Financial Vehicles

Force Multipliers for Moving Capital to Impact  

The most recent Annual Meeting of the Microsoft Corporation was held in December 2023 and one of the most fascinating aspects of the presentation and question-and-answer period was the time allocated to discussion regarding the limitations of the free market

Microsoft is the world’s most valuable company with a market cap of $3.041T as of March 2024. The most recent Annual Meeting of the Microsoft Corporation was held in December 2023 and one of the most fascinating aspects of the presentation and question-and-answer period was the time allocated to discussion regarding the limitations of the free market, with a Microsoft executive explaining  that “it doesn’t reach all”, and that “the force multiplier for Microsoft” to empower technical skills and education is not market-based but dependent upon teachers and schools, international nongovernmental organizations, the United Nations (UN) particularly UNICEF, and nonprofit/volunteer organizations.  

The north American ecosystem is replete interpretations of how for-profit entities and civil society working together towards the greater good, as so beautifully captured by Eric Saarvala, MBA, CSR-P, G. Dipl. SR&S in The Semantics of Corporate Social Responsibility (CSR), Social Purpose and Sustainability.  

At the same time the growing and evolving phenomenon of impact investing in North America is amplified through the adoption of the tri-sector approach, with government adopting a social investment and social finance strategy, philanthropists and ultra-high net worth individuals adopting impact investing, and corporations (spurred on by shareholder activism) and business owners, deploying creative financial structures and vehicles.  

Nowhere in the world is the concept of moving capital towards impact more dynamic than in Asia, with the epicenter in Singapore, where the concept of Government-Linked Investment Companies (GLIC’s) or Government Linked Corporations (GLC’s) in partnership with the social investment network are addressing increasing inequality and multi-dimensional poverty in many countries.  

In 2014, India became the first country in the world to legislate corporate social responsibility for companies with an average net profit of at least fifty million rupees (approximately USD $816,000) over three consecutive years, requiring them to spend at least 2% of their three-year annual average net profit on CSR initiatives 

Japan is driving the development of pay for success models to leverage government spending to attract philanthropic and private capital. In 2020, Japan was the third largest issuer of Social Impact Bonds (SIBs) worldwide, issuing a total of USD $8.3 million worth of SIBs.  

Doubling down on its “common prosperity” approach, China is driving policy changes across the three resource distribution layers of market mechanisms, taxation and fiscal transfers, and charity and philanthropy. Paired with the Charity Law that came into force in 2016, corporate, philanthropic, and individual giving has soared in recent years. 

Transforming the Indonesian economy is National Petroleum Limited, commonly known as Petronas, a global Malaysian energy group with a presence in over 100 countries. Established in 1974, it is a legal entity incorporated under the Malaysian Companies Act. The corporation is vested with all oil and gas resources in Malaysia and is entrusted with the responsibility of developing and adding value to these resources.  

In the annual Fortune Global 500 list for 2022, Petronas was ranked at 216th. It also ranked 48th globally in the 2020 Bentley Infrastructure 500. The Financial Times has identified Petronas as one of the “new seven sisters”, considered to be influential and mainly state-owned national oil and gas companies from countries outside the OECD. 

Petronas provides a substantial source of income for the Malaysian government, accounting for more than 15% of the government’s revenue from 2015 to 2020.  

Petronas bestows educational sponsorships in the form of convertible loans upon both Malaysian and international students, facilitating their pursuit of higher education at local or overseas universities.  

Upon successful completion of their tertiary studies, scholars absorbed into Petronas have their convertible loans transformed into comprehensive scholarships. These scholars are contractually obliged to serve the company for a period of two years for each year of sponsorship.  

Petronas has its own research university, Universiti Teknologi Petronas (UTP), built in 1997 and located in Seri Iskandar, Perak. 

The gold standard of public foundations is Temasek Holdings, Singapore’s sovereign wealth fund, which has committed or SGD 2 billion of its portfolio to community support. The Temasek Foundation, one of the philanthropic arms has deployed more than SGD 791 million to date. Yet another arm, Philanthropy Asia Alliance, creates multi-sector partnerships across the world as a force for good, fostering innovation, driving momentum and scaling impact.  

The Secret Sauce (Abridged) 

Asia Venture Philanthropy Network (AVPN) is a unique funders’ network based in Singapore committed to building a vibrant and high impact social investment community across Asia. As an advocate, capacity builder, and platform that cuts across private, public, and social sectors, AVPN embraces all types of engagement to improve the effectiveness of members across the Asia-Pacific region.  

The core mission of AVPN is to increase the flow of financial, human, and intellectual capital to the social sector by connecting and empowering key stakeholders from funders to the social purpose organisations they support. With over 600 members across 32 countries, AVPN is catalysing the movement towards a more strategic, collaborative, and outcome-focused approach to social investing, ensuring that resources are deployed as effectively as possible to address key social challenges facing Asia today and in the future. 

