This post originally appeared on Francois Botha.
"As the global economy grows, so does the number of wealthy individuals making philanthropy a key part of their lives. They're seeking new approaches and instruments to address acute social and environmental issues effectively," said Rockefeller Philanthropy Advisors CEO Melissa A. Berman.
The same drivers that have been affecting changing investment strategies, where returns beyond financial are being expected from companies, have been playing an increasing role in shaping philanthropy. This why it's important to consider innovative practices, tools, measurability and approaches to increase and measure the impact families seek and explore the issues stakeholders are concerned about.
As highlighted in the recently released “Global Trends and Strategic Time Horizons in Family Philanthropy 2020,” a report by Rockefeller Philanthropy Advisors (RPA) and Campden Wealth, there are several main factors to consider when exploring why families give. These include the types of vehicles through which they donate, what shapes their philanthropic time horizon choices, popular causes, and engagement of the next generation.
1. Giving Vehicles
Structuring the right entities has always been of importance for both families and family offices. The actual vehicle for giving philanthropically can play a big role in both how the philanthropic activities sit with the family but also the possible ancillary benefits. Family foundations are the preferred vehicle according to the report, followed by direct donations to nonprofit organizations or charities (45%). Some other options include donor-advised funds (16%), and corporate or business foundations (15%).
Often when deciding on a cause to support, families often look close to home for something that they can relate to. This might be why globally education is the top cause families give to, constituting 29% of the average philanthropic portfolio. Education is closely followed by health (14%), and the arts, culture and sports (10%). Interestingly enough, according to the report, the environment only receives a meager 8% of the giving portfolios. As this is the first edition of the report, it will be interesting to see how this figure might change in light of all the attention on climate change.
3. Time Horizons
With the pace of work and business continuing to increase and planning cycles shortening, time horizons for philanthropic activities have also been reevaluated. More donors are proactively evaluating the time horizon of their philanthropy, considering whether it is more effective to have a predetermined end date for philanthropic initiatives or to continue in perpetuity. Even though time limited approach has seen a steady increase, most families still adopt the perpetual approach.
4. The Next generation
It's often noted that philanthropy can be an excellent vehicle to engage the next generation, a fact that was confirmed by in the report. This demographic significantly influence their families' philanthropic endeavors, often serving on boards or making site visits to their causes.
5. Decision- Making
Strategic decision-making power still tends to lie with the family. Family heads or founders were noted as the key decision-makers in 60% of cases, followed by other family members (48%). Other decision-makers could include founding donors and trustees.
The way forward
The report by Campden Wealth was based on a survey of 201 families of significant wealth who are engaged in philanthropic giving, and respondents represent 28 countries and $2.4 billion in annual giving.
“We are in the early stages of a significant transition in which vast sums of wealth are changing hands between generations. The emerging generation is acutely aware of the largescale global challenges it will face, such as climate change,” said Dr. Rebecca Gooch, Director of Research at Campden Wealth.
The next generation has a strong influence in the sustainable investment space, and they are also set to significantly affect philanthropic giving. This can result in more meaningful funding for important causes. As donors become more sophisticated in giving and investing, they're thinking seriously about the time horizon that makes the most sense for the goals, their motivations and visions of their own philanthropy. They also want to have a deeper connection to the projects they engage and see measurable results.