amy Blackwell, Founder of Amy Blackwell Advisory, said: “I am seeing two reactions to the current political unrest, crises, and upcoming elections in the UK and US. One relates to humanitarian need. In Gaza, most humanitarian organisations are struggling to get supplies into the communities where the need is most dire. There has been an increase in interest to help people, but with the supplies and access limited, donors are unable to achieve their desired impact.”

Families are choosing impact investing over making grants

“Second, people are feeling the uncertainty. Tax policy may change. Advice for estate planning and structuring for successions may be revised. Some families are choosing impact investing over making grants because the capital remains in their control and ownership rather than crossing the philanthropic barrier and becoming public funds. There is a bit of paralysis while people take advice and consider their options. Impact investing and social lending offer the ability to achieve impact while offering more flexibility as the elections come to pass.”

Charities are finding it harder to raise general funds

Anna Josse, Founder of Prism the Gift Fund, noted that, due to the cost of living crises, “charities are finding it harder to raise general funds.” She expanded: “This combined with government cuts is enormously challenging. The market is turning to major donors to fill the gap – it’s really asking major donors to give more and those that haven’t started to consider making major gifts and start a philanthropic journey. Political uncertainty also plays a role and we don’t yet know what a possible change of government could mean on any tax regime and whether some HNWI may choose to move out of the UK.”

The overlap with ESG

ESG is a key consideration in investment spaces and we have heard from experts that many clients, especially those of the younger generations, are prioritising ESG in their instructions. There are similarities shared between ESG initiatives and the purpose of philanthropy. We asked the experts if there is an overlap between the two, and where interest in these areas converges and/or differs.

Philanthropists align investments with their philanthropic mission

Caroline Piraud, Head of Philanthropic Advisory for Bank Julius Baer, gave an emphatic ‘yes’. She said: “[T]here is an overlap, as philanthropists typically want to align their investments with their philanthropic mission. This is identified during values discussions/workshops we facilitate for our clients.”

Growing overlap of capital

John Pepin, Chief Executive of Philanthropy Impact, agreed that there is a “growing overlap across the spectrum of capital from philanthropy to impact investment.  They converge around increasing the flow of capital for good.  Our research certainly reinforces this perspective especially among GENZ, Millennials and Women of Wealth (but not just limited to these three groups).”

Amy Blackwell explained further where the lines overlap: “The overlap that exists between ESG, impact investing, and philanthropy is that people can choose to deploy their capital in alignment with their values. ESG represents a series of operational risk management decisions that companies make. This is not related to whether their goods and services are driven by impact objectives. Impact investing is the deployment of capital with the expectation of a financial return alongside a social/environmental impact. Philanthropic capital is deployed with no expectation of financial return but a clear expectation of impact-in varying degrees of depth. Building a diversified portfolio across the spectrum of capital can bring all of these types of investment and grants in line with a family’s values. It also helps to create a multigenerational legacy strategy. Families can be very clear about what it means to be in the family and how they wish to be known publicly.  Certain members of the family may have preferences for one focus over another but the values and purpose can be consistent across the family.”

Philanthropists take an ethical lens to their commercial investments

Jamie Webb, Philanthropy and Social Investment Advisor at JW Philanthropy Limited, highlighted the ‘S’ aspect: “I tend to work with social investors that have a clear intent and purpose to their investing and philanthropy so remain largely unaffected by trends and legal/regulatory changes. I find that philanthropists are more likely to take an ethical lens to their commercial investments but they are informed enough to make their own decisions on what they deem ethical rather than relying on generic ESG strategies. The big concern I see from philanthropists is the legacy from the pandemic and the lockdowns, especially in the areas of education, adolescent mental health and worklessness. Whilst these challenges were significant before, they have been compounded. One trend which I believe could make a difference is greater collaboration between philanthropists and others such as government. However this requires a willingness to ‘let go’ and an openness to other approaches. Collaboration should reduce duplication, gaps and silo working – strengthening the wider philanthropy sector.”

Rules and regulations affecting philanthropy

Are there any recent or upcoming legal and/or regulatory changes affecting philanthropy? John Pepin said: “Not directly.  There are a number of government departments as well as the Charity Commission that is developing plans to increase philanthropic giving. In addition one of the unintended consequences of Consumer Duty and SDR will be a focus on customer centricity which will lead to value based discussions and the extension of suitability – not only leading to more impact investing but also to more discussion about philanthropic giving lead by private client professional advisors..”

