23 October 2007

Philanthropy & Environmental Change: Should Social Capital Markets Take Over?

I'm taking up a friendly challenge here.

Lucy Bernholz, who writes the excellent blog Philanthropy 2173, and I started a blogalog (Did I just coin that term?) between our blogs about the state of philanthropy and environmental change.

It began in response to Lucy's listing of green blogs in the wake of Blog Action Day last Monday, and her noting the lack of discussion of philanthropy on the sites listed (including mine).

My defense stemmed from a concern about philanthropy and its effectiveness as an agent of change in the environmental sphere, which actually was the origin of this blog. I have grown increasingly concerned about the ability of traditional philanthropy to effect lasting change at a pace commensurate with the global challenges we face.

I expressed this concern in my essay for GreenBiz, "Confessions of a Green Skeptic," several years ago about the Earth Charter.

Back then (March 2003), I wrote, "we need to demonstrate how profitable being green can be, and how essential it is to a truly global sustainability. If we can turn the greed motivation to green motivation, effectively turning it on itself, does the means justify the end? Hard to say. But if greed isn't going away anytime soon, we are left with trying to redirect the motivation any way we can. Guilt has worked, but only gets us so far. 'Envy trumps guilt' every time."

This sentiment was influenced by Thomas Friedman's thoughts on the subject expressed in The Lexus and the Olive Tree, that "if conservationists are going to get ahead of the greedy we need to move faster. 'For now, the only way to run as fast as the herd is by riding the herd itself and trying to redirect it,' Friedman writes. 'We need to demonstrate to the herd that being green, being global, and being greedy can go hand in hand.'"

And it was echoed by Gretchen Daily and Katherine Ellison in their book, The New Economy of Nature, from which I quoted, "the record clearly shows that conservation can't succeed by charity alone. It has a fighting chance, however, with well-designed appeals to self-interest."

Things have changed quite a bit since I wrote that essay -- the world has gotten flatter, green has become the new black, Al Gore won an Academy Award and a Nobel Prize for his work on climate change, and the herd has started to move to greener pastures.

But a lot hasn't changed. In Philanthropy, as Susan Raymond points out in a two-part piece called "Does Philanthropy Scale?," the "vast majority of American nonprofits are small; 60 percent or more...have less than $100,000 in annual revenue." And, Raymond notes, "the average foundation grant to nonprofits is on the order of $25,000."

Raymond also points out that "the number of nonprofits with $10 million or more in revenue has increased by 73 percent in the last decade," and asks, "when $25,000 is the average grant, is philanthropy the answer to organizational growth? Indeed, is it even relevant as a source of capital?"

I'm going to quote one more thing from Raymond's essay: "The evolution of microfinance teaches that, when what had been a philanthropic initiative matures and proves its worth, alternative capital sources step in and redefine the opportunity. Is achieving scale, then, the clue for philanthropy to either evolve or exit? And, if so, do we need to rethink what we mean by 'philanthropy' for large organizations or proven initiatives in social markets?"

I quote Raymond's piece at length because it corroborates some of my own thinking on this subject. She rightly points out that the biggest advantage of philanthropic capital is its "ability to take significant risk, to seed a promising idea and recognize that all promising ideas can be failures."

So risk tolerance or tolerance for failure, playing on the field of ideas and at at the edge of problems "where the probabilities of success are unknown, is the key playing field for philanthropy."

For many ideas, perhaps chief among them those addressing environmental issues, it may be time for other types of capital to be brought to bear. I'm particularly interested in what Raymond describes as "a multiplicity of approaches to organizational finance in the nonprofit sector...for self-reliance, sustainability, and (yes) profit" to come to the stage.

This is not far from what Lucy refers to as "tri-sector solutions," such as the B Corporation she has described or the bond purchase strategy Raymond describes in her piece. (In the latter, Raymond explains, "'Donors' took on the role of guarantor rather than funder, and the resources flowed at levels that donations would never have been able to sustain.")

Elsewhere in the web pages of onPhilanthropy, John Bloom of RSF Social Finance, posits that "social finance holds that the purpose of money and finance is to support human initiative and to foster the evolution of new community."

And, Bloom suggests, social finance recognizes "the human and environmental consequences of economic activities...[and] presents a picture of a healthier sustainable future -- and one that leaves behind the industrialist model of philanthropy..."

I will continue this dialogue here on The Green Skeptic, because I think it is an important one, and part of an ongoing, evolving thought process for me that started over four years ago and which led to this blog. Thanks to Lucy for calling me out about it and fostering this dialogue.


Lucy Bernholz said...

This is a great piece - with several important reflections and links to resources. One additional observation I would add is that social finance mechanisms (loans, bonds, etc) are not simply tools that philanthropic funders and nonprofit organizations can (and need to) use to better advantage.

