Working with philanthropists, advisors and investors we are constantly questioned about the latest investing terms and what they might mean. We have been asked the question so many times that we created a useful chart below.

The secret is that all investment is, essentially, the same – the act of placing resources to gain a return. The only variables tend to be scale, form of return, timeframe, costs and risk. This is true every time you make a decision regarding your resources - be it giving a donation, investing in a pension or even buying a chocolate bar!

We, like others, view this as a spectrum. Theoretically at one end lies classic altruistic philanthropy where individuals give resource for no personal or financial reward, but instead purely to help others (100% social 0% financial return).  At the other would be maximising financial return on investments with no regard for social impact (for example, investing in a factory producing landmines using child labour). 

In between lies a breadth of options which, in the real world, reflect the investor’s choices, values and desire for social impact. 

The act of investment has always had an element of values based judgement involved – more often than not people will go for the option with the least detrimental social impact assuming the returns are the same. This chimes with what Boncerto Associate David Van Eaghen outlined in his piece on values and impact here.

Traditionally the approach has been to separate the making of money from the act of making a difference. Essentially focusing on financial returns to provide the freedom to have a positive social impact in other areas. 

History provides numerous examples of great philanthropists whose charitable work was offset by the damage done in the accumulation of their wealth.  One such example is the slave trade where individuals such Edward Colston in Bristol, celebrated civically as a committed philanthropist, is also condemned for making large parts of his fortune on the back of slave produced sugar.

More recently the formalisation of opportunities to do good and make a financial return has meant that people view their portfolio as one of the easiest ways to create a positive legacy.  A degree of credit has to go to environmental groups who, within a relatively short space of time (15 to 20 years), have changed perceptions around investor responsibilities. More recently they have completed the process by ensuring investors realise they have power to proactively affect behaviours, as shown by the campaign for the divestment from fossil fuels. 

The other major change has been the growth of impact investing (investing specifically to achieve both social and financial return). This approach has provided a bridge that enables people to metaphorically “move the slider” between their social good and their investment portfolios.

Today individuals, and some forward thinking advisors, have an opportunity to view portfolios as a whole and make decisions dependent on financial, impact, and legacy criteria.

Once these goals are in place, the relevant instruments and tools are now available to help achieve this.  Some are obvious - if you want to amass enough capital for college fees and a yacht then I would not suggest allocating 100% of your assets into philanthropy. Others are more nuanced, if you want that yacht but also want your children to appreciate their good fortune then perhaps tracking the FTSE100 is not a comprehensive enough approach.

What this means for our role (and for other advisors in the space) is a need to really understand the needs, values and desired impact of the philanthropists and social investors we work with. Advice should be less about the form of investment, and more about an individuals desired positive impact.

Download our spectrum as a PDF by clicking the link below.