Growing Social Capital Markets: Market virtues and vices

ATCA Briefings

London, UK - 25 September 2006, 9:00 GMT - We are grateful to Rowena Young from Oxford, England, for her submission to ATCA "Growing Social Capital Markets -- Market virtues and vices" in response to:

1. "The Genesis of Philanthrocapitalism -- The Blended Value Investment Philosophy beyond Extreme Capitalism"; and
2. "The Rise of the Creative Class" by Dr Charles Hamden-Turner from Cambridge, England.

ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to understand and to address complex global challenges. ATCA conducts collective Socratic dialogue on global opportunities and threats arising from climate chaos, radical poverty, organised crime, extremism, informatics, nanotechnology, robotics, genetics, artificial intelligence and financial systems. Present membership of ATCA is by invitation only and has over 5,000 distinguished members: including several from the House of Lords, House of Commons, EU Parliament, US Congress & Senate, G10's Senior Government officials and over 1,500 CEOs from financial institutions, scientific corporates and voluntary organisations as well as over 750 Professors from academic centres of excellence worldwide.

Dear ATCA Colleagues; dear IntentBloggers

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to Rowena Young from Oxford, England, for her submission to ATCA "Growing Social Capital Markets -- Market virtues and vices" in response to:

1. "The Genesis of Philanthrocapitalism -- The Blended Value Investment Philosophy beyond Extreme Capitalism"; and
2. "The Rise of the Creative Class" by Dr Charles Hamden-Turner from Cambridge, England.

Rowena Young is the Director of the Skoll Centre for Social Entrepreneurship at the Saïd Business School, Oxford University, which is dedicated to promote the advancement of social entrepreneurship worldwide. Rowena has been a part of the UK social entrepreneurship movement from the outset. First, working at the leading think-tank Demos, where Charlie Leadbeater published The Rise of the Social Entrepreneur, then heading up operations and business development respectively at two leading ventures - Children's Express, which enables 8-18 year-olds to influence issues which affect them by publishing in mainstream news media, then Kaleidoscope, a highly innovative illicit drug treatment agency. In 2000, she launched simplyworks, a web-enabling business which continues to create training and employment for long term drug users today. Her work for the Foreign Policy Centre, From War to Work: drug treatment, social inclusion and enterprise (2002), drew on experience across Asia and encouraged a more preventive government strategy.

Formerly, Rowena was Chief Executive of the School for Social Entrepreneurs. The School was launched by Michael Young (founder of some 60 public benefit organizations including the Open University and the Consumers' Association) to transform the effectiveness of social entrepreneurs. Rowena has also worked through a number of voluntary positions. As vice-chair of governors, she was part of a strategic team which turned around the worst failing school in the country. She has been a board member of Children's Express and the Social Enterprise Coalition ('the CBI for social business'), an advisor to MySociety and screener for the Schwab Foundation, a commissioner on the Joseph Rowntree Inquiry on drug-testing and a judge for the Guardian's Public Service Awards, the DTI's Enterprising Solutions, New Statesman's Upstart and Arts and Business awards. She is currently a member of VSO's UK committee (Voluntary Service Overseas), the committee overseeing innovation programmes at NESTA (the National Endowment for Science, Technology and the Arts), the learning panel in NEF's (New Economics Foundation) Local Alchemy regeneration programme, and an advisor to People Tree, a unique Fair Trade fashion company trading in Japan and the UK and creating benefits for over 200 producer groups in the global South. Rowena started her career in journalism. She writes:

Dear DK and Colleagues

Re: Growing Social Capital Markets -- Market virtues and vices

Is the creation of better functioning social capital markets set to be one of the big stories of social change in the coming decades? Or is it just the over-hyped hobby of a few newcomers to the field, mainly with backgrounds in financial services, who have yet to understand the complexities involved in financing social projects, and whose grand visions will end up with little more than a few loan funds for income-generating social enterprises?

