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What is the first thing you think if I were to ask you how you can make a big social impact? Are you picturing a bunch of wealthy philanthropists at a black-tie fundraising event with an oversized cheque? If so, you're not alone. While this is one aspect of philanthropy, modern philanthropy looks much different. New approaches to impact such as impact investing, shareholder activism, and conscious consumerism are more accessible, more fun, and potentially more impactful than donating. Just keep in mind, I said potentially. Donations are absolutely vital to many organizations fighting for many causes. The good news though is you don't have to pick just one. You can practice them all.
To move forward, I’d like you to reset your definition of philanthropy. My personal favourite definition comes from Melinda Gates who puts it very simply. “Philanthropy is not about the money. It’s about using whatever resources you have at your fingertips and applying them to improving the world.”
I love this definition because it decouples philanthropy from being all about money. It reinforces the idea that we all have something valuable to give that can make the world a better place. So let’s cover all the tools that each of us has at our disposal to drive real social and environmental impact.
Donate to charity
Let's get the least original one out of the way first. Despite how common charitable giving is, it is still not well understood by the public at large. I often see people making charitable gifts that fail to maximize their tax benefits. People are also often confused about which organizations to support. Anyone can cut a cheque to a charity, but there's a lot to learn if you want to maximize the impact on every dollar you give.
For instance, let's consider taxation. Maximizing tax efficiency is important because it allows a donor to give more. The government creates these incentives precisely so that we can give more. You should never feel bad taking advantage of legal tax breaks.
The trouble is, the tax code is complex and is constantly evolving. These two facts are what lead so many donors to leave a lot of tax savings on the table. For instance, there can be different tax credits available at various donation amounts. So, knowing the breakpoints for those tax credits is helpful.
Also, few people realize that there are more tax-efficient ways to give away more than handing over a cheque. Donating investments (such as stocks or mutual funds) with unrealized capital gains can lead to bigger tax savings. And donating a life insurance policy that you no longer require can be also incredibly tax efficient. But life insurance strategies can be fairly complex so this is an area where you should look for professional advice. Just keep in mind, most financial advisors do not know much about this field. Search for a financial planner who has experience and certifications in "gift planning".
While tax efficiency is important, so too is supporting organizations that do good work. Giving to charity should come from the heart, but getting our head involved can help amp up our impact. The trouble is, with the shockingly large number of charities around, picking one can be tough. Paralysis by analysis stops many people in their tracks.
"The most common misconception I see is donors looking for charities that give 100% of every dollar to people in need."
Worse yet, many people with good intentions look at the wrong metrics. The most common misconception I see is donors looking for charities that give 100% of every dollar to people in need. The idea being that charities with low overhead are more impactful. On the surface this makes sense but it is a deeply flawed idea for two reasons. First, it costs money to solve social and environmental problems. Even kids running a bake sale at their school incur some costs in the process.
What's more, some charities inherently require more overhead. For instance, a local youth group providing mentoring to inner-city girls and boys should have much lower overhead rates than a large multi-national humanitarian organization installing wells in countries throughout sub-Saharan Africa.
In the for-profit world, we all recognize that oil exploration companies have much higher overhead costs than a local bakery. Stock investors realize the profit margins are lower in certain industries. So why do we expect charities to be any different?
On the bright side, new tools exist today to make charitable giving easier and more impactful. One great example is donor-advised funds (DAFs). DAFs allow ordinary Canadians to set up their own family foundation without needing millions of dollars to do it. For instance, my wife and I recently set up the Melani & David O’Leary Foundation with the Toronto Foundation. We donated $5k up-front and received a tax credit for that amount. Our funds then get invested in a diversified portfolio of securities that grow over time. In exchange for the tax benefit, the $5,000 must remain in the DAF and we must give away at least 3.5% of its value to charity each year. We can also contribute more to our DAF in future years if we wish.
