Changing the game: Philanthropists driving the impact economy
How can philanthropists help facilitate the transition to a world that’s profitable for everyone?
We’re at a critical juncture in the path to creating a better world. The global output economy, represented by GDP, has grown over the past decades. But if we look at progress on the UN Sustainable Development Goals (SDGs), we’re actually moving backwards:
- A billion people worldwide have no access to healthcare.
- Over 600 million youth worldwide lack basic mathematics and literacy skills.
- And there’s been a 50% increase in global CO2 emissions since 1990.
Despite exponential growth in philanthropy – currently about USD 1.2 trillion a year – the annual financing gap needed to achieve the SDGs by 2030 is about USD 4.1 trillion. With over USD 100 trillion in wealth management alone, surely we can fill this gap.
The solution? An impact economy.
The solution? An impact economy.
Fortunately, the world is already transitioning from an output-based economy toward an impact economy. The impact economy goes beyond a valuation of only financial performance to factor in impact on people and planet. The transition to an impact economy needs to be supported by partnerships between investors, businesses, social enterprises, NGOs, philanthropists, communities, academic institutions and governments worldwide.
At the ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation, we believe that philanthropists have an exciting role to play in supporting the transition towards an impact economy. Philanthropic capital is more flexible than traditional profit-maximizing investments, providing a unique opportunity to reimagine the power of investing.
We’re currently partnering with philanthropists who are using their impact capital to catalyze additional investment from the private and public sectors. It’s called blended finance and it stands to attract trillions more in capital to drive an impact economy with over a quarter billion new jobs and trillions in new market opportunities.
What can philanthropists do?
What can philanthropists do?
Innovate. Philanthropists can be patient. As an alternative to simply giving grants, we’re seeing philanthropists use capital to incubate innovative, earlier stage ideas that have potential to create scalable impact.
The ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation started providing grants to Rising Academies in 2015 to help them grow a network of low-cost primary schools in Sierra Leone and, later, Liberia. Rising Academies is now a Certified B Corp®. In 2020, the ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation (with two co-funders) made its first-ever equity investment of USD 500,000 into Rising Academies through a Simple Agreement for Future Equity (SAFE) to finance its expansion to Ghana.
Offer concessionary loans. Promising social enterprises often have trouble securing commercial debt so they can scale while keeping their mission focused on impact. Philanthropists can offer impact loans where the interest rate is linked to outcomes. The higher the impact the business achieves, the lower the interest rate the business pays.
The ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation provided a USD 500,000 five-year loan to Impact Water, a social enterprise that provides safe water solutions to schools in Uganda. Working together with the Rockefeller Foundation as outcome payer, this outcomes-based financing instrument allows Impact Water to pay less for its loan as it has more impact – aligning interests all around.
Transfer risk. There is huge investor demand for impact. Yet, only about USD 1 trillion is invested for impact annually. Philanthropists can use their impact capital to de-risk private investment, unlocking private capital for projects that wouldn’t normally be attractive to traditional investors.
The pioneering SDG Outcomes blended finance initiative is focused on delivering SDG-aligned outcomes and includes private investment sources such as family offices and high net worth individuals. The initiative targets essential healthcare, education, employment, child protection and environmental outcomes aimed at improving the lives and livelihoods of some of the world’s most vulnerable populations.
Develop markets. There are untapped opportunities to develop markets to protect people and planet. Philanthropists can help develop these.
The ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation is partnering with Earth Security to invest in the three-year M40 program to fund restoration projects in 40 key mangrove locations. A USD 3.5 million investment will support a pipeline of 500+ investable projects with the potential to mobilize USD 100 million in public and private capital.
Correct market failure. There is a market gap in many parts of the world for financing, often resulting in the perpetuation of social inequality. Philanthropists can help correct this.
The ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation is investing in fair and ethical income share agreements that allow students from sub-Saharan Africa to finance their university education or training programs. Through ¶·Å£ÆåÅÆÔÚÏß Optimus Foundation’s equity investment into the Future of Work Fund run by Chancen International, philanthropists have helped to attract more commercial investors. Only once the student is successfully employed and earning a decent income will they start paying back to reimburse investors and help fund more students.
In an impact economy, it is possible to value financial performance and as well as to value the impact on people and planet. We are partnering with philanthropists to help facilitate this transition to an impact economy.
Would you like to join us?
Would you like to join us?
Learn more about ¶·Å£ÆåÅÆÔÚÏß Philanthropy
Read our Impact Economy white paper
from the ¶·Å£ÆåÅÆÔÚÏß Sustainability and Impact Institute.