I wish to take forward the debates from the 2006 Skoll World Forum on Social Entrepreneurship, in which you also participated, to scope out the ways we can most constructively think about capital markets for social ventures, and to describe some of the most promising approaches that already show what can be done.

The fact that social capital markets have come on to the agenda now can be attributed to changes both on the demand side and on the supply side.

Changes on the demand side

Let's start with demand. Social enterprises depend on increasingly diverse sources of money: philanthropic donations, funds from public agencies, trading income, and the occasional loan from a bank. But their sources are often unreliable, and the steady diversification has increasingly shown up the limitations of existing sources of finance.

Social entrepreneurs and NGOs today have moved far beyond the more traditional domains of agriculture, health and education. They run banking services (K-Rep in Kenya), news services (Oh My News in Korea), retailing and market access programmes (People Tree fashion in Japan and the UK, and numerous other trade justice organizations), public finance systems (Centre for Participatory Budgeting), transport (Riders for Health) and high-growth businesses (CelTel International). They produce pharmaceuticals (Institute for One World Health), run cities (Jamie Lerner, the Mayor of Curitiba in Brazil, is setting the gold standard with a carless transport system and innovations in education, housing for poor people, waste and health) and carry out conflict prevention (International Crisis Group).

All these activities depend on very diverse kinds of capital. Recoverable grants, soft loans, market-rate loans, loan guarantees and equity-like investments are likely to be as important as ordinary grants.

There is also a collective benefit to the social sector in building access to higher levels of appropriate finance. As the number of social sector organizations grows, so too does the opportunity cost of funding these newer models from grant finance. If we can improve the mix of funding sources, we can do better at channelling grants to those NGOs that really need them.

Changes on the supply side

This demand for a wider pool of finance has coincided with greater willingness to supply investment for social purposes. This willingness has three main sources:

· philanthropists and foundations wanting to use money in more strategic ways, with more of a mix of investment and grants so that money can go further;
· financial institutions on the look-out for new outlets with better patterns of risk and reward, and slowly recognizing that social enterprises are often less risky than commercial investments (even if they also generally offer lower rewards); and
· governments offering new incentives and encouragements, like the community investment tax credits in the US and UK.

The ability to grow

The promise of this combination of enhanced supply and more sophisticated demand is that it will help more enterprises to grow, and thus to have a bigger impact. At the moment one of the ironies of the social sector is that there is little correlation between effectiveness and scale. Because of the lack of market incentives to reward social returns and the lack of any standardized measures of social returns, together with internal factors such as overdependence on founders or governance arrangements that are ill-suited to growth, many initiatives remain small or still-born however well conceived they are, and whatever their potential for replication.

Some social enterprises do manage to grow, trading successfully in competition with for-profit companies, finding niches that have been ignored by mainstream business or tapping into public contracts or grant funding because their goals coincide with those of governments or donor agencies like the World Bank. A handful strike it lucky, gaining long-term support from foundations, perhaps gaining an asset which can be managed to provide sustainable income.

Some of the most famous social enterprises, like Grameen Bank, have managed all of these. Yet most fail to tap into these sources of growth and most feel that they have to run just to sustain their current scale of operation.

Changes in attitudes needed

Not surprisingly, few practitioners in the social sector understand much about corporate finance, and few have structured their organizations to make it easier to absorb capital from a range of sources. As Victoria Hornby of the Sainsbury Family Charitable Trusts observed at the Skoll World Forum, few even employ finance officers or advisers who can help them become investment-ready. Moreover, many are suspicious of anything other than grants, since accepting investment inevitably means accepting a new set of strings and constraints that inevitably accompany grant funding.

New providers of finance that combine financial and social return, and additionally help practitioners think through how they can use different types of finance to scale up their activities, are beginning to change attitudes. At the moment the value of the small number of providers of alternative finance (members of the European Venture Philanthropy Association, Acumen Fund, Futurebuilders and others) lies as much in the ways they enable practitioners to change as in the value of the money they disperse. This shift in attitudes is also being influenced by steady improvements in the range, quality, transparency and comparability of performance information.

