Lester Salamon is a pioneer of the study of the nonprofit sector in the U.S., and his book America's Nonprofit Sector: A Primer (Foundation Center, 2012) is standard reading in many college classes. In Leverage for Good: An Introduction to the New Frontiers of Philanthropy and Social Investment (Oxford University Press, 2014) his goal is to "provide a clear and accessible road map to the full range of important new developments taking place on the frontiers of philanthropy and social investment ... and make it possible to maximize the benefits they can generate." Knowing the map can help social/environmental groups leverage these new philanthropic resources, beyond the limited flow of charitable income from foundations and individuals.
He divides this frontier into two major regions: new actors and new tools. These include social impact investment institutions, new grantmaker types, and for-profit financial instruments that are being adapted to social investments.
Salamon divides up the primary actors into three categories: investment institutions, investor supporters, and new types of grantmakers. One type of investment institution is the social impact capital aggregator, a crucial and fast growing type of organization that "assembles capital for ultimate investment in social-purpose organizations."
The Acumen Fund is an example of a nonprofit capital aggregator that supports social entrepreneurs who "provide critical resources at affordable prices to people earning less than four dollars a day." This fund appeals to investors with a low-risk, impact-first orientation. You can identify these types of funders using the descriptor phrase "venture philanthropy fund" in Foundation Directory Online Professional.
Helping these aggregators are investor supporters, or middlemen. For example, enterprise brokers assist capital aggregators in identifying promising social ventures that meet a desired combination of financial and social returns.
New types of grantmakers discussed include conversion foundations, which are formed out of the process of privatizing public assets (see my older post on Health Conversion Foundations), and funding collaboratives such as giving circles.
Chapter Three discusses the tools used to make such philanthropic investments possible. These are not necessarily new to the world, but are new in that they are being used for philanthropy and social investment, in addition to their conventional use in business finance. Loans, fixed-income securities, equity, and bonds are typical examples. Since these are common instruments I will not go into detail about each, but perhaps the key takeaway from this section is that the social sector now has access to funding generated by new, powerful financial mechanisms that were previously limited to the for-profit sector.
Why is This Happening Now?
There are a variety of factors that have created a "perfect storm" that is pushing philanthropy in this new direction. Population growth, income inequality, water shortages, climate change, terrorism, failed states, and other related social/environmental problems have reached a point where they cannot be ignored. Couple this with tapped out charitable/governmental resources, and a rise in social entrepreneurs seeking capital to help solve these issues, and you have created a new space for the inventive, unconventional philanthropy as outlined in this volume.
A New Frontier
The book's final sections include cautionary words about potential obstacles to growth (measuring social impact is one sticking point, "hype" surrounding social impact investing another), as well as recommendations to encourage this type of philanthropy well into the future.
Salamon ends with a quote from Caritas in Veritate, the last encyclical from Pope Benedict XVI, which acknowledged that "the traditionally valid distinction between profit-based companies and non-profit organizations can no longer do full justice to reality, or offer practical direction for the future." Leverage for Good provides a much-needed introduction to the intersection of profit and social good within a new, exciting frontier of philanthropy.
Foundation Center--New York