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Definitions and categorization of philanthropy
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.
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 cooperation. 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 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 cooperation 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 cooperation 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 (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.