The Value Of Philanthropy
A Global Expansion In Philanthropy Could Be Very Significant
By 2030 2.4 billion people will enter the world’s middle class and global spending will double to nearly $64 trillion. If just 0.5% of this new wealth accrued as spending on philanthropy, it could mean an additional $319 billion per year for philanthropic projects.
The impact of a global expansion of philanthropy could be very significant for the world. In monetary terms the global value of philanthropic giving is about US $2.3 trillion according to Citi, equivalent to nearly 3% of global GDP.
Approximately 67% of philanthropic cash comes from individuals, 28% from Foundations and 5% from corporations. Add to that the multiplier effect of ‘investing’ in operational projects, and today philanthropy could represent as much as 10% of Global GDP.
“Everyone now has a world-saving project”
Andrew Hunter Murray writes in FT Magazine that “Today, practically everyone above a certain net worth has a World-Saving Project” (FT Magazine, June 2023). And he is not far off the mark.
The observation certainly holds true as it relates to the healthy cohort of trailblazing American philanthropists who collectively embody the open-handed giving culture that means US citizens give 45 times as much to charity each year than the British despite having a population only 5 times greater.
But perhaps more interesting is the potential impact of a brand new cohort of emerging philanthropists.
The UHNWI families of Asia and the Middle East are also increasingly seeking to engage in the largesse and seemingly unlimited ambition of American-style philanthropy; and are frequently seeking to build and fund sustainable development 'bridges’ between the old, new and developing worlds.
Even inherited inter generational wealth within older European families is slowly being mobilised into humanity-improving philanthropic causes of increasing scale as it filters into the hands of the more socially-conscious next generation.
So what’s going on?
Quantifying the value of philanthropy
Whilst the collective value of this new cohort of philanthropists is difficult to measure, it does not require much imagination to deduce that, say, a doubling of global philanthropic funding would have a momentous impact. And there is certainly more upside beyond: one study suggests that in some rich nations less than 10% of UHNWIs are engaged in philanthropy. That is a lot of UHNWIs who are not yet engaged in philanthropy. So will they?
The experience of Michael Macfarlane Associates, which supports UHNWIs and Family Offices around the world to turn their wealth into worth by expanding and growing their philanthropic ambitions and projects, is that a rapid shift is occurring. The American view that “success” is not judged by wealth but by how open-handedly it is given away is becoming endemic. And those with the means to do so increasingly wish to be 'reborn' as philanthropists.
Espousing the merits of capitalism
So why is this happening? There are a number of factors at play.
We are entering a decade for change that started with the post-pandemic reset. The COVID pandemic worsened inequality everywhere. It diminished access to education and healthcare and set back many social challenges such as gender inequality, especially within the realm of healthcare in the developing world. This has accelerated a new acceptance amongst UHNWI’s of the social obligations that come with private or institutional wealth.
Demographics are also changing the philanthropic landscape. By 2030 2.4 billion people will enter the world’s middle class and global spending will double to nearly $64 trillion. If just 0.5% of this new wealth accrued as spending on philanthropy, it could mean an additional $319 billion per year for philanthropic projects.
Moreover by 2035, women will inherit 70% of intergenerational wealth transfer, and are statistically more likely to wilfully fund philanthropic projects.
There is also a tacit acceptance that the current decade may mark the end of a 40-year economic era, and the start of a more volatile and uncertain period that will test the merits of different modes of capitalism.
To prevent disorder, wealthy families and institutions are starting to realise that they must play their role in espousing the merits of the wealth generated by capitalism through the private redistribution of some meaningful portion of it into world and human-improving projects.
A shift toward the 2030 Sustainable Development Goals
In particular, as this shift propagates, there is a growing impetus for UHNWI’s and wealthy institutions to look away from conventional ‘black box’ charitable giving in favour of directly operating projects where the addition of 'intellectual capital' from a Family Office, creates an impact multiplier effect per dollar of giving.
The new frontier for giving back to the world is not traditional “CSR” or even “ESG”. Rather it is “SDG” — the United Nations Sustainable Development Goals. It is entirely possible that by 2030 every organisation will be expected to apportion some of their financial and intellectual resources into SDG projects.
But in the interim, it is philanthropists — many of them formerly entrepreneurs — who are the early adopters of SDG projects.
Whereas big brands seek consumer affinity through ESG compliance; UHNWIs are typically far more interested in the synergy of their intellectual and financial capital into tangible socio-economic outcomes. And in this regard SDG is the ideal space to focus their philanthropic efforts.
One well-regarded SDG project that is 100% funded by a single UHNWI has cured 60,000 people of cataract blindness in some of the poorest and most remote communities in the world.
This achievement was made possible in part because the entire intellectual capital of a Single Family Office is available to the project; availing it to the kind of resources that many NGOs can only dream of and instilling into the project the importance of attaining a significant social return on the funds donated.
Philanthropists seeking returns
Evidence shows that making this type of large-scale grassroots intervention to cure untreated blindness in the developing world has a 1,500% socio-economic return on the cost of surgery within the first postoperative year.
These types of ‘return’ numbers are highly appealing to those with a mind for habitually optimising their resources; especially those who favour being able to take a more ‘hands on’ approach to optimising the impact of their projects.
And the opportunities for UHNWIs and wealthy institutions to engage directly in the operation of projects that directly link back to the SDG’s are almost endless. And many of the SDGs usefully overlap. Want to support SDG1 (no poverty), SDG3 (good health) and SDG5 (gender equality) — then start a project to fill the gender inequality gap that exists within healthcare in the developing world. Or reduce maternal mortality by giving pregnant women in remote villages access to mobile ultrasound screening. Or rescue young girls from human trafficking.
A catalyst for a better world
Of course questions abound about the ethics of leaving such human-critical issues to “the private whims of a wealthy elite”. Some argue that it is the responsibility of the state to more effectively tax and redistribute wealth.
But this is a mercantilist view of sustainable development which assumes that the world’s Governments are being effective in funding global sustainable development. The reality is that the total global aid budget of OECD countries currently stands at US$185 billion — a drop in the ocean of what’s needed to take all of humanity forward. And many Western voters favour cutting foreign aid and international development budgets.
Moreover in the commercial world it is the predilection of entrepreneurs and investors to occupy the gaps that are not filled by Governments to provide products and services for which there is a demand and a need. And in many ways those UHNWIs who have often succeeded financially are well suited to creating new solutions to solve sustainable development challenges. So why not allow them the same level of uncritical latitude to operate that they enjoy in the commercial world?
We already know that global expansions of economic activity tend to improve lives. A global expansion in philanthropic activity could prove to be an equally important catalyst for a better world.