There’s a growing number of people in the world of social entrepreneurship focused on not just building impact-oriented companies, but on creating a more fundamental systemic change.
With that in mind, 45 impact investors, researchers and others recently met at a two-and-a-half day pow-wow in Sheffield, Mass., to focus on one important piece of the puzzle: the role of philanthropy and foundations in creating what organizers Rockefeller Philanthropy Advisors and Impact Entrepreneur term an “impact economy”. Their conclusions were recently published in a report called Philanthropy Transforming Finance: Building an Impact Economy.
“It’s not enough to build a business that is doing good in the world,” says Laurie Lane-Zucker, founder and CEO of Impact Entrepreneur. “We also need to create a business paradigm that reflects the same triple-bottom-line brain chemistry.” (Another, perhaps more familiar term for the concept is “regenerative economy”). Lane-Zucker’s massive LinkedIn group, called Impact Entrepreneur, has about 20,000 members. He also founded, among other things, Impact Entrepreneur Center, based in the Berkshires, as a hub and think tank.
According to the report, creating such a business paradigm requires that philanthropies step up their game. “There’s a sense that the separating of philanthropy from the capital markets is limiting the capacity for scaling real change,” says Lane-Zucker. The reason: a paucity of early-stage and seed capital, a gap philanthropies could play a major role in filling. That, in turn, could help attract other funding. “It’s the natural domain of this sector,” he says. “And it’s an area where the philanthropic sector really needs to kick into gear.”
One key move philanthropies can take, according to Lane-Zucker, is to focus on not just the 5% of their endowment they give away, but on the rest of the pot, as well. That means making sure their money is invested in what he calls a “mission-aligned way.” Not long ago, Heron Foundation, for example, completed a comprehensive process of going “all-in”, the term for investing the entire endowment in impact-oriented investments.
Specifically, the report calls for foundations to put at least 1% of total grants and investments towards building what it calls “the coordinated infrastructure, scaffolding and architecture of the impact economy.” That would be done with an integrated finance model using grants, social impact investing and other mechanisms to boost the amount of capital raised. One move with particular promise: tapping donor advised funds.