What follows are the top-line components to move capital to impact captured in an amazing Philanthropy Handbook developed by AVPN.   

Multi-Disciplinary Networks and Collaboration  

Globally impact organizations continue to expand in size and shape from charities to ground-up initiatives and for-profit organizations, reinforced by the UN Sustainable Development Goals (SDG’s), which are premised on all sectors of society contributing to solutions – not just government but business, civil society, academics, media and crucially philanthropy.  

Collaborations can take many shapes, ranging from the informal and unstructured exchange of knowledge to the formally structured long-term pooling of resources. Examples of formalised collaborations include pooled funds, giving circles, and multi-stakeholder partnerships.  

A multidisciplinary approach can accomplish more in addressing complex social issues where there is no silver bullet. Where relevant, teams engage data managers/researchers, technology experts and players in other disciplines to assess working hypotheses, validate assumptions or prototype/iterate interventions and help program partners refine strategies and plans. 

Collaboration and partnership are key to understand the issues more holistically, to develop a working hypothesis of what could make a meaningful difference, undergirding the work in curating, designing and/or supporting different programs and research projects. 

Blended Finance  

Blended finance is the use of catalytic capital from public or philanthropic sources to increase private sector investment in sustainable development. It is a structuring approach that allows actors from the private and public sector to work alongside while pursuing different objectives. Actors’ objectives can include financial return, social impact, or a blend of both. 

Public or philanthropic capital acts as a catalyst to attract and enable private sector investment by accepting disproportionate risk or concessionary returns. 

An example is Social Impact Guarantee (SIG): SIGs are results-based financing mechanisms that allow donors to ensure that their donation achieves the intended social impact, failing which a portion of funding is returned or recycled. SIGs are a subset of Pay for Success (PFS) funding structures, an outcomes-based, ‘cash-on-delivery’ model for achieving social impact. Besides SIGs, PFS models also encompass Social Impact Bonds (SIBs) and Development Impact Bonds (DIBs) which provide bridge financing while the results of the program are being determined.  

Accountability through Data-Driven Assessments 

Assessment is only as good as the quality of the data collected. Best practice is to develop a Monitoring and Evaluation (M&E) framework or work with knowledge partners and impact assessment professionals, to align this framework to global standards, such as the Impact Management Project’s (IMP) Five Dimensions of Impact or the SDG targets and indicators, to assure reporting reflects global conversations. 

Researching the systems programs operate within, working directly with impact organisations, conducting in-depth field scans to ensure programs are relevant, adopting human-centered and co-designed program development principles to monitor closely to learn, yet not to control, helps grantees to measure the reach and outcomes of programs and where necessary provide grantees additional technical assistance and capacity-building support for performance management and measurement.  

Close monitoring enables changes to be made that can enhance the design of future iterations of the program based on lessons learned.  

A fascinating organization with offices throughout the region, supporting this work is the Center for Evidence and Implementation.   

Embracing an approach of continual review and regular course-correcting is essential for the next components, innovate, amplify, and scale. 

Innovate, Amplify and Scale  

The entrepreneurial approach to moving capital to impact applied so successfully in Asia can be captured in three words, innovate, amplify, and scale.  

Impactful giving supports initiatives that address the social challenges of our generation. Beyond a data-driven mindset and approach, two cornerstones underlie an effective giving strategy, deepening an understanding of the underlying issues of social challenges and the local operating environment, and identifying innovative ideas and programs with potential for scalability and long-lasting social impact.  

To be evidence-informed, willing to take on calculated risks with innovative and untested approaches, not deterred from supporting bold ideas with some risk of failure, especially if the outcome is potentially transformative is the key to amplify, and scale impact. 

Scaling through depth involves increasing the reach of a specific programme or initiative, for example by partnering with policy makers and regional governments.  

Scaling in breadth entails widening the application of the same program or initiative across different geographies or thematic areas.  

Collaboration is the most cost-effective approach to scale. Pooling capital, talent, and resources with others with similar interests allows leverage of skills and networks, creating larger resonance for the work. 

Next Steps? 

Force multipliers abound, opportunities for moving capital towards impact are in our hands. The world awaits.  

S. Sutton & Associates Inc. is a global network of consultants providing customized Innovation Teams of subject experts with specific technical expertise to help nonprofit organizations and philanthropists maximize their philanthropic efforts and achieve significant impact.  

We are poised to partner and collaborate to help you realize your philanthropic potential. Complimentary consultations are available or contact us directly for an exploratory conversation.     

All good wishes for an impactful 2024! 

Susan Sutton 

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