New intermediaries

The foundations for more developed markets that can link the needs of thousands of social enterprises with the pools of finance that exist in foundations and financial institutions and among wealthy individuals are thus being laid. Indeed, the best sign that a new market is taking shape is the growing importance of a new breed of intermediaries, the worker bees that connect the different parts of the system.

Like Acumen Fund, they may use charitable grants from northern foundations to lever mainstream capital in emerging economies. Venturesome is using underwriting to enable mainstream providers such as retail banks to extend debt to enterprising charities and social enterprises, while GEXSI is researching a similar role in mitigating risk sufficiently for the private sector to invest in overseas development. Boutique brokers such as Blue Orchard are helping microfinance providers grow their sector by repackaging social enterprise and small and medium enterprise loans into portfolios that can be invested in.

Some in the social sector will worry that a proliferation of intermediaries will raise overheads, but, as commentators such as The Economist's Matthew Bishop have argued, they are critical to achieving the efficiencies of a better functioning system. All mature capital markets have such specialists.

Yet the truth is that all this is still at a very early stage - whether we are talking of the venture philanthropy, community development and microfinance movements; the designers of new metrics and brokers of information such as GuideStar and New Philanthropy Capital; or the work of international agencies such as CDC (Capital for Development) and Aureos Capital, which are effectively serving as venture capitalists in places like Africa. All of these organizations are acting as pioneers - with the risks as well as the excitement that brings.

The big question is where this is all heading. Some of the evangelists of social capital markets forecast a rapid growth of secondary markets, new products, and funds offering various mixes of financial returns and social impact. Sir Ronald Cohen, chair of the UK Social Investment Taskforce, for example, already sees the need for a new wholesaler for the community development sector though it is only a few years old in the UK (and he may have persuaded the UK Government that this would be a good use for the billions of pounds left unclaimed in personal bank accounts).

What will all this achieve?

The optimists promise that such markets could help to solve several problems at once. For the philanthropic world, they promise a more results-oriented approach that may reinforce the current wave of philanthropic giving that has come at the tail end of the long boom that the West has been through over the last 15 years. Richer and more sophisticated information could be made available and adapted both for relatively time-rich professionals and for the time-poor wealthy. A full continuum of different types of investment vehicle could become normal - from full grants through repayable grants and below-market return models to full commercial investment.

For the recipients of funding, they offer the prospect of a more transparent and tailored relationship based on milestones for performance rather than capricious priorities and conditions. This is where equity funding is so important: it gives organizations the freedom to grow on their own terms and without undue risk (because investors don't receive any money back unless the enterprise is successful) as they enter new sectors or experiment with hybrid business models or take time to grow.

Experiments with both institutional investors (including Blue Orchard's MFI issue and some of the bond issues featured in this issue of Alliance) and individuals (Calvert Foundation's Community Investment Note, Charity Bank in the UK, Shared Interest, and direct share issues at social enterprises such as Café Direct, Baywind and the Ethical Property Company) suggest there is no shortage of supply. For the right business models, there is in theory access to the right scale of growth capital on appropriate terms and with a sympathetic investor profile.

Another reason why social enterprises and NGOs should be interested in this field is time. It is commonly estimated that CEOs spend half their time raising funds - Rodrigo Baggio of CDI admits to spending 70 per cent of his time fundraising. With social investment, there is the potential to reduce this time commitment, particularly once the deals on offer and their reporting requirements become more standardized. Loans and equity finance are not right for all, but where the fit is good they can offer the freedom social entrepreneurs aspire to.

Doubts on the demand side ...

What is striking, however, is the lack of enthusiasm from social ventures themselves, given that many social entrepreneurs and NGOs are clearly dissatisfied with the funding that is currently available to them. A recent survey by nfpSynergy in the UK, for example, reported that charities would trade in a restricted grant of GBP 1 million for the freedom granted by less than GBP 600,000 of unrestricted income. Most respondents were no doubt thinking of core funding grants, but the argument extends to loans and equity, where providers may place fewer conditions on the way their money is used.

