Taking philanthrocapitalism’s pulse

Ensuring that giving has a real impact lies at the heart of philanthrocapitalism. And finding robust ways to demonstrate that impact is being achieved is one of philanthrocapitalism’s biggest challenges. Some innovative work-in-progress on this task, including a new philanthropic portfolio management tool called “Pulse”, was discussed yesterday at a breakfast hosted by Acumen Fund, which Matthew attended.

Acumen is itself a fascinating philanthrocapitalistic creation, as we discuss in the book. It takes philanthropic gifts, including from firms such as Google, and invests the money in (typically) for-profit firms that it thinks have the potential to “reach the poor on a large scale”. Any profits are reinvested, not handed back to donors, in a process that it describes as “using the flexible capital of philanthropy and the rigour of the marketplace.” To watch a recent video of Matthew interviewing the founder of Acumen, Jacqueline Novogratz, click here.

When deciding whether to invest, Acumen has long made use of an approach called BACO, which stands for the “best available charitable alternative”. This asks, would a proposed (for-profit) investment reach the poor more effectively than using a traditional charity? It then monitors the progress of its investments using a pragmatic approach it calls “cost-effective cost-effectiveness”.

Its new innovation for “taking the pulse” of its investments uses a portfolio approach. The idea is to use a relatively standard set of metrics, for financial and social impact, to judge how its investments are performing relative to each other, which in turn should make it easier to decide how best to allocate its scarce capital between these different investments. Sometime next year, it plans to launch a version of Pulse, which it has developed with partners such as Google and (two firms whose philanthropy we discuss in the book), that will allow comparison of investment performance across the portfolios of many social investors.

As Acumen readily admits, these are early days, and there is a long way to go. Currently, there is almost no standardization of what is measured and reported by the sort of non-profits and for-profits that philanthrocapitalists back. Although the end goal is to compare apples and oranges in a meaningful way, today it is tricky even to compare apples with apples. And standardizing financial data and reporting will be much easier than doing so with social impact reporting. Yet the experience of microfinance is encouraging; as the microfinance industry started to report its performance in a transparent way, reflecting increasingly settled industry standards, it had much more success attracting investment from the for-profit capital markets.

This is one of several such initiatives – and hopefully everyone focused on this measurement problem is talking to each other to avoid unnecessary duplication or the emergence of too many rival standards. Though there is unlikely to be a single social performance measure akin to profit any time soon, if ever, reaching broad agreement on basic standards for reporting some core performance metrics would be a big step forward for philanthrocapitalism.