A Blog by Jonathan Low

 

Sep 30, 2012

Philanthropists Ponder Impact Measurement

The world is in the midst of the largest inter-generational transfer of wealth in history.

As the WWII and post-war generations pass on, offspring are assuming their forebears' philanthropic mantle. But they bring a different mindset and approach to the task. Unlike their parents, many of whom were college educated but largely self-taught entrepreneurs, the younger generation have earned degrees at some of the world's most prestigious graduate schools of business and law.

And they are asking questions about impacts and outcomes that previous donors and recipients never considered. It was not that the earlier generation did not care, or hadnt thought about these matters, but they trusted their own judgment and, perhaps, believed that it was enough to give - or to have created the impetus to receive.

That is no longer the presumptive case. Now, debates about efficacy, timing, impact, ethics and context are as likely to dominate charitable boards' discussions as the amount to be given.

Just as importantly, there is a debate about the potentially misleading nature of measurement itself. As the scandals of the past decade, from Enron to the financial crisis have demonstrated, 'pay for performance,' 'transparency,' and 'metrics' are not panaceas. They can deceive and delude as easily as they illuminate.

Naive or misplaced belief in the power of numbers may prove as inefficient as simply trusting in the good will of others. At the moment, the measurement-obsessed appear to have the upper hand. Potential recipients increasingly have to demonstrate that the money received is being put to good use, by which they mean that the benefits of its application can be demonstrated. In time a fuller picture will emerge. In the interim it is hoped that the discussion about meaning will prove as fruitful as the numbers themselves. JL

Paul Sullivan reports in the New York Times:
ALL philanthropists want their donations to mean something, be it for a new wing for a hospital or to finance a program aimed at doing social good. Increasingly, though, philanthropists are looking for a way to measure the impact of their dollars.

There is certainly a lot of interest in impact investing — essentially investing money in an organization, either profit-making or nonprofit, with the expectation that it will generate a social benefit and perhaps a financial return. But people who embrace impact investing as the future of serious philanthropy often seem to me like scolds. Shouldn’t people be able to give away their money however they want?
Sure, you get a tax break for making a charitable donation, and some advisers to philanthropists argue this means you have a responsibility to give your money away wisely. The same could hold true for people making smaller donations.

Still, I had an interest in understanding impact investing better and was eager to sit down with Matt Bannick, managing partner of the Omidyar Network, an organization started by the founder of eBay that makes grants and investments in groups focused on economic and social change.

Mr. Bannick’s visit to New York coincided with the Clinton Global Initiative, an annual conference that has gained a reputation for encouraging people to make and fulfill bold promises about social change. Mr. Bannick and Paula Goldman, a director at the Omidyar Network, wanted to talk about a series of blog posts on the future of impact investing that they have written for the Stanford Social Innovation Review.

Their posts argue that impact investors should focus less on individual enterprises and more on entire sectors, like education or mobile technologies. It is a lofty idea, and I wanted to know how it could really be done.

Mr. Bannick pointed to Bridge International Academies, a Kenyan group that has created a “school in a box” that can be set up inexpensively in poor areas. Omidyar invested $1.8 million in 2009, and the group has built 83 schools, each of which cost less than $40,000 to build. Each one educates 343 students on average at a tuition of $4 a month.

“Education is generally where there should be sector-level change,” he said. “Bridge can scale up and affect millions. The real breakthrough is if others say, ‘How do we bring this to Nepal or Cameroon?’ ”

That program seemed like a pure impact investment — building schools where they did not exist.

“It’s quite possible we will get a nice return, but that wasn’t the objective,” Mr. Bannick said.

It seemed to me, though, that many impact investors are focused on problems outside the United States. “People tell us, ‘It’s great you’re working on education in the developing world, but we have our problems here,’ ” Mr. Bannick said. “The question for us is, How do we engage in a way that is catalytic? Opening a few new charter schools isn’t going to cut it.”

