Philanthropy has a more fundamental role to play in European society today than at any time in the last 30 years, says Filipe Santos, Chaired Professor of Social Entrepreneurship at Católica-Lisbon School of Business & Economics and Visiting Professor at INSEAD. In our latest Expert View, he discusses how it must increasingly focus on financing social innovation if it is to achieve its potential, and looks at some of the new financing and engagement mechanisms that are being used.
Why is philanthropy increasingly important? We are faced today with fundamental societal challenges. Economic progress for a majority of the population is no longer guaranteed as the digital economy risks leaving many people behind. No society can prosper when many of its citizens feel abandoned by the system, so we are already seeing divisions, political tensions and populist revival brought about by a sense of fear and uncertainty about the future.
Moreover, we live in an era of universal challenges that require international coordinated action on issues such as global warming, nature preservation, access to basic resources such as water and fisheries, and the management of migration flows not seen since the 70s. Even the concepts of Europe as a united continent and the European Union as a force for good are being challenged.
Overall, this is a troubling situation which demands bold vision and resolute action, in both the political and civic realms, to build a more inclusive and sustainable society.
Harnessing the passion of the social entrepreneur
And yet, ironically, we live in an age of unbound opportunity for innovation and prosperity. Humankind can control nature and build machines, extend life, and enrich culture in a way that our ancestors could not even dream of. We have accumulated wealth and knowledge at a scale that never existed before. And we have, in Europe, the best educated, globally aware, digitally expert young generation that ever lived. This generation is increasingly motivated by positive impact in society and is seeding a strong movement of social entrepreneurship and social innovation – citizens taking on societal problems as theirs to solve, combining purpose with entrepreneurial action to build and disseminate innovative solutions to the most complex societal challenges we face.
Given the potential for large-scale collective impact of this societal engine of innovation, philanthropy has a fundamental role to play in leveraging the passion, energy and ability of tens of thousands of social entrepreneurs. Given pressured public budgets, cash-strapped non-profit organisations, and profit-oriented corporations, only philanthropic agents can afford to anticipate the needs of society, strategically support novel approaches, and embrace new models of collaboration.
Developments in philanthropy
Yet, one size does not fit all and European philanthropists are increasingly using diverse financing and engagement mechanisms to better align their support with the nature of these social innovation initiatives.
Specifically, we are seeing a growth in venture philanthropy, in which the long-term orientation and non-financial support typical of venture capital investors are matched with the social mission focus of philanthropists to support the growth of sustainable social-mission enterprises capable of generating revenues through market-based models. Many of these impact ventures, founded in specific countries, are now replicating their innovations across Europe and require growth funding and management support.
We are also seeing new models of high-engagement philanthropy, in which funders get directly involved with the initiatives they support, cluster their funding in organisations/initiatives in certain regions and sectors to generate strong local capabilities and achieve significant impact by transforming the community or sector.
There is also a novel focus on catalytic philanthropy, where philanthropy acts on funding intermediaries and eco-system building, not providing direct support to frontline organisations, but rather building the knowledge, systems, and structures necessary for sector change to happen in the medium and long term.
In addition, there are developments in corporate philanthropy, in which corporations devote financing and expertise to social innovation that is aligned with their business operations and is positioned at the core of strategy, combining corporate internal impact initiatives with the sourcing of external social innovations, in partnership with social entrepreneurs, providing them with pathways to scale.
Finally, there is strong potential for impact philanthropy approaches that support highly scalable non-profit models based on open, often digital, platforms capable of mobilizing participants and creating communities of engagement and sharing worldwide. These models give rise to new global communities focused on specific issues or to bottom-up network-based organisations that quickly scale across the globe.
Overall, philanthropists are crossing traditional sector boundaries, not only collaborating within the social sector, but increasingly partnering with public organisations, corporations and social movement organisations, often as pathways to scale. This is how, with finite resources, philanthropists can play their essential and impactful societal role.
The ways to scale impact and create change through philanthropy are thus varied, requiring a differentiated and strategic approach. The key word here is strategy – philanthropists and foundations should have a clear answer to the question: what is the strategy through which my passion, funding and engagement will be able to change the world?
About Filipe Santos