There is an increasing desire to measure the impact of philanthropic donations but, to do so, you need to have a good strategy in place.
Philanthropic activity has increased dramatically around the world over the past decade. In 2010, Bill and Melinda Gates and Warren Buffet started The Giving Pledge, an initiative that involved 40 philanthropists based in the U.S. committed to giving more than half of their wealth away. Today, over 180 individuals from 22 countries have taken the same pledge. Wealth-X, an independent research firm, forecasts that the potential pledged value by 2022 could reach some $600 billion. Indeed, philanthropy is now one of the top interests for ultra-high net worth (UHNW) individuals. Further research by Wealth-X has shown it ranks second in the top 30 interests of UHNW individuals globally. For women, philanthropy takes the top spot, while for men it is in third place.
Many large families are also starting to think about philanthropic giving for the first time, with a desire to create and maintain their legacy for generations to come. We are on the cusp of a large-scale, global wealth transfer. North America, for example, is preparing for a huge transfer of wealth from the baby-boomer generation to millennials estimated at over $30 trillion USD in financial and non-financial assets. It is also a significant trend in Asia, where the majority of wealth is self-made as opposed to inherited and families are having to plan for the complexities of transferring wealth to the next generation for the first time.
Increased awareness of environmental, social and governance (ESG) issues around the world is also putting energy behind more thoughtful philanthropy. The time pressure attached to ESG issues, such as climate change is encouraging people to do good with urgency.
How the impact of philanthropic donations can be measured
Increasingly, philanthropists want to verify that their giving is having a genuinely positive impact on the world around them – especially the next generation, who are keen to understand, analyze and measure the impact of their donations and investments.
Ultimately, measuring impact and results works on a case-by-case basis. It is down to the individual or family to decide what meaningful impact looks like to them, which in turn influences the particular criteria required to measure it. However, industry organizations are starting to put together guidelines for measuring impact. For example, Rockefeller Philanthropy Advisors, an advisory firm founded by the Rockefeller family specializing in creating thoughtful, effective philanthropy around the world, has put together an Assessing Impact guide. It reviews various ways to assess philanthropic impact, what elements of philanthropy are difficult to measure and sets out a series of questions donors can ask as they consider how to proceed with their philanthropy. John D. Rockefeller’s great-granddaughter, Peggy Dulany is also maintaining the family’s philanthropic legacy through her own venture, Synergos, a global organization helping solve some of the world’s issues.
Impact investing organizations such as the Global Impact Investing Network (GIIN) are publishing expert research on measuring impact that can be carried over to philanthropy. And philanthropists are setting up their own networking groups in which to share knowledge and experience – The ImPact, for example, is a group of families from around the world who have made a shared commitment to improve the impact of their investments. Similarly, the global forum Impact Management Project is building consensus on how to measure, report, compare and improve impact and performance; it works with a practitioner community of 2,000 organizations to find consensus and share best practices.
How the right philanthropic strategy can help you make the most impact
Asking the right questions about your charitable giving will help pinpoint what you want it to achieve. At Deutsche Bank Wealth Management, we start by asking what is meaningful to you, and what sort of results would mean success.
We encourage you to think about the different scales of impact and their timeline, looking at what you want to achieve over the short, medium and long-term. We then identify the criteria and metrics for measuring impact that fit your goals. At this point, we may incorporate third-party resources in the discussion, like those mentioned earlier in this article, as we often find these to be valuable.
Impact is specific to each family and family member, so we have individual conversations to make sure we fully understand your wishes, which we use to build a philanthropic strategy that is right for everyone.
In our experience, the first and most important thing that wealthy individuals and families can do to maximize the positive impact of their philanthropy is to develop a well-structured strategy. What do we mean by this? There are several essential factors to consider:
- Use an appropriate vehicle (or vehicles) for your philanthropic giving. Vehicles can come in the form of private foundations, donor-advised funds, trusts or charitable entities. Donor-advised funds are vehicles that have been designed to make giving efficient and effective. We will talk you through your various options to help find the right vehicle for you.
- Work with trusted partners on the administration, investment and grant-making stages of charitable giving. It is vital that anyone administering a charitable entity does substantial due diligence, to reduce the risk that funds are misused. For example, this could involve checking to make sure that a U.S. charity is observing the ‘expenditure responsibility’ guidelines set by the Internal Revenue Service (IRS).
- Fund your donation in a way that suits your overall wealth structure. We can take you through your various options for funding, such as cash, or privately and publicly owned company shares.
- Make sure you comply with requirements for international grants. There are specific regulations in most countries that must be adhered to. Our network is global but with deep local knowledge, which means we are well-placed to guide you through these complexities.
- Get your family on board. A good philanthropic structure should work to continue your legacy for generations to come. We will discuss issues such as choosing board members for your foundation or charitable entity, board governance, defining your policies and procedures, and looking at your philanthropy strategy with a long-term view.
- Seek out likeminded philanthropists for support and collaboration opportunities. Well-structured philanthropy can be a powerful thing, particularly when multiple philanthropists join forces. We use our network to bring together philanthropists who want to make an impact on a similar cause, or who want to collaborate on tackling an issue.
Getting a well-thought out, suitable structure in place that is tailored to you and your philanthropic giving can help ensure you are truly making a difference to the causes you care about. It makes it easier to measure the subsequent results and impact your donations have, and to see verifiably how you are moving the dial on an issue close to your heart.
To find out more about how we can help make sure your philanthropy has a positive impact, please get in touch.
The Giving Pledge: https://givingpledge.org/PressRelease.aspx?date=05.30.2018 Figures as at May 30, 2018.
Wealth-X: Billionaire Census 2018, https://www.wealthx.com/report/the-wealth-x-billionaire-census-2018/
Wealth-X: UHNW Interests, Passions and Hobbies Study, 2018, https://www.wealthx.com/report/uhnw-interests-passions-hobbies/ Wealth-X defines an ultra-high net worth individual as someone with a net worth of US$30 million or more.