Contributing Author

Transforming from a Charity Approach to a Social Investment Mindset

This is a guest blog by Jim Gibbons, the president & CEO of Goodwill Industries International. Jim sat down with Kim Meredith at the 2014 Collaborative in San Diego to discuss the topic below.

Years ago, corporations were all about “business development” and the social sector was all about ‘the art and science of fundraising.’ But the landscape has changed – today, corporations want a mission, and nonprofits want earned revenue. The social sector has been the fastest growing part of the economy in the most recent three years, and Goodwill Industries has been a leader in that space.

A 2012 report by Stanford University set out to look at trends in charitable giving during times of economic hardship. Among the report’s key findings was that total giving by Americans fell 7 percent in 2008 and another 6 percent in 2009 before a slight recovery in 2010. At the same time, researchers found donors were targeting their giving toward causes addressing poverty.

I mention these findings because it is clear to me, as it should be to you as well, that we don’t operate in a vacuum. As organizations striving to create social impact, we can only offer services to the extent that we have the resources and capital that will allow us to carry out our operations.

For many nonprofits, the key source of that capital has long been private donations from foundations, family trusts or individual donors. As nonprofits, we operate for the well-being of others. Those who believe in the causes we address support our efforts for intrinsic reasons. This basic relationship has worked well for many, many years.

Goodwill Industries International, the social enterprise with which I serve, was begun in 1902 by Rev. Edgar Helms, who collected used household goods and clothing from the wealthy. He then hired and trained people in need of a hand up to repair or mend the donated items which were sold to the general public. The model today remains much the same: money raised from the sale of donated items goes to fund skills training, job placement and community strengthening services, such as financial literacy and youth mentoring, around the world while simultaneously leveraging our business infrastructure to create jobs and deliver on mission.

We are well established with a charity mindset, resulting in personal intrinsic rewards that come from giving. In a challenged economy, as we expect results for our contributions, and as greater transparency into organizations evolve, we will shift our mindsets to a social investment perspective.

But as the Stanford report I cited makes clear, nonprofit donations are subject to change, particularly as the economy ebbs and flows. The financial downturn of recent years has had a twofold effect on nonprofits, foundations and other organizations: a decrease in our traditional revenue streams and an increase in need for our services, particularly services that help people in financial need. The result is that nonprofits have had to look to new models to fund their services.

One new model in particular has been gaining traction: social investment. It’s a concept that has roots across many cultures and has grown in popularity in the United Kingdom. Loosely defined, social investment is when capital is employed with an expectation of both economic and social returns. It is seen by some as perhaps the best way to create positive social change through market forces. One market segment, known as socially responsible investment, invests money in companies that agree to stick to a set of operating principles for social impact.

While it has primarily grown out of the corporate world, social investment has applications in philanthropy as well. London’s Charities Aid Foundation says social investment is an increasingly popular way to support nonprofits and have a social impact. Nonprofits often need loans to help them develop new income streams or as working capital; for example, cash flow may be needed for a project that is being funded based on performance, performance which will take time and for which the nonprofit won’t be paid until impact is achieved. These loans are often too risky for a bank to make, which is why it is really important that social investment funds can offer them.

I see this trend of social impact investment becoming a more relevant option in communities that need rapid social progress. Together, we must all advance from the traditional charitable giving approach to a social investment mindset.

This change of mindset is a long continuum where we have plenty of opportunity to develop. Currently, we are well established with a charity mindset resulting in personal intrinsic rewards that come from giving. In a challenged economy, as we as individuals and collectively as a society expect results for our contributions, and as greater transparency into organizations evolve, we will shift our mindsets to a social investment perspective. Intrinsic and extrinsic rewards will be gained by donors, investors and society.

Photo credit: Flickr user CGIAR Climate

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