What excites me about this approach is that it forces us to think each year about the organizations and causes we want to support. It also gives us an opportunity to involve our daughters in the process. Each year we can sit down with them to discuss as a family which causes and organizations we want to support. I view this as a great tool to help us instill values in our daughters.
Of course, there are downsides to DAFs, but the advantages make giving to charity his way a good fit for our family.
Other cool ways to do philanthropy
For all the cash-strapped entrepeneurs out there who are working hard getting a startup business off the ground, you can consider pledging to give away a small percentage (say 1%) of your equity in the business to charity through a cool organization like The Upside Foundation. If and when you eventually successfully exit your startup or experience a liquidity event, your shares will be valued and donated to a cause of your choice. As the name suggests, your giving away a little of the upside in your business.
Another great approach is to take part in a giving circle. A giving circle involves a group of people pooling their donations and deciding together which organizations to support. This communal approach allows donors to learn from one another and make a bigger collective impact. While giving circles aren't new, they are becoming increasingly popular as today’s donor becomes more active in the giving process.
Conscious Consumerism
Practicing conscious consumerism involves choosing where to spend your money based on the impact it can have. And whether you know it or not, you're probably already doing it. If you've ever decided to buy from a local small business over buying something off Amazon, you've engaged in conscious consumerism.
Many consumers are choosing to support companies that share their values and stand up for issues they believe in. According to a recent study by Accenture (To Affinity and Beyond, 2019) 62% of consumers choose to buy from brands that have ethical values and show authenticity in all their actions.
"Management of the company cited social activism as the primary reason for the disastrous results"
For my part, I am happy to pay more for my coffee if it means the beans could be ethically sourced. And I'm unlikely to buy a t-shirt that seems too cheap because it makes me wonder whether it was made so cheap off the back of slave labour?
As the Accenture study suggests, most of us want to buy from companies that operate responsibly. We want the companies we buy from to treat their employees well and be environmentally friendly. And we'll stop spending money with companies that don't act right.
Furthermore, we'll consider the impact that our purchases have on the world. For instance, in 2018 gun manufacturer Smith & Wesson reported earnings that were down 70% over the previous year. Management of the company cited social activism as the primary reason for the disastrous results. Conscious consumerism is the reason giant companies like Starbucks are racing to get rid of plastic straws from their stores and improve the diversity of their management teams.
Companies are getting the message loud and clear. In 2019, I attended a conference called the Sustainable Brands conference in Vancouver. Hundreds of the world's largest brands (from Coca-Cola to Nestle) gathered to learn how to infuse a set of values into their businesses.
Nike gave us a spectacular example of this when they launched the Colin Kaepernick ad. Sadly, Kaepernick's calls for racial equity were and still are a divisive issue in the United States. At the time, industry commentators and investors were nervous about the company taking this stance. Soon after the ad launched, unhappy consumers took to social media posting videos showing them burning their apparel or cutting out their Nike swooshes.
Yet other consumers applauded the move and expressed their support by buying more Nike goods. I remember my wife calling me the day the ad launched telling me she had bought new shoes even though she wasn't in desperate need of new shoes at the time. A year after the ad launched, it was clear the move had paid off as Nike sales had increased 31% earning the firm $6 billion.
But purchasing more from responsible consumers isn't the only strategy. Conscious consumerism can involve reducing our consumption altogether. The manufacture of goods and delivery of services come at an environmental cost no matter how responsibly it is done. And certain goods and services take a bigger toll than others.
Consider children's toys. The plastic and cardboard created and disposed of is harmful to the planet. Carbon emissions in the manufacturing process and the resources consumed in the disposal or recycling process are environmentally costly. The same goes for clothes.
To reduce our carbon footprint, my wife and I get 90% of our kids' clothes and toys second hand. Given how
quickly they go through toys and clothes, it feels like a good place to buy second hand. My wife has become an expert on Facebook Marketplace and the many local buy/sell groups there. We not only save a ton of money but feel a lot better about the environmental impact.
