Impact Investment is the new philanthropy

Philanthropy seems to be on the rise in Sweden, with wealthy entrepreneurs giving away their fortunes and a newly established Swedish Philanthropic Forum. But the philanthropic trend in Sweden has already been characterized by Impact Investment. A phenomenon developed in those countries where philanthropy has been the norm for many years and which now has arrived in Sweden. Impact Investment means investing capital in social enterprise rather than giving without any demands in return.

2011 was the year philanthropy became a buzzword in Sweden and several Swedish entrepreneurs gave a lot. Bengt Ågerup, who sold Q-Med for five billion Swedish kroner, gave most of the profit to women’s health in Tanzania, Niklas Zennström gave away billions via Zennström Philanthropies and Percy Barnevik has given away more than 100 billion Swedish kroner to Dalit women in India through the organization Hand in Hand. Just to mention a few.

In December the Entrepreneurship Forum introduced a Philanthropic Forum and arranged a seminar with Zoltan Acs, professor at George Mason University in the United States. Acs will shortly be publishing his new book The Philantropist Hero: Completing the Circle of Prosperity showing how early American entrepreneurs gave away their fortune as a counterbalance against the class system of inherited privileges, highlighting the importance of a tradition of equal opportunity, not equal outcome.

At the same time as Sweden has been discovering philanthropy the development of Impact Investment – a new form of investing – has evolved. Impact Investment means to invest in social enterprises, whose goals go beyond financial profit. Unlike traditional philanthropy, often defined as charitable activities supporting institutions and projects within culture, education, research and health, no strings attached – Impact Investment comes with conditions. More and more feel that giving unconditionally is not what society needs in order to develop and therefore turns to Impact Investment. Several Swedish entrepreneurs have joined this circle.

Within Impact Investment the investor places conditions on more than just a return of the financial investment – the investor wants to see a social return in the shape of community development within areas such as health, environment, economy, education and similar. This return is known internationally as Social Return on Investment, SROI. One example of SROI can be found in an article written about the Swedish company Solvatten. Students from the Swedish University of Agricultural Sciences measured the impact Solvatten had on all it’s stakeholders and showed a value beyond the monetary value – a value which included saved time and energy, social contacts and health improvements. In the case of Solvatten the SROI-value was unusually high, which of course was positive for those who had invested in the company. SROI was introduced in Sweden by SERUS, who focus on measuring how projects and activities create social, environmental and economical change.

Impact Investment seems to have several advantages in comparison to purely philanthropic charity, something other European countries have discovered. Great Britain as well as Holland have already established a network and system for how to develop and scale Impact Investment. Today we see a growing interest in Sweden for Impact Investment. Last fall Kevin Jones of Social Capital Markets and Good Capital visited Sweden together with a couple of other investment networks, Toniic Europe and K.L Felicitas. In Gothenburg, Malmö and Stockholm, meetings were arranged with Swedish interests wanting to know more about the area, as well as those already familiar with Impact Investment. Such as Uppstart Malmö, Framtidslyftet, Mikrofinansinstitutet and Storebrand, all currently working with Impact Investment in Sweden. They all provided an image of the trends and developments within the field as well as showing business and investment opportunities within the area of social innovation and social entrepreneurship. These meetings were a prelude to SOCAP Europe – Designing the Future, which will take place in Malmö, Sweden, in may of this year.

Bengt Ågerup, Niklas Zennström, Percy Barnevik – call them philanthropists if you like, but I claim they are Impact Investors. The nature of their business is different from traditional philanthropy, and can be described as a mixture of philanthropy and venture capitalism. They are wealthy entrepreneurs investing their billions in companies with monetary as well as social return on investment. Social enterprises in other words, businesses whose primary goal is not to provide stockholders or CEO’s with a huge profit, but rather to solve a social problem and put the return partly or fully back into the company.

It is obvious that neither government nor the nonprofit sector can provide solutions to all the needs and challenges society is facing today. Aid agencies, foundations, volunteer organizations and individual donations – they are all needed. But a new force is emerging as business is taking the step beyond just corporate social responsibility. More and more existing as well as new enterprises are engaged in business that interests this new type of investor. It is only a matter of time before Impact Investment becomes the new Swedish philanthropy.

Stanford Social Innovation Review recently published a book review of Olivier Zunz’s Philanthropy in America: A History, clearly highlighting the new direction philanthropy has taken within the past few years. Among others, Rockefeller Philanthropy Advisors is mentioned as having published a guide for Impact Investment in 2009, stressing that it is not about charity but rather about creating social change and monetary return.

Perhaps we should leave old-fashioned concepts such as philanthropy behind us when we talk about investing in companies focusing on social innovation as well as monetary return. Call it what it is – an investment in solving the challenges the world is facing today, an investment in community development, simply known as Impact Investment.

(This is an English translation of an originally Swedish article I wrote for Veckans Affärer and therefore many of the links are Swedish references.)

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One Response to Impact Investment is the new philanthropy

  1. Pingback: Impact Investment is the new philanthropy | Sharing, Caring and … « dyrovudib

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