OPINION: Can trust-based philanthropy become the mainstream?

Companies worldwide are trying to differentiate themselves in the market, cut through the noise, and avoid becoming a casualty of the ‘Great Resignation’. A few important trends may help them remain relevant and innovative. Trust-based philanthropy has garnered traction alongside transformative corporate philanthropy models over the past decade. These are anchored around equitable, long-term partnerships aligned with a corporation’s purpose and significant resources rather than just a marketing campaign.

Patagonia and IKEA are two such examples. These philanthropic approaches seek to address the root causes of inequality and poverty and provide flexible and long-term funding that can also unlock other forms of financing, such as impact investment capital. Such approaches can help companies and their foundations meet their social impact goals and environmental, social, and governance (ESG) objectives.

A business case for purpose

Indeed, there is an undeniable business case for purpose, which positively impacts people, the planet, and a company’s bottom line and reputation. The research shows that more and more employees and consumers want to see companies make a difference and take a stand on social and environmental issues. This is particularly true of the Millennial generation, which will represent 75% of the global workforce by 2025 and account for trillions of dollars in spending across the globe.

Global market research company, Forrester, reported that four out of five Millennials prefer a company with a strong vision and voice. And according to Ellevest’s 2022 Financial Wellness Survey, more than half (56%) of Millennial women would leave their current company if its values on reproductive rights did not align with their own. Tired of what they see as government failure and inaction, this generation believes that businesses and cross-sector partnerships can be the most effective avenue to solve global challenges such as climate change and gender inequality. If companies fail to inspire and lead Millennials, they’ll be putting a major chunk of revenue at risk, not to mention will have a hard time recruiting talent.

Additionally, companies with social impact, sustainability, and ESG objectives will, in a measurable way, be held accountable by shareholders and market regulatory bodies like SEC and SEBI for how they show up in the world, alongside all of their stakeholders. For example, the world’s largest tech company Apple and restaurant chain Chipotle are linking executive bonuses to ESG performance, along with these 15 other companies. At the same time, MasterCard has made DEI (Diversity, Equity, and Inclusion) a priority for its 25,000 employees. DEI entails more diverse and women leaders in executive positions, which is associated with higher profits, greater employee engagement, and increased customer satisfaction.

Trust-based philanthropy and new models of corporate philanthropy

These are reasons businesses and their foundations have integrated trust-based philanthropy as a corporate strategy to help achieve their ESG and social impact goals. Trust-based philanthropy is rooted in long-term partnerships and shared-power relationships based on transparency, dialogue, and mutual learning. On a practical level, this means abandoning restrictive, one-time gifts for multi-year, unrestricted funding to support organisational health and adequately address the root causes of systemic issues such as poverty and social exclusion — rather than apply band-aid solutions.

Open Road Alliance found that funder-created obstacles represent 46 per cent of the challenges nonprofits face, largely because of the strings attached to the funds made available. Instead, unrestricted, flexible, catalytic, and long-term capital allows organisations to allocate resources where they are most needed, making room for innovation, emergence, and impact. Alongside companies like Target and Niagara Bottling, Thankyou is one example of a company bringing trust-based philanthropy to life. They fund a number of high-performing global nonprofits with flexible, long-term philanthropic support, including supporting global nonprofit iDE on their mission to end global poverty using a market-based approach.

It’s important to note that trust-based philanthropy does not mean neglecting due diligence. On the contrary, this form of philanthropy is based on rigorous due diligence that values and respects local insights and organisations. Funders should fully embrace the idea that trust-based philanthropy encourages innovation and accelerates scaling and impact, something most companies value. It can derisk innovation, seed new ideas, and attract additional forms of capital long-term, including impact and ESG investors. Much like how the commercial sector places big bets on new ideas and business models, philanthropy is capable of taking big bets on an organisation’s vision, track record, and team — versus funding projects and micro-managing the execution.

It may feel like risk-taking, but there is value in failing fast and trying a different approach that leads to more successful outcomes. This is a complex challenge. But we need locally-led innovation and the freedom to fail, learn, and pivot. Trust-based giving doesn’t necessarily work for everyone. However, there is an urgency for long-term, flexible philanthropy that supports people and organisations instead of one-time projects, given the USD5 trillion annual funding gap to solve the UN Sustainable Development Goals, the dire findings in the IPCC report (Intergovernmental Panel on Climate Change), and the fact that 300 million people fell back into poverty during the pandemic.

There are already enough resources and ingenuity in the world to fight climate change and alleviate poverty, and we have an array of capital tools that we can use creatively to reach those living in extreme poverty, create markets that ensure affordable goods and services reach low-income families, and reduce dependency on aid. This is where companies can step up, amplify their impact, and show their customers they are truly walking the walk.

Elizabeth Ellis is the CEO of International Development Enterprises (iDE). Alix Lebec is the founder & CEO of Lebec Consulting and an iDE Board Member. Peter Yao is the Chief Impact Officer for Thankyou, an Australian-based corporation.

This column is part of a year-long (2022-23) campaign on the theme “Only One Earth: Sustaining People, Planet and Prosperity” by Business Insider India’s Sustainability Insider.

Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.

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