Jan 22, 2018
Philanthrocapitalism provides profits with a feel-good factor, writes Deborah Tarrant.
Andrew and Nicola Forrest stole Australia’s 2017 philanthropic show when they announced the allocation of $400 million to address several social objectives, including eliminating deadly cancers and slavery and ending disadvantage for Indigenous Australians. The mining magnate said the couple had determined, “If we ever got to the point where we could afford to, we would put that wealth to the highest social use.”
This donation ranks the Forrests with other big-bucks contributors Bill Gates and Mark Zuckerberg – highly engaged philanthrocapitalists (aka social investors, impact investors, social entrepreneurs and venture philanthropists) applying hard-nosed business approaches to seemingly intractable issues and wanting social or environmental and financial returns.
In Australia, the for-profit approach has begun to go mainstream. Former Macquarie banker Michael Traill and Mission Australia chief Toby Hall successfully convened the public, private and not-for-profit sectors to form Goodstart Early Learning in the wake of the 2008 ABC Learning bankruptcy. Former banker Audette Exel funds Adara, a development group working mainly in Uganda and Nepal, with her financial advisory business.
“We’re starting to see quite delicious opportunities emerge and I think we need more,” says Philanthropy Australia CEO Sarah Davies, who points to a battery of philanthropic business models and financial products, such as social loans, social impact bonds and climate bonds. In this field, philanthropists can exercise their risk-taking and innovation muscles. “Government or corporate money comes with sticky notes around risk mitigation for taxpayers or shareholders and employees or to meet customer expectations, whereas the philanthropic dollar is unshackled,” says Davies.
Nev Hyman, the founder of Firewire Surfboards, spotted this. Appalled by the ocean’s plastic-waste problem, he formed NevHouse after discovering that high volumes of plastic could be repurposed into affordable construction materials. Following Cyclone Pam in 2015, NevHouse was mandated by the prime minister of Vanuatu to supply 40,000 modular homes and buildings engineered to meet Category 5 cyclone standards. To date, one community has been rebuilt, including a medical clinic and three school classrooms. “Every house uses up to three tonnes of plastic,” says Hyman.
Philanthrocapitalism presented exciting prospects for Hyman – who’d corralled 142 investors for his startup – when he was approached by a Luxembourg group with the suggestion of raising capital via a Reserved Alternative Investment Fund (RAIF). Launched early last year, the Nev EarthFund is raising $US195 million (about $256 million) to build its first six production facilities. “Ninety-eight per cent of the funds will be used to invest in social, humanitarian and green good,” says Hyman. “But it’s for-profit so it’s sustainable.” He says the message has proved “an easy sell” with investors, who anticipate an estimated eight per cent annual return over a five-year term.
But not everyone is convinced. Some critics argue that philanthrocapitalism is self-serving, branding or a tax dodge. Others question the wisdom of wealthy people wielding such social influence.
“Philanthropy, by definition, is undemocratic,” says Davies, noting the irony of capitalism’s market failure spawning much of the disadvantage and environmental degradation it’s now trying to solve. “Enlightened self-interest is an important motivator. If individuals, corporations and others are benefiting, it means they’re likely to keep doing it. If we’re getting the right outcomes, why complain about a win-win?”