Caroline Piraud provided the perspective from Switzerland: “In Zurich the regulatory changes will make it more attractive to become a board member of a charity, as a compensation/salary is going to be possible in the future. This further helps to professionalise the sector. Also, there will no longer be a distinction made between charitable national or international donations. In the past the international donations were always challenged with tax deductibility. These changes will make Zurich a much more attractive jurisdiction going forward. However this is not applicable for all of Switzerland.”

The monitoring of charities has increased in recent years. What impact has this had on the charity sector? Anna Josse answered: “The increased rules and regulations of the Charity Commission over the last few years means charities do have more regulatory oversight, and often more forms to complete when applying to grant making foundations for funds and more subsequent reporting. This isn’t all bad, but it’s time consuming and sometimes challenging. We are finding that groups and individuals wanting to raise funds for their projects / causes are increasingly turning to Prism the Gift Fund’s Collective Fund model as an alternative to setting up a new charity, or as a stop gap as they go through the sometimes very long process of setting up on their own.”

Undue influence on art museums

On art boards, philanthropists have recently been the subject of criticisms for having undue influence on collections. Is this a concern, and is it unique to this area?

Amy Blackwell answered: “The power dynamic in the donor/grantee organisation/communities served relationships is a complex one. We have seen the power come down from the top historically. I am seeing a real honest shift to a more collaborative and trust based model. Donors should not fund organisations they do not trust. Period. If donors have done proper due diligence they should know that their grantees are the experts in delivering their mission. Those grantees should be actively engaged with the communities they serve. The stakeholders who stand to benefit from the programmes and interventions should have a voice in identifying their problems in priority order-as defined by them. They should have a voice in finding solutions and should participate in the delivery of those solutions. If donors really want sustained impact, then those stakeholders need to be in a position not to need the intervention in the future. They should be empowered to have power and social capital alongside skills to give themselves a better outcome.”

“With regard to arts organisations, donors can give restricted grants to fund certain exhibits or programmes based on their own interests. However, all charitable organisations need to have their administrative costs and regular overheads funded. Without proper governance and systems, which cost money, the organisations cannot deliver a best in class programme. Surely it is in the donor’s best interest to empower organisations to deliver the highest quality service possible. That is an impactful investment.”

Caroline Piraud noted that similar concern exists regarding the funding of universities, research and science. She added: “Especially corporate foundations are suspicious of having commercial interests involved.”

Trends: trust-based giving and wealth transfers

Finally, we asked what top-of-mind trends or concerns our philanthropy advisors are keeping an eye on.

Caroline Piraud said: “I’m following closely the trend on trust based giving. Since the pandemic, philanthropists started to make unrestricted funding available to the NGOs, trusting them to know how to apply the donations most effectively and alleviating the reporting burden on KPIs etc.”

Amy Blackwell focused on a hot topic in other areas of wealth management – the Big Wealth Transfer. She said: “As wealth is transferring to a new generation over the coming decades – estimated to be $90 trillion by Forbes – there will be additional options available to wealth holders wanting to use their wealth as a tool for good. Impact investing, social lending, and private markets will offer alternatives to philanthropy. The areas of interest are shifting as well. Younger wealth holders are looking at climate, wellbeing, mental health, homelessness, systems change, civil society, human rights etc. Some of the charities may find that the children of their steady donors have moved to a new sector and the overall commitment to philanthropy may drop in favour of other investment and lending options. It remains to be seen if charities are thinking about this risk in a proactive way.”

“For example, an animal welfare charity may look more broadly at how their stewardship of habitats for animals are a leading indicator of climate change. Their expertise and intimacy with the local biodiversity can make them attractive to funders of climate charities. Fine arts organisations may look at community health, isolation and loneliness in ageing populations and wellbeing as areas where their services have impact. These shifts in thinking take time and the data needs to be gathered and analysed to tell an accurate and compelling story. Waiting until the funding is reduced and reacting will cause significant impact to the communities they serve. I will be watching and championing the organisations which are working proactively to understand the larger ecosystems they serve and how their programmes are impacting those communities.”

Thank you to all of the professionals who contributed to this article.

Searching for a philanthropy professional to advise on elements of the above article? Citywealth has independently researched and compiled our Top Philanthropy Advisors list. We sought out the best advisors working in the wealth management industry, who not only have impressive track record in advising UHNW individuals on philanthropy but who are also adaptable in their practice and bring innovation to the industry.