Of course, investment brings with it other constraints. Generally, there are fewer if any constraints on how money is used but much tighter constraints on how much is paid out, either in repayments or in dividends. This is why so many small businesses have traditionally avoided equity - a few bad years can easily lead to a loss of control. But few institutions are truly independent anyway - the real question is what types of dependency are most appropriate.

... and on the supply side

These doubts are matched on the supply side. Some fear that for all the hype it will turn out that there aren't all that many investment opportunities in the social sector, and that most funds will end up providing relatively low-risk loan funding for ventures in less innovative parts of the social sector such as housing. It certainly remains unclear whether there is the appetite for investing in truly radical and innovative projects. For higher-risk investors, incentives are lacking. Whereas in business the venture capital model allows a high level of risk because of the very high returns associated with intellectual property in a new drug or web venture, there is no equivalent prospect in the social sector.

It is equally unclear whether the more conservative investors will become involved in social ventures on any scale. In the US the regulatory requirements of the Community Reinvestment Act forced many banks into social investment - and many learned to their surprise that they could make profits in communities they had previously written off. But most financial institutions see this sector as at best marginal.

Attempts to change investor behaviour

This is why some of the bolder attempts to change behaviour are so interesting.

Generation Investment Management, represented at the Skoll World Forum, is illustrative of this approach. Led by the powerful partnership of Goldman Sachs' former CEO David Blood and former US Vice President and environmental champion Al Gore, Generation attempts to show how one can achieve better returns than from the mainstream market if one looks beyond the short-termism of quarterly reports to analyse the influence of drivers such as changing demographics, population movements, climate change and changing public attitudes on corporate success. Their aim is to 'green' the public equities market, which dwarfs all others, so that it better reflects the real time horizons of a world with an ageing population and chronic challenges like climate change.

Even if they are successful, it remains unclear how much this will affect the social sector. Generation's primary targets include the more progressive car manufacturers and energy giants, not hospices or projects for the homeless. But they are at least trying to expand the horizons of the notoriously narrow-minded financial world, and their work does throw down a strong challenge to charitable foundations and wealth managers who invest their assets - typically 95 per cent of their wealth - with no regard for their social impact. The standard defence, reinforced by habit and tradition, is that they are required to maximize financial returns, but in fact they are required by law to invest wisely in support of their mission and many could if they wished choose to run down their assets.

Pioneers such as the F B Heron Foundation in the US have demonstrated the potential for using very different investment criteria and far higher levels of 'mission-related investments' (MRIs). Heron currently invests 25 per cent of its assets in support of employment, enterprise, housing and stronger communities among the poor, and performs at around the halfway point for its class. A rough count suggests a further USD 150 billion could be released for social purposes if all foundations did the same.

The way forward

Social capital markets are coming, though the landscape remains messy, incomplete and uncertain. If you cut your teeth on grassroots activism in the mines of Fife, the streets of Dhaka or the favelas of Rio, all this may well appear morally dubious as well as practically daunting.

Commentators such as John Goldstein at Medley Partners or Jennifer Moses at ARK may yet be right in warning that the 'fuzzy' space between philanthropy and mainstream finance may prove too complex (though complexity is something the social sector has never fought shy of). It is certainly true that the recipients need to be closely involved in designing innovations - which happens all too rarely, apart from occasional exceptions such as described by Sheela Patel of SPARC or Jamie Hartzell at the Ethical Property Company, a keen advocate for social equity markets.

For everyone involved, the promise is of a richer ecology of finance, with many more networks linking providers of capital and the people engaged in social change, with more information, more deals, faster growth and greater impact - a web of exchange that might resemble the flight paths of bees in a dense, busy meadow, each of them cross-pollinating ideas between different sources. We live in a world that combines many unmet social needs and enormous wealth, mostly disconnected from each other. Any new approaches that can put that wealth to work to address compelling needs must be welcomed - even if we should expect failures as well as successes as new markets take shape.