Individually your dollars may feel insignificant but don’t let anyone tell you that your money and words don’t matter. Together, with others, our spending choices can change the world.
Social Enterprise
For those of us who want to get our hands dirty and get into the fight for a social cause, there are more than a few options available. The most obvious options are to volunteer with or go work for a charity. If you were really ambitious, you could start your own charity.
Today, we recognize that a non-profit model is not the only way to solve serious societal challenges. There is increasing recognition that we can solve these problems while making a profit. We call these not-just-for-profit businesses social enterprises.
"A social enterprise is not a legal structure."
To qualify as a social enterprise, a business must deliver a positive impact that is both intentional and measurable. This stands in stark contrast to the established view today that was popularized by Milton Friedman. Milton Friedman was a conservative economist who argued that a business should only concern itself with "maximizing shareholder value".
If you’re entrepreneurial, starting a social enterprise can be a great way to make a big impact. It's the reason I started Kind Wealth. I wanted to help extend affordable, unbiased, financial advice to underserved Canadians. The more successful Kind Wealth is, the more underserved Canadians who will become financially secure.
I didn't think a charitable model would work for Kind Wealth since we needed a sustainable way to afford high quality financial planners. Setting up as a social enterprise allows us to charge a fair price for our services so we can attract talented financial professionals. Whereas in a charitable model, the pressure to raise donations and keep overhead low would make it difficult to afford high quality financial planners. The downside to being a social enterprise is that the lowest income Canadians can't afford our services. There are always trade-offs.
It is worth noting that the term “social enterprise” is not a legal structure. And drawing hard lines can be blurry. Still, there is a meaningful difference between a socially responsible business and a true social enterprise.
Ben and Jerry's is a great example of a socially responsible business. The founders think carefully about how they treat staff and source ingredients. They also use their fame and business resources to stand up for issues they care about. At the end of the day though, the business makes ice-cream. Sure ice-cream makes us happy but ice-cream making won't solve complex problems.
On the other hand, a business dedicated to solving climate change by inventing technologies that can remove carbon from the atmosphere are more likely to be considered a social enterprise. One litmus test I suggest, if you're unsure, is to see whether a business has a Theory of Change (TOC). A Theory of Change is essentially a mapping out of the logic of how your business addresses the key issues in solving a challenge.
Investing with your values
If starting a business isn’t your jam, you could always invest in social enterprises instead of starting one yourself. This practice is known as impact investing.
Unless you’ve been living under a rock, you’ve probably heard of impact investing or related terms like ESG investing or socially responsible investing (SRI). For simplicity we'll group them all under an umbrella term called responsible investing. Each shares in common an attempt to make a positive impact on the world through our investments.
While these terms may be new, people have been investing according to their values for a very long time. Religious institutions may be the best known responsible investors. Many churches have long refused to invest in industries that conflict with their beliefs. This has included divesting of companies involved in pornography, gambling, weapons, or alcohol. Today, responsible investing is becoming mainstream.
By the way, if you’re wondering whether your investments can make a difference in the world, consider this. Research done by CoPower argues that the investments you own do far more damage to the environment than actions like driving a car or eating red meat.
Also, BlackRock (one of the world's largest money managers) recently announced it would begin offering gun-free investment products. This move essentially boiled down to the fact that many investors didn’t want any gun manufacturers in their portfolios. So, altering our investment portfolios can have a huge impact on the world around us.
To help make sense of the alphabet soup of terms, here’s a quick breakdown of how to delineate these terms.
ESG (Environmental, Social, Governance) Investing
ESG investing is the approach that is most closely related to traditional investing. In fact, you may own ESG investments without knowing it. Many mutual funds and exchange-traded funds (ETFs) use ESG investment strategies.
ESG investing involves adding environmental, social, and governance criteria to your investment due diligence. For instance, let’s say you’re considering buying stock Nike. Your traditional due diligence might look at the firm’s financial performance, balance sheet strength, growth projections, competitive analysis, and a host of other factors.
