Mike Gallagher

Posted 8/17/11

New and exciting changes in the field of social investing are now under way that a nationally renowned philanthropic strategist and consultant predicts will fundamentally alter and improve the way donor dollars are invested, raised and disseminated for the public good.

This fledgling social-investing dynamic is a “game-changer” in the way that foundations, other nonprofits and donors will look at future capital growth and disbursement of philanthropic dollars, according to Lucy Bernholz, Managing Director at Arabella Philanthropic Investment Advisors.

Bernholz recently spoke to a gathering of Michigan community foundation executives and staff in a presentation sponsored by the Council of Michigan Foundations (CMF) and hosted by the Grand Rapids Community Foundation.

Her passion, Bernholz says, “is pursuing a lifelong interest in the shifting relationships between society’s definitions of what is public and private and to help grantmakers make better use of applied research.”

It is that research that has led the former community foundation program officer – and now advisor to foundations, wealthy donors and corporations – to make startling and positive predictions for 2011.

Noting that 2010 was “a roller coaster year” for philanthropy and social investing, Bernholz says, “I anticipate that 2011 will be marked by several important developments. First, giving will finally return to positive territory, although the increase will be tiny.

“Second, social investing will continue to move into the mainstream, including the launch of a much-anticipated social investment exchange. Third, by the end of 2011, we will look back on the last decade as the equivalent of the ‘dot com’ boom when it comes to online giving markets. This year will bring consolidation and sharpening to this saturated space.”

Leading this “revolutionary evolvement” in giving are three important changes that will affect donors in 2011 and beyond, says the noted author of “Philanthropy and Social Investing: Blueprint 2011” and who also serves as a Special Fellow to the Synergos Institute and is a member of the International Network on Strategic Philanthropy.

“These changes are all in three important and vital areas within the philanthropic spectrum,” notes Bernholz. “They are policy, donor behavior and technology.

“The most important policy change for the social sector in 2011 is the effect of the U.S. Supreme Court’s decision in ‘Citizens United vs. the FEC.’ This decision removed prior restrictions on independent spending by corporations and unions on election campaigns.

“This unleashed a flood of money to advertising in support of, or opposition to, ballot measures or candidates,” she says. “At the same time most of this money was channeled through certain types of nonprofits. This court decision has a huge potential impact on these organizations as a class, the amount of dollars that are now available to them and on public perception of them.”

Additionally, a change in donor behavior as it relates to the breadth of choices now available to them in 2011 in their giving and social investing options – including the availability of both nonprofit and for-profit opportunities – “forces us all to choose, actively or passively, how to support the issues or causes we care about.”

Those choices now include “social for-profit” businesses such as B Corporations, Social Enterprises, For-Benefit Corporations and L3Cs.

“There are now emerging intersections where businesses, funders and social for-profit entities will connect with philanthropy, nonprofits and social good organizations,” Bernholz says. “Funders of all kinds, and those who serve them, now have a much bigger canvas of options on which to make a mark…and foundations must take this into consideration as part of their strategic planning, financial projections and community outreach efforts for such things as endowment attraction and so on.”

Technology is the third ongoing change factor that is – and will continue – to impact the work and financial opportunities of foundations, counsels Bernholz.

“Technology continues to disrupt philanthropy,” she says. “As it has in so many other areas of life, the mobile phone revolution and its growing number of capabilities has fully entered philanthropy and is beginning to show signs of transforming not just when and how we give, but how we organize ourselves for action.”

Other changes that will profoundly impact foundations include the development of new tools designed to track giving trends that are steadily gaining prominence. “These measures and indices might one day be close enough to real-time to actually inform donors as they are making gifts.”

Bernholz also predicts that due to ever-changing market needs and developments, many of the 200-plus web companies that currently provide online transactional support to nonprofits and philanthropic donors will merge or go out of business in 2011.

Additionally, she says foundations should be aware that current and future social investment portfolios of those with capital to promote and support philanthropic efforts will include such vehicles as impact investing, sidecar funds, giving circles, online giving and embedded giving.

Another example of how the philanthropic and financial investment worlds are coming together can be seen in the recent adoption by the Global Impact Investing Network of a set of common standards for measuring and reporting social good called the Impact Reporting and Investment Standards (IRIS 2.0), says the national nonprofit strategist. “This signals a certain level of industry cohesion.”

Institutional philanthropy will also become more collaborative, driven by market forces if not by choice, says Bernholz. She notes that sustainability of the flow of social investment dollars will only be assured in the future at the point where the interests of those focusing on the economy, society and the environment come together and meld with social good organizations and efforts.

Perhaps the most important ongoing trend, she notes, is that social investing will move into a second-stage of development where innovations once limited to the wealthiest will soon become available to a broader slice of the market.

An example of that are the ongoing discussions/planning by financial and philanthropic experts around the U.S. and internationally to create social stock, or network exchanges, similar to the New York Stock Exchange, where public and private investors can go to invest – and generate – new capital for social investing.

“This is an exciting time to be in philanthropy…and the move forward for all of us will often be rewarding, scary, dynamic and challenging,” says Bernholz. “Hold onto your hat. It’s a new world for those dedicated to the social good!”

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