The world’s business leaders have launched three movements calling on the wealthy to contribute to solving the planet’s issues: by philanthropy while alive, by philanthropy after death and by impact investing.
- The 2020 World Economic Forum in Davos called on the world’s 2,150 billionaires, collectively worth about $10 trillion, to give away at least 5% of their wealth every year. These 5% donations would immediately end world hunger (estimated to cost between $7 and $265 billion per year, according to the calculations by GlobalGiving). This is the «Give While You Live» campaign.
- 10 years ago, Melinda and Bill Gates and Warren Buffett publicly committed to give the majority of their wealth to philanthropy and encouraged other billionaires to follow. While in theory the initiative encourages giving both during one’s lifetime and by bequest, in practice its 212 participants mostly promise to give in the future rather than giving now. In fact, the wealth of the initial participants has not decreased but almost doubled from $376 billion in 2010 to $734 billion in 2020. This is «The Giving Pledge» campaign.
- Impact investing is investing in projects to generate social or environmental impact alongside a financial return. According to The Global Impact Investing Network (GIIN), the aggregate amount invested in impact is estimated at $715 billion. GIIN issued the Roadmap for the Future of Impact Investing, calling on those with sufficient funds to invest more in solving the planet’s issues. This is the «Impact Investing» campaign.
Impact investing, philanthropy and commitments to philanthropy often operate as rivals for the attention of potential sponsors, using separate definitions, priorities, rankings, measurements and dedicated organizations.
All three movements ultimately further the same cause: to encourage the contribution of funds to solve global issues. Many other movements share this cause. Yet, according to the UBS/PwC Billionaires Insights 2019, billionaires outperform the market due to the «billionaire effect» and keep becoming richer. Just encouraging the wealthy to contribute to «good» is not enough to increase participation radically. Rather, an instrument that values the contributions of the rich in a way that matters to them is called for.
To achieve this goal, a new concept of «Impact Currency» was proposed as the currency of kindness: an instrument, expressed in dollars, to reward and incentivize the wealthy to contribute to impact and philanthropy. Impact Currency measures the «good» in terms of input funding, whether in the form of impact investing, philanthropy or commitment. In the Forbes ranking of the wealthiest, the Impact Currency number in dollars (ultimately together with an «Impact Ratio» representing a percentage of net worth invested in Impact Currency) should accompany the «net worth» number, to be most visible to both the billionaires and the rest of us.
Forbes in the US has already started «grading» billionaires’ contributions to global issues in two separate ways. The Forbes «Impact 50» contains three unranked lists of impact investors (in the «Environment», «Equality and Health Care» and «Diversified» categories). The Forbes Philanthropy Score (prepared in coordination with the Global Citizen movement) measures the percentage of wealth given to philanthropy on a 1-5 scale.
Impact Currency builds on this approach. Just like the ranking that counts all asset forms and classes best indicates monetary net worth in the Forbes World’s Billionaires List, a ranking that uses a unified measurement standard to count all forms of impact funding will be most effective to denote benevolent net worth.
The «Give While You Live», «The Giving Pledge» and «Impact Investing» initiatives have the same goal of saving the planet but call on the wealthy to take almost contradictory actions. A billionaire should not have to stand, as in a fairy tale, at the crossroads of three paths, without knowing where they lead or having a way to gauge the pros and cons and hesitating which path to take, if any. Impact Currency will unlock the synergy between the three paths by emphasizing that any contribution to the good counts, so that the three paths feel as one, leading to the right place.
Money has several functions, and its most important is comparing the values of dissimilar objects. That is what «Impact Currency» should achieve through the ranking methodology: compare funds deployed for impact to funds not so deployed, weigh contributions through different asset classes, and generate «conversion rates» comparing impact contributions in the form of «Give While You Live», «The Giving Pledge» and «Impact Investing». The methodology should reward all forms of contribution, while vividly demonstrating why contributing in a particular fashion (for example, «while you live» rather than «when you die») will be more effective.
The Impact Currency Questionnaire which is now being circulated by Forbes to businessmen in the course of the Forbes’ pilot Impact Currency project in Russia requests information in these three categories, with the aim of converting the information into one Impact Currency dollar number via the methodology that is being developed.
Applying one measurement system to different forms of impact funding may have implications well beyond the pilot Impact Currency ranking.
One set of implications may arise from eliminating the frequently artificial need to classify a contribution as either «impact investing» or «philanthropy». The distinction is crucial in some contexts. For example, per the Global Impact Investing Network’s 2020 Annual Survey, 67% of impact investors seek market returns, and would presumably prefer keeping impact investing and philanthropy separate.
For a third of impact investors, however, the borderline between impact investing and philanthropy is already blurred. According to the same GIIN Annual Survey, 33% of all impact investors are in the other «camp»: 18% are ready to accept below-market returns, while 15% may be ready to settle for no financial return at all. And then there are participants in venture philanthropy, as well as entrepreneurs who will readily accept only a social return, but don’t mind a financial return either! In the world of development organizations, this is called «concessional» or «blended» finance: funding that is essentially a grant, or made on less than commercial terms. For example, The International Development Association provides long-term interest-free loans to the poorest, while The International Bank for Reconstruction and Development expects commercial rates of return.
Thinking about «Impact Funding» more broadly may trigger the expansion of varieties of «blended» legal and tax structures, incentivizing wealthy private sector participants to take normally impermissible investment risks well beyond venture capital standards and traditional investment horizons, in order to achieve greater impact. This may involve opening new sectors or investing long-term in potentially impactful technologies, but without having to abandon the hope of a financial return in case of an investment miracle.
Moreover, Impact Currency has the potential to become a tool for The Giving Pledge initiative to resolve one of its main challenges — even though its founders lead by example in contributing during their lifetimes, its participants mostly promise to give in the future rather than giving now. By establishing a «conversion rate» between the money pledged to be given in the future versus the money given now (setting net present value based on life expectancy, the uncertainty of the promise made, etc.). Impact Currency would encourage The Giving Pledge signatories to give more now by demonstrating, in mathematical terms, the difference between contributing «while you live» and «when you die».
Impact Currency can also expand our vocabulary to communicate about funding the «good» beyond «Impact Currency» and the «Impact Ratio». «Impact Funding» could be a common term for impact investing, philanthropy, all the blends in between, and commitments to any of them. «Impact Sponsors» would then describe those who contribute funds for social and environmental purposes, in any shape or form. Such a new common language may also raise awareness of the Impact Funding need.
Impact Currency will measure contributions to the «good» in all their tangible forms. With time, let’s hope, it will become the dollar number that matters most for measuring real wealth.