“To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Larry Fink, the CEO of the world’s largest investor Blackrock, made headlines in 2018 when writing this in his annual letter to CEOs. For all the eyebrows raised, Fink was actually repeating an increasingly common notion: that far from being separate entities, business is part of society. In short, we need more philanthropists.
Early philanthropy, pioneered by the likes of Carnegie and Rockefeller, was seemingly straightforward. As Peter Cafferkey, Founder and CEO at Boncerto says: “You could be a robber baron, you could pillage resources, do harm to the planet and treat your staff badly. But as you got closer to God you could make up for it by buying everyone a library.” Boncerto, a network that acts as a bridge between charities and high net worth individuals (HNWIs), describes itself as “dedicated to helping individuals, companies, foundations and charities to nurture, create and deliver social good”, and it’s not alone: in an increasingly transparent world, the global charitable foundation sector, and means to facilitate it, are growing rapidly. According to the 2018 UBS Global Philanthropy Report, nearly three-quarters (72%) of identified foundations were established in the last 25 years. However, philanthropy is no longer straightforward – under scrutiny from both regulators and savvy millennials, navigating this increasingly highly regulated sector can be complicated.
There are various factors at play here. One is that philanthropists want not just to manage problems but to fix them, transferring methods from the private sector to not-for-profit organisations. Another is that investors want companies to have a social purpose. As Lucy Edwards, Partner at Penningtons Manches Cooper, says: “It’s not just individuals trying to increase their charitable giving, but actually looking to invest in businesses with a social purpose.”
“It’s not just individuals trying to increase their charitable giving, but actually looking to invest in businesses with a social purpose.”
We’re not only talking about affluent baby boomers, such as Sir Richard Branson and his work with the Elders organisation, or wealthy Generation Xers like Jeff Skoll, whose Skoll Foundation is the world’s largest foundation for social entrepreneurship. In recent years, an ‘effective altruism’ has sprung up among socially conscious millennials – in 2017 millennials in the UK gave £2.7 billion to charity.
Anna Josse, Founder and CEO at Prism the Gift Fund, a UK charity offering a Donor Advised Fund service, says: “The next generation often have different causes they want to support. Donors are also assessing charities carefully. They want to give to smart charities and be efficient with their giving and so look at various tax-effective ways of making a gift”.
“There’s a real momentum building in the UK,” says Edwards, “riding a wave that started in the US. This is an interesting time, generationally. Millennials are more inquisitive and are used to a level of transparency and having information at their fingertips. They’re in a position to hold companies to account in a way that hasn’t been possible in previous years, because the information simply hasn’t been there.”
Cafferkey agrees, “Social media has pros and cons, but you can’t hide in the way you used to. We saw that with the Sackler Trust.” Having spent decades donating to revered institutions from Yale to the Serpentine, the Sackler family of philanthropists saw their grants turned down after it came to light in 2019 that members of the family owned Purdue Pharma, whose prescription painkiller OxyContin is blamed for much of the US opioid addiction epidemic which kills more than 100 people per day. In donating so lavishly, were they merely “laundering their reputations” as Rob Reich, Professor at Stanford University claimed?
Interestingly, there are differences of approach on either side of the pond. Josse explains: “In America, when you make a gift to charity, tax is deducted at source. However, it’s not quite as simple in the UK. Under Gift Aid, charities and higher rate taxpayers need to claim 25% from the Government on the donation.”
There are numerous tax incentives available, many of which remain underused because advisers are too generalist. “They are not always aware of different tax incentives for charitable giving and so are unable to discuss the various options with clients,” adds Josse.
Donor Advised Funds (DAFs) simplify the administration of giving. They receive the same tax relief as UK charities and are becoming more popular here, echoing the US where over $110 billion of charitable assets are in DAFs. There are also tax breaks available for those bequeathing property or art to British charities, although the art has to be ‘in the national interest’. Meanwhile, donors can still contribute even after death, via the Legacy10 tax break, introduced by the Government in 2012. Those leaving 10% or more of their wealth to charity in their Wills are granted an inheritance tax cut from 40% to 36% on their estates.
One British trend identified by Edwards is in attitudes to inheriting family businesses, or families generally inculcating philanthropy across generations. “Parents want their children to be responsible and socially aware,” she says. “The conversation is changing from ‘I want to make sure my children are financially mature’, to ‘I want my children to be responsible, but also be aware of the privileges their wealth brings them, making sensible decisions and with a view to the impact of the family’s social footprint’.” It may be a tried and tested approach, but Edwards says involving children in charitable endeavours is still one of the best ways to help them dip their toe into financial responsibility.
Looking to the future, it’s the socially conscious Generation Z, with their concerns about everything from microplastics to climate change, who look certain to carry the torch forward. Says Cafferkey: “They will hopefully mark the baseline of what is acceptable and what is expected to change. How you make your money is important. These changes take a generation to kick in. Hopefully, we’re just seeing the beginning.”
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