Rowena Young


-----Original Message-----
From: Intelligence Unit
Sent: 25 September 2006 07:52
To: 'atca.members@mi2g.com'
Subject: Response: The Rise of the Creative Class -- Dr Charles Hampden-Turner; ATCA: The Genesis of Philanthrocapitalism -- The Blended Value Investment Philosophy beyond Extreme Capitalism

Dear ATCA Colleagues

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

We are grateful to Dr Charles Hampden-Turner from Cambridge, England, for his submission to ATCA, "The Rise of the Creative Class" in response to "The Genesis of Philanthrocapitalism -- The Blended Value Investment Philosophy beyond Extreme Capitalism."

Dr Charles Hampden-Turner has been a Senior Research Fellow at the Judge Business School, University of Cambridge, UK, since 1991 and a consulting supervisor for the Institute for Manufacturing at their School of Engineering. He is co-founder of an Amsterdam based consultancy on cross-cultural communication, Trompenaars-Hampden-Turner, acquired by KPMG in 2002, but bought-back, post-Enron. He is the author of seventeen books, four with Fons Trompenaars, including Riding the Waves of Culture which has passed 180,000 copies world wide and Maps of the Mind which sold over a 100,000 copies and was a "Book of the Month Club for Science" selection. He is a pioneer of dilemma theory, or paradox theory, which he devised in 1974 in a half-way house for ex-convicts in San Francisco. He received an MBA and a DBA from the Graduate School of Business, Harvard University, after studying history at Cambridge. From 2002-2005 he was the Goh Tjoe Kok Distinguished Visiting Professor at Nanyang Technological University in Singapore. He was the Cambridge University Hutchinson Visiting Scholar to China in 2003 and toured Chinese Universities at the invitation of the Li Ka Shing Foundation. He is a fellow of the Royal Society for the Arts, an Honorary Fellow of Arts and Business. He is a past recipient of Guggenheim and Rockefeller fellowships and a past winner of the Douglas McGregor Memorial Award. He writes:

Dear DK and Colleagues

Re: The Rise of the Creative Class

I was fascinated by your contribution on Philanthrocapitalism and Blended Value.

We have to ask ourselves, "Why capitalism works better than communism?" Why the private sector, preaching self-interest, so often performs better than the public sector or even the charitable sector?

There is the ideological case for capitalism: that self-interest is superior to social concern; that the individual is real and "community" an abstract concept; that we are driven by profit etc.

But this misses the crucial truth of "blended value". One reason capitalism is currently unchallengeable is because in this system we mostly profit by indirection. One gets rich, for the most part, by asking oneself what customers want. One gains via their patronage. Of course there are many exceptions to this rule, monopoly and oligopoly powers, inside information, speculation of all kinds. But most of us in business, most of the time, have to please other people to "make it".

In contrast many relationships in which government is involved, has the Government-Agent-Recipient -- GAR -- triangle, which is "three cornered". G pays A to help R. In that event, either G and A can collude to cheat R; or R and A can collude to cheat G; or G and R can collude against A. As an example, The British National Health Service, a magnificent vision of benevolence, suffers from all three. The government may be overcharged, the patient malnourished and the carer can hardly afford to live near the hospital. Yet everyone meant well!

Capitalism works because its values are more blended than in most other spheres. But of course they are not blended enough and the social side of capitalism is condemned as "socialistic", naive, "bleeding heart" etc. If Richard Branson or Anita Roddick and other similar business personalities profit by helping other people, they may be accused by some of being self-serving or worse still: frauds! This in turn, may not be true.

My contention for some thirty years remains that all genuine values are really a blend of opposites: One profits through being concerned for customers. When one loves people one inevitably hate some of the things they do, all the more because one cares so much. The brave soldier is not the suicidal one but the one who risks himself to make himself and others more secure. In short, he blends Courage and Caution. He wants to go home again. We are more likely to heed the dissent of someone loyal to us, and as the Iraqi war grinds out body parts we might reflect that the protestors were the real patriots.

