Responsible Future

What is Philanthropy?

Christoph Courth, Head of Philanthropy Services, Pictet Wealth Management

What is Philanthropy?

Ask the internet “What is philanthropy?” and you will be inundated with different definitions, with no two alike.

While the notion of charity arguably dates as far back as the beginning of humanity, philanthropy in the way we currently view it, only started to emerge in the early 20th century with the rise of private wealth brought about by the second industrial revolution.

In the 21st century, philanthropy is again on the rise, and while celebrities and tech billionaires may be on the front pages of coverage related to this increased giving, it is by no means limited to these individuals.

There is increased wealth creation globally, especially among entrepreneurs who statistically have a higher propensity to give back. More of this private wealth is being generated in developing countries by people who have seen and/or experienced poverty and inequality first-hand. The rise of the millennial generation, whose social conscience is a defining part of their identity, and the ever-growing commitment by companies – especially family owned – to operate sustainably, is driving this increase.

Thanks to technology, the world has also become much smaller, making it difficult to ignore the myriad issues humanity faces. At the same time, with smartphones in the palms of our hands, we have the capability to act within seconds.

Modern philanthropists are using more tools than ever before, mobilising their time, their businesses and their investments to work alongside their philanthropic capital to effect change, not just on humanity but on the world in which we live, on a larger more sustainable scale.

The ways in which philanthropists act are varied and no two are the same. This makes this space exciting but also complex and confusing. What is the right way and what is the wrong way of doing things and what way would work best for me?

The following are, in the broadest sense, the ways in which private individuals and families mobilise their own wealth for social and environmental good:

Charitable Giving: Typically, not time or resource intensive. Charitable giving often takes a hands-off approach and involves financial donations to existing charitable organisations that are believed to be doing a good job.

Philanthropy: The gifting of stock, real estate, in kind or financial, necessitating a larger investment of time and energy and dictating a more hands-on approach. Philanthropy involves knowing more about where the money is going and requires greater reporting from beneficiaries. Typically an end goal is defined alongside a plan of how to get there.

Catalytic philanthropy: As above but with a more structured plan and end goal alongside an exit strategy in all areas of operation.Catalytic philanthropy relies heavily on data and evidence both in terms of choosing where and how to support, but also in evaluating its impact. It involves mobilising all available resources to understand the root causes of issues and focuses on eliminating these at scale and transforming entire systems.

Social Finance: Social finance is typically used to describe the lending and/or investment into social enterprises or non-profits.Outcome-based philanthropic grant-making, program-related investments, venture philanthropy, microfinance, social/development impact bonds, blended finance mechanisms and social enterprise lending, all fall under this umbrella term.

Understanding, and being honest to oneself as to what one’s own motivations are (and there are often many) is a crucial first step in your philanthropic journey. Why is this?

A 1994 social science study conducted by Russ Alan Prince and Karen Maru found there to be Seven Faces of Philanthropy: seven motivations of individuals relative to their interest and support of non-profit organisations.

Each face was defined by the attitudes and beliefs that motivate individuals to act on behalf of and in support a non-profit. The study defines the expectations of each group in relation to communication, involvement, decision-making and recognition.

Naturally, no one falls into just one category, it is more on a scale of each, with some having a higher influence, and some less.

1. The Communitarians

  • Want to give back locally to support their community, network or kin
  • Believe that charity starts at home
  • Giving to what they know gives them a greater sense of ownership, transparency and hands-on involvement with their philanthropy

2. The Devout

  • Are driven by a specific faith, philosophy or set of beliefs
  • Is often beyond just financial, but also in kind and time
  • Typically align themselves with likeminded individuals

3. The Socialites

  • Getting enjoyment out of their work is a strong driver
  • Believe that philanthropy can be of mutual benefit
  • Tend to support the arts and higher education

4. The Altruists

  • Are motivated purely out of empathy and a desire to help others selflessly
  • They tend to be motivated by their feelings and emotion
  • Tend to be more hands-off, perhaps anonymous and shun recognition

5. The Repayers

  • Want to give back to an area that they have directly benefited from
  • Believe that the wealthy have an obligation to give and want others to give like them
  • Very straightforward in their giving and do not tend to have a world-changing vision

6. The Dynasts

  • Philanthropy is a family tradition and part of the legacy of the family
  • Often offer support close to home and have a family foundation
  • Tend to focus on a select few areas and not to deviate

7. The Investors

  • Philanthropy makes good business sense
  • Take a methodical view and approach it in the same way as any investment
  • Philanthropy can be a win-win situation
This is an extract from the What is Philanthropy? - Philanthropy Impact Paper which is part of a series of guides written specifically for philanthropists and their families that seek to address the most common questions they ask.
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