I wondered whether it was easier to measure impact investments in places where you were bringing in something new rather than trying to fix something already there. With education in the United States, are the problems so daunting that it would be hard for any group to have an impact?

Luther Ragin Jr., chief executive of the Global Impact Investing Network, a nonprofit group that tracks and helps impact investors, said that education in the United States had been a difficult area for impact investing.

But he listed other areas where it has worked. He pointed to the New York City Acquisition Fund, where foundations, banks and government agencies have come together to lend money for the construction of low-cost housing. He also cited clean energy and entrepreneurial programs.

Where impact investing has not worked as well, he said, is in social services, like programs aimed at hunger and homelessness. “Where housing is involved, there are clear streams of revenue that can support the investment,” Mr. Ragin said. “In social service investment, it’s hard to determine what the revenue streams would be.”

(Data from members of the investors’ council showed that 28 percent of them were making their impact investments in the developed world, 41 percent in emerging markets and 31 percent in both.)

Melissa A. Berman, president and chief executive of Rockefeller Philanthropy Advisors, said that despite all the enthusiasm for it, impact investing needed to be seen in the right context.

“It’s still small compared to philanthropy in general and tiny compared to the overall capital markets,” she said. “It’s an important bridge between the two. When we step back and look at complicated problems, it’s going to take philanthropy, impact investing and unfettered market forces to deal with things like poverty, lack of education and lack of access to markets.”

She added that making impact investments was also easier for individuals and smaller foundations to do since the investments tended to be small by foundation standards. “An organization trying to deploy billions of dollars in capital can’t do research on an impact investment of $250,000,” she said.

Mr. Bannick said the size of investing opportunities is something that the Omidyar Network was interested in. It makes $120 million to $140 million in grants and investments each year and would like to invest in education projects like Bridge around the world, for example. But, Mr. Bannick said, it hasn’t found a lot of similar groups.

For those smaller donors, the quest to have an impact could limit the causes they donate to, but it could also bring them the kind of satisfaction only the truly wealthy get. I found a group that was built on the idea of helping people do just that.

GiveWell, a nonprofit group founded by two young men who met at Bridgewater Associates, a hedge fund, aims to find charities where the next dollar donated has an impact. Most of the money it directs to charities comes from smaller donors.

“We wanted to find organizations that were focused on improving people’s lives,” said Elie Hassenfeld, one of the founders. “As we started doing research, we didn’t find a lot that was helpful. There was plenty about charities that provided water in Africa, but there was no information out there to say if the well was still there a year later.”

To this end, GiveWell keeps its list of recommendations small — two top charities and six “standout organizations” — and it looks to groups that have a set goal in mind.

Holden Karnofsky, GiveWell’s other founder, said he had been passionate about donating money to programs that promoted equality in the education system in the United States, but he grew disillusioned after researching organizations in the field.

“I believe in equality of opportunity, but I don’t believe what is being done now is helping,” he said. “The gap between rich and poor students is there at age 5. I’ve come around on global health.”

GiveWell’s top charity is Against Malaria Foundation, which provides bed nets across sub-Saharan Africa and then makes sure that people use them. For about $5 a net, the group can deliver something that saves lives and reduces malaria infections.

“In 2009, when we heard about them, they didn’t go back and check that the nets were being used,” Mr. Hassenfeld said. “We talked to them about that. Now they go back six, 12 and 24 months later to see if people are using them.”

The group fulfills GiveWell’s mission of making sure the next dollar donated matters. But it also shows the limits of focusing on measuring the impact: reducing malaria deaths with bed nets is relatively easy and quantifiable; improving the education system in this country is difficult both to do and to measure.

1 comments:

Michael Kalet said...

I've endeavored for 6 years (still in concept stage) to utilize renewable energy technology for the indoor production of food and biofuel from all renewable energy sources. Market driven, the global economy and dire need dictates social demand muchless impact. We are both for profit company and philanthropic focused on creating global sustainable communities in merging markets as well as Central New York. Time. persistence, and commitment will define success.

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