When someone is kind to us we don't want them to make a sacrifice! We don't want to feel forever in their debt. We want them to enjoy helping us! And the giver, if s/he is kind will disguise the trouble taken. "It is nothing. You are welcome! It's my pleasure too."

We have to redesign society to break the pernicious dualism between Egoism and Altruism. Charity and Profitability. No one "wants to live on charity." It blights the soul. I teach for a living. When Romeo says to Juliet, "the more I give you the more I have" I resonate. "I'll be dead in a few years so what I pass on is all I'll ever be!" I agree with Samuel Butler that we won't live in Elysian fields but...

"Meet we will and meet and meet again,
Where dead men meet on lips of living men."

And industry is becoming more knowledge intensive and educational by the day! It is not just a set of short term objectives, a set of "finite games" it is one long, "Infinite Game" that goes on beyond our lifetimes.

Capitalism is an extraordinarily flexible and adaptable system. It lived happily with the slave trade. It refused to intervene in the Irish Potato Famine lest the economy be wrecked for more enterprising types! It collaborated with Hitler and Mussolini. And yet...the EU has supplied the longest continued period of peace in Europe since Roman times. The Ismaeli Muslims, a trading sect, are among the most peaceful, prosperous and charitable communities in the world. Capitalism can also clean up the environment and get paid for it and turn the poor into enterprising borrowers via micro finance, a blend of "square" banking with NGO compassion.

Those parts of a America that are genuinely innovative, accounting for 85% of all business innovations, eg Cambridge Boston, Seattle Washington, the Bay Area, Boulder Colorado, Austin Texas, Gainesville Florida, Silicon Valley, New York City, voted in a landslide against Bush and his "pro-business" positions, We are witnessing what Richard Florida calls The Rise of the Creative Class. And what is creativity? Surely a novel blend! Something that makes me so deliriously happy I want to share it with others.

Charles Hampden-Turner


-----Original Message-----
From: Intelligence Unit
Sent: 22 September 2006 10:34
To: 'atca.members@mi2g.com'
Subject: ATCA: The Genesis of Philanthrocapitalism -- The Blended Value Investment Philosophy beyond Extreme Capitalism

Dear ATCA Colleagues

[Please note that the views presented by individual contributors are not necessarily representative of the views of ATCA, which is neutral. ATCA conducts collective Socratic dialogue on global opportunities and threats.]

Remembering John F Kennedy's speech -- I am a Berliner! -- or as he said it "Ich bin ein Berliner", which actually translates to "I am a jam doughnut!", in June 1963, we watched the collapse of the Berlin wall with some of our faculty at the University of Southampton, England, in the same department of electronics and computer science where Sir Tim Berners-Lee, the inventor of the world wide web at CERN, now holds a Chair. On 9th November 1989, I remember that one of the students queried, "Is this the collapse of Socialism and the Soviet Doctrine?" and one of our faculty members who had liaised with Eastern Europe and had also worked extensively at the Nobel Prize winners club -- also known as Bell Labs -- in the US remarked, "Yes, and the beginning of the end of extreme Capitalism as we know it." "How long?" shot another query. "The Berlin wall has collapsed because the Soviet Union has failed in Afghanistan and emboldened by their retreat the Eastern European dominoes are falling one by one beginning with the fault line. When Western Capitalism meets its Afghanistan, then we will see the beginning of the end of the present confrontational thinking based around the cold war." Little did we realise that his prediction may be alluding to the real Afghanistan [and Iraq] and not a metaphorical one!

Capitalism has lost its way in some of its ruthlessness, short-termism and down right disregard for leaving people, the planet and its environment in a healthy condition for generations to come. Of this, there is no doubt. However, what will replace it. Totalitarianism based on an ever increasing restriction on civil rights and liberties? Perhaps not. And we may indeed head towards the Blended Value approach, which would require a new way of thinking, accounting and management practices.