Philanthropy and nonprofits are part of a much more complicated, much larger world of social good - what the folks at xigi.net refer to as the capital markets for good. Philanthropy/nonprofits are a SMALL piece of a puzzle that includes social enterprise, commercial ventures, investing, stock exchanges, corporate social responsibility, etc. etc. - there is a wide variety of resources and enterprises that both contribute to - and could help rectify - the social and environmental challenges we face.

Thanks for taking up the discussion - I'll post this, and some more thoughts, over at Phil2173 and lets get others into the conversation as well.

The Green Skeptic said...

Good points, Lucy. Thanks.

Brad Burnham of Union Square Ventures has some reflections on markets and philanthropy now that he's read the entire transcript of our "Hacking Philanthropy" sessions from last month. (See my earlier post on that event: http://greenskeptic.blogspot.com/2007/09/innovation-hacking-philanthropy.html)

Read Brad's post:

joe said...

very interesting points indeed. I strongly believe that showing the profitability of being green will truly speed up the rolling ball of environmental changes, especially in this greed driven world we live in today.

It is ironic that in many ways we are in need of environmental changes today from our greed and we should and could use the same greed to help institute environmental change for the better.

I look forward to seeing this discussion continue.

Von Thrauthemburg said...

why doesn't their government do something why is that Americans are asked everytime?

Steve said...

Great Blog,

I've been listening lately to many of the TED talks from the last few years and they echo many of the statements you have made. It's not that philanthropy doesn't work. (although it is vulnerable to corruption, poor implementation and the possibility that it is only giving away the fish and not teaching how to fish).

But philanthropy also seems to suffer from a long history of conflict with capitalism. Most do-gooders see business as the enemy of progress. (Not without reason) But some of the greatest progress in the last 20 years has come in the form of cooperation between philanthropists and capitalists. Everything from Micro-loans to hybrid cars have shown that not only can doing the right thing be profitable but seeking profit might be a key factor in doing the right thing.

zippiknits...sometimes said...

"If you take their money, you have to take their ...." Cher

I'm not sure you want Huge corporate non-trackables donating to your nonprofit Green Environmental programs with an inducement of "thier greed".

Building Green systems from the ground up, as per David Korten, you can keep "Greed" at a distance. Because, believe me, they can, and most likely will, ruin any movement or anything they touch.

Anthropositor said...

My own personal perspective about philanthropy is that it is not just about money and the organizations set up to collect it, convert it to other forms and distribute to those in need.

During this conversion, profit-takers step in for a big bite of the apple. A couple of examples:

Little packets of electrolytes and minerals are available to add to clean water to feed babies who are in the process of dying from diarrhia. Millions of babies die each year from this cause. One of the problems is, without the clean, potable water, these babies are still at high risk of dying.

Each of the packets is enough to provide a dying child with a liter of remineralizing fluid (presuming an available source of the clean water) for about a dime. It strikes me that the value of those packets is closer to perhaps a cent and a half. The other 85% is profit. You decide whether that is "excess" profit.

Starvation, also a very big issue involving millions upon millions of children, can also be prevented or reversed for about a dollar a day per child.

Foil packets of peanut butter mixed with powdered milk, other vegetable fats, minerals and vitamins really do the job of saving lives. They do it well. Reliably. The packets keep well, needing no refrigeration. I believe considerable cost savings can be had by tinkering with the design of the product, making it even more useful and effective.

If the costs for these two products were brought down substantially, a great many more children could be saved. But since philanthropic givers do not have too much say in how their money is actually spent and do not pay much attention to this element, there is considerable room for profit-takers to make money. What was originally philanthropy becomes capitalism.

Twenty three years ago, I developed a prophylaxis for viruses like influenza and rhinoviruses (the common cold)and some other airborne infectious and allergic agents. I tested it for six years on myself, my family and my friends. Then, since it worked well, I started to teach others.

Now thousands of people do the same thing. I would, of course, be happier it the numbers were in the millions. With the potential for SARS and Avian Flu pandemics, as well as other evolving and emerging infectious diseases always threatening, I count this as one of the most important successes of my life. I have personally spent many thousands of hours teaching this procedure to others

I personally write no checks to charities. I help the people who need it that are within my reach. Directly. And I help with ideas, which I have in much greater surplus than money.

Admittedly, that doesn't do too much for starving babies on the other side of the world, but at least I know that the bulk of the money I spend charitably is actually doing good rather than enriching profit-takers. Not only that, but actually seeing the results of what I do galvanizes me to further efforts.

I say, find something you can do to help which uses your efforts along with your money. And be prepared to be philanthropic with your ideas as well as with your money. And when you do give money, pay some close attention to what the recipient agency is actually doing with the resources.

Now I am going to return to my work on cataracts, the leading cause of blindess throughout the world.

If your vision is beginning to cloud a bit, you might want to take some prudent actions before surgery is the only remaining option.

With regard to my right eye, diagnosed earlier this year as requiring surgical intervention, things have improved with only my own measures. This is something I was told, in no uncertain terms, would not happen (by a surgeon who stood to make several thousands of dollars for a very short operation.) National annual cost? In the billions.