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Encouraging philanthropic engagement that is transparent and accountable

Philanthropy is increasingly seen as a pivotal actor and partner in planning and implementation of the SDGs. The Addis Ababa Agenda goes beyond setting commitments targeting growth of philanthropic giving, and emphasizes elements of collaborative action: transparency, alignment with national development planning and priorities.
Collecting data on philanthropy is challenging as systems for monitoring philanthropic investments are rudimentary in many places in the world. There are no global, comparable and comprehensive sources for data collection and monitoring of philanthropic giving: read more in Annex II.
The challenges pertaining to an enabling environment for philanthropy are manifold. For a start, in most countries, foundations are not registered at the central level and often have limited obligations for financial disclosure. Therefore, in most countries, neither governments nor private organisations collect and/or make available important data on philanthropic giving.

Private grants

OECD statistics show that total net private grants from developed to developing countries since the 2000s have followed a strong and regular upward trend to reach more than 30 billion dollars per year after 2010. The increasing trend is visible in all countries, but explained mainly by the volume of private giving in the United States. The OECD includes grants extended for development purposes by a wide range of private institutions, such as national and international non-governmental organisations as well as private philanthropic foundations. With the exception of the Bill and Melinda Gates Foundation, detailed information on the providers and beneficiaries of these grants and the main sectors targeted by their activities is not available in the OECD statistical system.

Foundation Center, as its role as a partner in the SDG Philanthropy Platform has created an interactive website www.SDGfunders.org, which captures philanthropic data of mostly US, and some international foundations mapped to the SDGs by the Foundation Center’s Philanthropy Classification System taxonomy  (US data is largely available due to the financial reporting obligations for foundations in the United States). As shown in the chart, a large proportion of philanthropic has been dedicated to SDG 3 (Health) and SDG 4 (Education). 

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The SDG Philanthropy Platform is being implemented in Kenya, Ghana, Zambia, Colombia and Indonesia, and steps have been taken to explore ways for highlighting the value of data in achieving the SDGs, creating and sharing national data on philanthropic giving, building and strengthening existing networks and alliances of philanthropic organizations, and designing strategies and tools to focus on building trust between government and philanthropy. Specifically, Foundation Center has developed and is in the process of implementing a Data Strategy and Capacity Building program in some of these countries, and in countries that are separate to the SDG Philanthropy Platform. The SDG Philanthropy Platform, and sdgfunders.org, envisions its role as a broker and a convener while the national philanthropic associations in countries – Association of Corporate and Family foundations in Colombia, Filantropi Indonesia, Kenya Philanthropy Forum and others – play a central role in building enabling environment and stimulate mutual accountability and transparency. 
From the early lessons learnt of the SDG Philanthropy Platform there is a need for decentralized approaches built on networks, where the local initiatives on data collection for philanthropy are encouraged. Therefore, currently the Foundation Center is focused on capacity building for data collection and knowledge exchange across countries, especially recognizing the power of South-South collaboration. In April 2016 the platform, together with AFE – philanthropic network in Colombia -  organized the knowledge exchange by bringing philanthropic leaders, governments representatives and networks from Kenya, Ghana and Indonesia to learn from AFE on setting up the data platform, including designing mechanisms of incentives for foundations.
The OECD is updating its 2003 report on Private Foundations and Development Co-operation with the aim of reflecting on the role of private philanthropy in the 2030 Agenda development framework. This report illustrates the important contributions that philanthropic foundations have made to development, particularly in agriculture, family planning and infectious diseases control. The report points out that foundations’ total expenditure on developmental activities totalled about $3 billion annually, mostly from large U.S. foundations and that the most  effective interventions have been long-term investments that were well integrated with local capacities.  Among other things, it recommended that better information exchange with official aid agencies and appropriate fiscal encouragement of their activities could strengthen foundations’ development efforts.  The update of this report will  provide a broad overview of the state of play of public and private, domestic and international financing for development. It also is intended to inform governments’ development co-operation policies at the international level. The updated report is expected to be released in 2017. The OECD is carrying out a survey targeting more than 100 private philanthropic foundations worldwide known to be active in developing countries. Ultimately, the objective is to engage with a broader range of major foundations working for development and collect data on a regular basis. The report will also allow an in-depth analysis of philanthropic trends and will offer policy recommendations.