Value is what gets created when investors invest and organisations act to pursue their mission. Traditionally, we have thought of value as being either economic (created by for-profit companies) or social (created by non-profit or Non-governmental Organizations, ie, NGOs). What the Blended Value Investment Approach states is that all organisations, whether for-profit or not, create value that consists of economic, social and environmental value components - and that investors (whether market-rate, charitable or some mix of the two) simultaneously generate all three forms of value through providing capital to organisations.

The outcome of all this investment activity is value creation and that value is itself non-divisible and, therefore, a blend of these three elements. The term 'blended value' was coined by Dr Jed Emerson, Senior Fellow at The William & Flora Hewlett Foundation and Lecturer at The Graduate School of Business, Stanford University. Dr Emerson utilised the term to articulate that all forms of organisational activity have social, environmental, cultural and financial dimensions.

There is a fundamental schism in modern capitalistic thinking which needs to be redressed. The vast majority of people divide the world into business on the one hand, which is perceived to be principally about economic activity and the financial bottom line, and the public sector and civil society on the other hand, which are perceived to be about social and environmental bottom lines.

The reality of "Blended Value" is being increasingly reflected in a blurring of the lines in the 21st century between public, private and civil society activity. Large corporations are becoming ever more concerned about their environmental and social impacts; NGOs are becoming increasingly engaged with private sector organisations, and many are also looking at the extent to which some of their activities can be commercialised through social enterprise activities; while governments continue to increase the reach of public private partnerships, and are now also encouraging the 'social sector' to compete with the private sector in tendering for the delivery of public services.

However, the majority of decision makers still tend to operate with an isolationist mentality and act as if the public, private and civil society sectors are separate worlds. So we live compartmentalised parallel lives, wearing multiple hats and operating according to different rules depending on which hat we are wearing: business executive, family member, counsellor, charitable trustee, and so on. The prevailing mentality remains that business is about making money whereas charity is about addressing social or environmental issues, after one has made the money. So the default strategy of even the more socially conscious business leaders is to make their money in the commercial world first and put it to 'good use' later through philanthropic activities. This strategy is frequently undertaken with no apparent awareness of the conflicts and contradictions within their overall portfolio of business and philanthropic activities -- where sometimes the very problems that their philanthropic donations are being targeted at are being exacerbated by their business and investment strategies. How sad is that?

Philanthropists feel good because they may donate around 5% per annum of their capital base to charitable causes -- helping to build a better world -- whilst growing their main capital pool by 7% to 10% per annum by investing in projects that may be busy destroying, damaging or disabling the world. Where is the sanity in that?

Would it not be better to invest ethically in the first place keeping blended value in mind and execute the "building a better world" strategy through prudent investment so that 100% of their capital is being employed judiciously to achieve harmony and well being. Although the returns may be somewhat lower as a result, this would still be better than giving less than 5% amounts away to charity to clean the conscience, whilst Rome burns. Using the lever of properly directed investment can change a lot more than "charity peanuts".

These contradictions are often most apparent within large existing foundations. What are they really? Mostly they are investment management businesses that donate 5% or so of their profits to charity every year. When we are in private dialogue with such foundations, It is an uphill battle to persuade the trustees and asset managers of many of these foundations that it makes sense to ensure that their investment activities do not merely consider the maximisation of financial returns within certain risk parameters, but are also in sync with the social mission of the foundation. Speaking to the founder of the foundation can be an entirely different story!

When one considers the scale of the complex social and environmental challenges that the world faces today, it is clear that we have no hope of moving ourselves off the losing trajectory we are now on without mobilising the business and finance sectors in a more serious way. According to multiple sources, private philanthropic activity amounts to only 2% of GDP in the US, 1% in the UK, and less in much of the rest of Europe and elsewhere. So while it is commendable that Bill Gates and Warren Buffett are giving away their wealth to address social causes, ultimately it is highly unlikely that such gestures will ever amount to more than a drop in the ocean compared to what we could achieve (and need to achieve) by mobilising the full weight of business behind our greatest social and environmental issues.

