Investing and giving. Until recently, there was a pretty clear line between them. But now that so many of us have shifted to purpose-driven investing, that line can get a little blurry.
Take Prime Coalition, a perfect example of an organization blurring the line. This nonprofit offers people who care about climate action (as well as foundations) the opportunity to fund—or as Prime Coalition says, “invest”—in carefully selected, early-stage startups that would otherwise have difficulty raising enough capital to get to scale. Because they work with large-scale climate solutions, mission-aligned individuals and organizations are directly funding companies that have the potential to make a significant impact.
But while Prime Coalition supports businesses, it is a nonprofit. And while they facilitate “investment” in these startups, funders do not expect traditional financial returns. Their “investment” is a donation; sure, they’ll get a tax write-off, but the real return is a more sustainable world.
“Strategic philanthropy lets you contribute to building a new, better, and self-sustaining system. ”
That’s a very different model from a traditional nonprofit that must continually fundraise to address a continually occurring problem. It’s also different than traditional investing. That’s why this is called strategic philanthropy—it lets you contribute to building a new, better, and self-sustainable system.
So does this mean that Prime Coalition’s style of strategic philanthropy is a better way to give? Or does it replace your purpose-driven investing?
The answers are not necessarily—and definitely not.
What I’ve learned from decades of working in the social impact space, first in philanthropy, and now as Bank of the West’s Head of Impact Solutions, is that traditional and strategic philanthropy—let’s call it for-good investing—and for-profit investing all have complementary roles to play in bringing about systemic change.
Charitable Giving vs. Strategic Philanthropy
First, let’s clarify what we mean when we say “giving.” Traditional charitable giving addresses immediate problems. Food banks, homeless shelters, relief to victims of natural disasters—this is all critical work that’s needed in the here and now. The 54 million food-insecure people in the US need that charitable giving.
But there’s another approach, too. Much like purpose-driven investing, strategic philanthropy focuses on supporting the creation of a more sustainable system, attacking the root of a problem—but it’s still a charitable donation. Strategic philanthropy is the thoughtful and focused funding of systemic solutions.
Donating to food banks helps hungry people today, but does that donation help build a world without hunger? The truth is, we need both types of investments. Some issues, like climate change, must be addressed with long-term, systemic solutions.
There are many successful nonprofits working toward systemic change in the climate and environment arena. Some examples of nonprofit models that approach systemic change in different ways include:
The Sustainable Oceans Alliance (SOA) is a nonprofit that promotes ocean health by training young entrepreneurs in building healthy ocean-focused startups. They also train young leaders interested in working on innovative solutions to restoring ocean health.
Grid Alternatives is a nonprofit that aims to lower carbon emissions by installing solar panels in lower-income communities. The organization also teaches people the skills they need to become solar panel installers and increase their earning power. Solar panels also help lower-income residents to reduce—or even eliminate—their electric bills.
“These are investments in our future made through a philanthropic model. ”
There’s more than one way to build a more sustainable system. These organizations invest in leadership training and energy transition for low-income residents. Prime Coalition focuses on stimulating private-sector climate action. These are investments in our future made through a philanthropic model.
Complementing Investments with Philanthropy
Sometimes when I talk with people about strategic philanthropy, they wonder if it would be better to focus solely on purpose-driven investment. After all, isn’t that the best way to build the future we want? It’s not necessarily better, but it is different. The reality is that not all problems can be solved by the free market economy. There will always be crises that require urgent intervention. And nonprofits can help lay the groundwork for future sustainable solutions.
Investing and philanthropy can and should be used as complementary strategies to address specific issues. For example, if ocean health is near and dear to your heart, here is a way you could combine these strategies to fully support the issue.
Charitable Giving: There are many nonprofits working hard to preserve coral reefs, clean up water, eliminate plastic pollution, and preserve marine life. Contributing to an organization like OceanCare, which helps set up rescue networks to save marine animals from plastic waste, helps fund an urgent and critical need.
Strategic Philanthropy: Giving to SOA helps develop the next generation of sustainable ocean leaders and entrepreneurs.
Purpose-driven Investing: You can align a portion of your portfolio with investment opportunities that focus on plastic waste removal and recycling, water waste management, and sustainable fisheries. Or you can start by telling your advisor to exclude or divest investments from your portfolio that have any connection to ocean degradation or plastics pollution.
That’s where the real magic (and real impact) happens: when sustainable businesses and nonprofits work in parallel toward systemic change.
How you chose to balance charity, strategic philanthropy, and purpose-driven investment approaches is a personal decision. Your financial advisor is a great person to talk to about allocating your resources to meet your financial and impact goals.
Charitable giving to nonprofit organizations can take many forms, from standard donations and in-kind gifts to charitable remainder trusts and gift annuities. You may, by the way, be eligible for tax breaks. Talk with your accountant or financial advisor about what sort of savings you may qualify for. And then you could take those tax savings and put that money to good use, too.
Charitable giving and funding systemic change don’t have to be mutually exclusive endeavors. By adding strategic philanthropy to your charitable giving and purpose-driven investments, you can maximize the impact of your wealth on the issues you’re passionate about, both today and into a more sustainable future.
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