Transparency in philanthropy
Most foundations invest their funds to optimize financial returns, and then use the earnings to fund its programs. If foundations were to invest their endowments using impact investment -- with the goal of maximizing social, economic and governance impacts, along with financial returns -- they could magnify their impact. 
Data is limited regarding the volume of philanthropic capital invested in impact investing. Impact Investing is defined as the pursuit of positive financial returns as well as positive social/environmental returns. In some countries, regulators have taken steps to incorporate impact investment into the regulatory and/or tax frameworks for private foundations. In the United States, for instance, the tax authority, the IRS, gave a boost to impact investing with an announcement that private foundations could use their endowments to make impact investments that made less than market-rate returns. While it has long been established that foundations may lose their favourable tax status if they profit from their grants and other charitable, endeavours known as program-related investments, the IRS had never ruled whether foundations could profit from impact investments, made with endowment funds, and still retain favourable tax treatment. However, the regulation in this regard around the world is in its nascent stage.
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Definitions and categorization philanthropy
Challenges in definition and categorization of philanthropic giving. Definitions, legal status and regulations on philanthropic giving vary dramatically from country to country. This hampers the ability to compare or aggregate data of the philanthropic sector accurately. A great deal of diversity exists amongst foundations themselves: they can be private, public, family-run, corporate or community-based. Additional avenues for philanthropic giving include donor-advised funds, direct giving, high net-worth individuals, impact investing, giving circles, family governed operating organizations and social enterprises, planned giving instruments and corporate giving by a family business.
Growth of local philanthropic giving in emerging economies and developing countries. Greater wealth accumulation across the world has produced expanding levels and types of philanthropy. In recent years, the growth of formal philanthropic activity in developing countries has been significant, marked by home-grown philanthropists, and new institutions and initiatives that are potentially better attuned to local humanitarian and development needs.
Blending of philanthropy with business models. Social entrepreneurship and private social investment, in particular, have become popular philanthropic strategies in some countries. While many social enterprises are non-profits, they meld profit-seeking and non-profit activities, often leveraging the strengths of both sectors (business and philanthropy) to create multiplier benefits.  
Link Philanthropy as an Emerging Contributor to Development, Heather Grady, 2014
Link Engaging Philanthropy in Post-2015 Development Agenda, SDG Philanthropy Platform, 2015 
Read More Engagement of Foundations in the Global Partnership for Effective Development Cooperation
First, foundations have been granted permanent and continuous representation on the Global Partnership’s Steering Committee since 2014 and thus contribute, together with other development actors, to the policy dialogue on effective development co-operation. This participation is limited to a small number of philanthropic actors. Stars Foundation and the Calouste Gulbenkian Foundation consecutively have been representing foundations at the GPEDC since 2014. The OECD Network of Foundations Working for Development (netFWD), housed at the OECD’s Development Centre, has been providing ongoing secretariat support to the foundations’ representative on the GPEDC’s Steering Committee.
Second, as a response to the Global Partnership principles, philanthropic actors have developed Guidelines on Effective Philanthropic Engagement. The Guidelines have been developed under the leadership of the OECD's Network of Foundations Working for Development (netFWD), with support from Worldwide Initiatives for Grantmaker Support (WINGS), the European Foundation Centre (EFC), United Nations Development Programme (UNDP), Rockefeller Foundation and Stars Foundation.
The Guidelines are voluntary and non-binding, but represent an important effort from the philanthropic community to clarify specifically their co-operation and collaboration aspirations. Under the three pillars of dialogue, data/knowledge sharing and partnerships, these guidelines are also a practical tool to help foundations improve development outcomes through more effective collaboration with governments.
 
Engagement of Foundations in DCF
Philanthropic foundations are included in the scope of the Secretary General’s report on trends and progress in international development co-operation for the biennial high-level meeting of the DCF and the 2015-2016 Fourth DCF Global Accountability Survey. The survey has been sent to governments who were encouraged to engage foundations and other development stakeholders in the exercise. The results of the survey (to be available in autumn 2016) could feed into the Addis Agenda monitoring exercises (starting in 2017 report).   
Case Study: Mission-Related Investments by Foundations 
A number of constraints have to date prevented US foundations from investing a portion of their investments for ‘mission-related investments’ (MRIs), which fall under the category of impact investment. For instance, until recently, it was not clear whether MRIs could meet the prudent investor standards that government sets for how foundations can invest their endowments. In addition, there have been legitimate questions about whether there is enough evidence to prove that mission-related investments yield desirable financial or social returns.  
Some of these obstacles have eased in recent years, opening the way for some foundations to begin investing a portion of their endowments into MRIs. For instance, the United States established the legality of MRIs last year, clarifying its position vis a vis investor standards for them, as part of a larger effort to encourage MRIs.  In addition, the tools available to measure social impact have become increasingly precise over the past few years, thanks in large part to the work of several leading institutions.  
At the same time, a number of foundations (including the Rockefeller Brothers Fund, Kellogg Foundation, John D. and Catherine T. MacArthur Foundation, Kresge Foundation, McKnight Foundation, F.B. Heron Foundation, Wallace Global Fund, Surdna Foundation, Bill & Melinda Gates Foundation, and Open Society Foundations) have announced new initiatives pertaining to MRIs. A significant recent development has been the authorization by the Ford Foundation’s Board of Trustees to allocate up to $1 billion of its endowment, to be phased in over 10 years, for MRIs. 
To date, the Ford Foundation makes program-related investments, or PRIs, that allows it to utilize its grant making budgets to make investments that, while expected to provide a return at competitive, risk-adjusted market rates, often allow for both higher levels of risk and lower levels of financial return than conventional financial investments. MRIs by contrast will leverage the Foundation’s endowments (comprising almost 10 per cent of its endowments) and, unlike PRIs, can bring to bear large amounts of capital in the service of multiple bottom lines. The MRIs will seek to achieve attractive financial returns while also advancing the foundation’s mission.
In terms of objectives, the Ford Foundation’s MRIs will initially target areas that are central to its mission of addressing inequality and building more inclusive economies. In the United States, this would include examining investments that make housing more affordable and inclusive. In developing countries, there will be a focus on how MRIs could expand access to vital financial services, particularly for low-income and other underserved communities.
According to the Ford Foundation, MRIs and more broadly impact investment can be seen as falling with a continuum of philanthropic options, with outright grants placed at one extreme, something close to a market investment at the other, and in between a series of alternatives representing varying degrees of gifting.