"Ensuring your employees are happy may may cost a little more in the short run but will lead to more productive staff who stay at the company longer."
ESG investing layers in ESG considerations like how well Nike treats its employees, how well it disposes of its waste, or how diverse its executive leadership team is. In decades past, investors believed that doing the right thing hurt a company’s profitability.
Today, that fallacy has been exposed. Ensuring your employees are happy may may cost a little more in the short run but will lead to more productive staff who stay at the company longer. A company that cleans up its messes, may pay more in the short run to do so. But, this may also help them avoid a potential lawsuit down the road.
Furthermore, a responsible company will enjoy a better relationship with the people who live in the communities where it operates. Avoiding the negative PR associated with community protests saves a company a fortune.
Socially Responsible Investing (SRI)
Socially responsible investing is closely related to ESG investing, but it pushes the bar further. In the case of ESG investing, we're trying to improve the impact of our portfolio while trying to maximize our returns. We do our best to find the best companies so long as we can still maximize our returns.
In the case of SRI investing, we want to maximize our returns but not at the cost of compromising our values. In other words, an SRI investor wants to maximize their return as long as it can be done without compromising their ethics.
This leads to a variety of strategies an SRI investor can use. These include:
Negative screens (I don’t want to include any weapons manufacturers in my portfolio)
Positive screens (I want to own companies with the highest environmental standards)
Thematic investing (I want to invest in “clean energy” companies because it is good for the planet and it will be very profitable).
To help us make sense of the responsible investment landscape, there are certifications that can help. The B Corp movement, for instance, offers a rigorous assessment and certification standards for social and environmental responsibility.
Companies that receive the B Corp Certification have thought through a wide range of issues. Another way to think of it is, a B Corp is to business what Fair Trade certification is to coffee.
Impact Investing
If SRI and ESG investing are sisters, then impact investing is a distant cousin. As discussed above, a social enterprise isn’t a regular for-profit business. It is a business started to solve a social or environmental challenge. It sets impact goals and KPIs and strives to maximize its impact in the same way most businesses try to maximize profit.
Impact investing might include investing in a solar bond; a bond that exists to speed up the world’s transition to a low carbon economy. Issuers of solar bonds raise money from investors to finance solar panels that will generate electricity. This electricity is then sold on long term contracts. Investors are then paid back from this revenue.
Or, one might invest in a fund that provides loans to students in developing countries who can't afford post-secondary education. Once they find work after graduation, they begin repaying their loans as a percentage of their employment income.
If you’re interested in taking big risks, you can practice a type of impact investing called Venture Philanthropy. Venture philanthropy involves investing in the highest risk social enterprises that, if successful, would have a radical impact. This could involve financing companies trying to create new clean technologies that are unproven but if successful could provide clean energy at much lower prices than solar or wind energy and replace our demand for fossil fuels.
"Fear not though, all is not lost. There are ways to exert influence still even when you do not have huge sums of capital."
Impact investing is the newest kid on the block and is still small (roughly $500 billion globally) compared to ESG investing ($40 trillion globally). Yet, impact investing is a growing and rapidly maturing field. One might even say that its level of sophistication is outpacing its asset growth. Lots of weird and wonderful new concepts are being born from impact investing.
For instance, a new investment structure called the Social Impact Bond and the field of Blended Finance are great examples of the creativity and innovation happening. If you want to learn more about impact investing, make sure to tune into The Impact Investing Podcast wherever you listen to podcasts.
Shareholder Activism
When you invest in a stock, you become an owner of the business. As an owner you have certain rights and enjoy a level of influence over the business. As a stock investor you only own a fraction of the business. So you don't get a say in the day to day business decisions. And your say is limited.