This is not about the 'corporate community involvement' activities under the banner of PR -- Public Relations -- and CSR -- Corporate and Social Responsibility -- that operate at the fringes of corporate activity, commendable and self-serving as they are -- but rather it is about the more serious efforts of all businesses, from large multi-national organisations through to entrepreneurial start-ups, in putting their financial and intellectual firepower into finding innovative commercial opportunities to address social and environmental issues.

The Philanthropia

Encouragingly there is a small but growing band of private investors who are beginning to understand that these worlds need not remain separate as exemplified by The Philanthropia approach. This is the vision of The Philanthropia for 21st century wealth management, which is bringing together over 1,000 ultra high net-worth philanthropists and family foundations from across the world. In Greek, Philos means Love and Anthropos means Humankind so The Philanthropia means love for humankind. The Philanthropia was founded in 2005 and focuses on The Trinity Club, Uni-purpose Investment Syndicates and Ethical Investment Funds dedicated to clean energy, sustainable technologies, micro-finance, water and eco-friendly infrastructure. The Geneva Chapter was inaugurated in Switzerland in May 2006. As more and more wealthy investors and philanthropists get their heads around the idea of a blended value approach to investing and philanthropy, we feel we are truly making some progress.

Long Term Vision

In the long term, The Philanthropia wishes to empower an integrated approach towards wealth management -- beyond the traditional Private Banking approach -- that looks at financial, social and environmental objectives and then takes a holistic approach to asset allocation across all classes of investment, including philanthropic donations viewed as an asset class, as well as sub-market social investments, micro-finance, sustainable technologies, clean water, clean energy and eco-friendly infrastructure. Rather than focusing purely on the risk return profile an investor seeks, what sort of creative thinking could Blended Value wealth managers inspire by asking their clients: "How would you like to build a better world for the next generation and beyond by utilising the resources you have at your disposal to help create that world?"


We look forward to your further thoughts, observations and views. Thank you.

Best wishes

For and on behalf of DK Matai, Chairman, Asymmetric Threats Contingency Alliance (ATCA

ATCA: The Asymmetric Threats Contingency Alliance is a philanthropic expert initiative founded in 2001 to understand and to address complex global challenges. ATCA conducts collective Socratic dialogue on global opportunities and threats arising from climate chaos, radical poverty, organised crime, extremism, informatics, nanotechnology, robotics, genetics, artificial intelligence and financial systems. Present membership of ATCA is by invitation only and has over 5,000 distinguished members: including several from the House of Lords, House of Commons, EU Parliament, US Congress & Senate, G10's Senior Government officials and over 1,500 CEOs from financial institutions, scientific corporates and voluntary organisations as well as over 750 Professors from academic centres of excellence worldwide.

Intelligence Unit | mi2g | tel +44 (0) 20 7712 1782 fax +44 (0) 20 7712 1501 | internet www.mi2g.net
mi2g: Winner of the Queen's Award for Enterprise in the category of Innovation


intentBlog: Rowena Young -- Growing Social Capital Markets

mi2g is at the leading edge of building secure on-line banking, broking and trading architectures. The principal applications of its technology are: 1. D2-Banking; 2. Digital Risk Management; and 3. Bespoke Security Architecture. For more information about mi2g, please visit: www.mi2g.net

Renowned worldwide for the ATCA Briefings. Subscribe now.
Home - Profile - Values - People - Careers - Partners - Contact Us
D2 Banking - Bespoke Security Architecture - Digital Risk Management - Tools

Intelligence Briefings - Brochures - Case Studies -
SIPS Methodology FAQ (pdf)
Keynote Speeches - Articles - News Feeds - Glossary (pdf)
Terms and Conditions - Privacy Policy