The philanthropic sector has been pushed into the public eye of late, mostly due to a poor understanding of the sector. Some are questioning the legitimacy of the sector; whether private money should be used to change the landscape of society or even for political purposes. This has been seen in numerous countries where organisations receiving grants from foreign funders are coming under pressure, with the issue also raised in the European Parliament. This question of legitimacy comes from a number of sources. On the one hand, some believe this money should not benefit from tax breaks and instead governments should decide on where this money should be diverted to. On the other hand, there are some who wish to discourage values that are not aligned with their own and therefore decrease pluralism in society.
EuroPhilantopics 2017 was ‘off the record’, hence what follows gives a general feeling of the conversations and messages.
How to address bank derisking – engage policy makers and banks
More and more philanthropic actors face difficulties in transferring funds into certain parts of the world and there is widespread recognition that financial institutions are reluctant to provide financial services to parts of the non-profit sector (so called bank derisking). Policymakers even identify bank derisking as a development that introduces more risks for abuse if potentially the non-profit sector starts using less-formal channels etc.
- 2/3 of non-profits have experienced issues with banks transferring (much needed and often emergency) funds not only to high-risk countries but also others around the world including within the EU.
- It is primarily a problem for small NGOs
- Difficulties often lead to a withdrawal from a target country leaving the gate open for illicit and unregulated transfers which are far more prone to misuse
- Banks deem NGOs high-risk by default, and even more so since 9/11
- Banks are obliged to respect legal sanctions, but their appetite for risk is also diminished as investigating risk costs time and money
- There is a need and willingness to bring all parties to the table to find a solution – non-profits, banks (at executive level), as well as interlocutors such as the World Bank and the European Commission. All sides need to better understand the others’ point of view.
Legitimacy of the philanthropic sector: a view from the outside
Recent articles in the media have cast a critical eye on philanthropic organisations who fund both NGOs and international organisations putting the issues of legitimacy, influence and transparency in the sector under the spotlight.
- Institutional Philanthropy Organisations (IPO) are part of the civil society ecosystem – full stop.
- The world is changing rapidly and new, innovative ways of collaborating are needed as well as new methods for showing transparency.
- IPOs bring more than just the chequebook, and want to help strategise with other parts of civil society as partners.
- Any organisation engaged in lobbying should be held to the same standards – if you expect state support then expect to be asked for high standards of transparency.
- The third sector is full of confused terminology which doesn’t help with its transparency, where poorly chosen terms are causing misconceptions and wrong assumptions.
- Communication needs to be clearer, and the civil society sector needs to come together to work on this to make sure it is on the front foot when criticisms are levelled at it.
- IPOs shouldn’t be misdirected by those who wish to focus on their ‘dirt spots’ to divert attention away from their own.
Exploring with the European Commission: tools for philanthropic mission related investments
Over the years the European Commission has developed a series of financial instruments, managed by the European Investment Bank. These are aimed at transforming EU resources into financial products such as loans, guarantees, equity and other risk-bearing mechanisms to be used to support economically viable projects which promote EU policy objectives. This discussion explored the possibility of a tool tailored to philanthropy for mission related investments.
- The European Commission (different DGs such as environment/research) are interested to develop tools that could trigger more engagement/investment of private philanthropy towards social businesses also in the form of guaranteeing loans etc.
- Clarification around terms is needed for ‘mission related investments’ and “social investments”.
- There needs to be an assessment of national regulations/laws governing foundations doing social investment and the tools potentially developed by EC
- Creation of a Fund (collated philanthropic money) as an instrument to serve as a guarantee is one option.
- Another model, would be for EIB to issue social bonds which philanthropy can use/buy.
- Negotiation on the period post-2020 has begun, with the vision needing to be communicated by mid-2018. So there are 9 months to discuss new ideas with foundations/philanthropy.
- EFC members who have the experience or who are interested and related actors should help identify the best potential tools and work around the bottlenecks.