However, the bigger the fraction of the business you own, the more influence you have. That's because selling a large volume of shares increases supply in the market which lowers the stock price. The other owners and the CEO and other C-suite executives (who also own a lot of stock) do not want to see the stock price fall. If a large enough shareholder has concerns about the business, they will get an audience.
Deliberately exercising your ownership rights (many investors do not) and engaging with the company to act more responsibly is called Shareholder Activism or Engagement.
For instance, if a company you own, is entirely run by white men, you could engage with the company to address your concern. You could propose they adopt a diversity and inclusion (D&I) policy to change this. Or, you might engage leadership to adopt carbon emission reduction targets.
As an individual investor, most of us do not own enough of a business to have much influence over it. That's why so few investors actually engage with the companies they own. They feel like their say doesn't matter. Small investors can attend annual shareholder meetings. But these meetings can have thousands of attendees and leave room for only a handful of audience questions.
Fear not though, all is not lost. There are ways to exert influence still even when you do not have huge sums of capital. For instance, many of us work for companies where we are members of a pension plan. The assets in these pension plans are some of the largest pools of capital in the world. And they are run for our benefit. So we get a say in how they are managed.
This means you may have the ability to engage your employer and the investment manager responsible for investing your pension assets. And you can let them know if you're unhappy with investments they've made that you think are harmful to people or the planet.
Of course, again the issue here is that you need some critical mass. A pension manager can't take phone calls from every pensioner with an opinion about their investment choices. However, get enough pensioners to speak up, and the pension managers can't ignore you.
This leaves the door open for employees pension activism. Anyone passionate and dedicated can attempt to educate, motivate, and organize fellow staff to use their collective voices to effect positive change.
As the incredible impact investor Morgan Simon recounts vividly in her book, Real Impact, as a student activist at Swarthmore College Simon fought for a variety of social and environmental issues she was passionate about.
According to Simon:
“Swarthmore, like any large institution, had its money invested just about everywhere. Investments in a typical endowment or pension fund at a large institution like a university or union might include things like private prisons, oil and gas, military contractors, and harmful pesticides. These investments might be completely contrary to the values held by the people for whom the money is supposedly being invested, and they are often made without the supposed beneficiaries’ knowledge or influence. Once I learned about this, as sort of a run-of-the-mill activist who supported a variety of causes, I was no longer content to fight for fair-trade coffee in the cafeteria, or sweatshop-free shirts in the student store … to grossly oversimplify: Would you prefer to try to influence $10,000 of spending, or $1 billion of investments?”
Realizing this Simon joined the school’s Committee on Socially Responsible Investment. After joining the committee she became aware of the sizable investment the school had in Lockheed Martin; a firm with a track record of discriminating against the LGBTQ community. She proposed that the committee file a shareholder resolution with Lockheed Martin asking the firm to add sexual orientation to its non-discrimination policy. The book goes on to detail Simon's successful shareholder activism journey. Not a small accomplishment given she was engaging one of the world’s largest aerospace and defense companies.
BONUS: Non-Financial Capital
If the above example didn’t make it clear already, even if you don’t control a lot of money, you have the ability to make a positive impact! We all have something to give.
In addition to everything above, you can also use your non-financial capital. This can include volunteering your time handing out hot meals at a local shelter. It can also include offering any knowledge or expertise (intellectual capital) you may have. Doctors Without Borders was founded on this principle. It allows doctors to volunteer their time abroad treating vulnerable people in the Gloal South.
But you don’t have to be a doctor or another professional to donate intellectual capital. Maybe you’re a digital marketing professional or a creative who knows how to make great content. Volunteering that expertise for a small charity in your community would be a huge benefit.
You also have relationships with other people. The more relationships you have and the stronger they are, the bigger the asset you have. We refer to this as social capital. Some of us have more of it than others. But whether you’re a public figure with millions of social media followers or simply someone with a close group of friends and family, there are people in your life who you can turn to for help and whose thinking you can influence.
If you’re able to catalyze a group of people to speak up and take action, this can have a tremendous positive impact.
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