Updated: Feb 3
What is the first thing you think if I were to ask you how you can make a big social impact? Are you picturing a bunch of wealthy philanthropists at a black-tie fundraising event with an oversized cheque? If so, you're not alone. While this is one aspect of philanthropy, modern philanthropy looks much different. New approaches to impact such as impact investing, shareholder activism, and conscious consumerism are more accessible, more fun, and potentially more impactful than donating. Just keep in mind, I said potentially. Donations are absolutely vital to many organizations fighting for many causes. The good news though is you don't have to pick just one. You can practice them all.
To move forward, I’d like you to reset your definition of philanthropy. My personal favourite definition comes from Melinda Gates who puts it very simply. “Philanthropy is not about the money. It’s about using whatever resources you have at your fingertips and applying them to improving the world.”
I love this definition because it decouples philanthropy from being all about money. It reinforces the idea that we all have something valuable to give that can make the world a better place. So let’s cover all the tools that each of us has at our disposal to drive real social and environmental impact.
Donate to charity
Let's get the least original one out of the way first. Despite how common charitable giving is, it is still not well understood by the public at large. I often see people making charitable gifts that fail to maximize their tax benefits. People are also often confused about which organizations to support. Anyone can cut a cheque to a charity, but there's a lot to learn if you want to maximize the impact on every dollar you give.
For instance, let's consider taxation. Maximizing tax efficiency is important because it allows a donor to give more. The government creates these incentives precisely so that we can give more. You should never feel bad taking advantage of legal tax breaks.
The trouble is, the tax code is complex and is constantly evolving. These two facts are what lead so many donors to leave a lot of tax savings on the table. For instance, there can be different tax credits available at various donation amounts. So, knowing the breakpoints for those tax credits is helpful.
Also, few people realize that there are more tax-efficient ways to give away more than handing over a cheque. Donating investments (such as stocks or mutual funds) with unrealized capital gains can lead to bigger tax savings. And donating a life insurance policy that you no longer require can be also incredibly tax efficient. But life insurance strategies can be fairly complex so this is an area where you should look for professional advice. Just keep in mind, most financial advisors do not know much about this field. Search for a financial planner who has experience and certifications in "gift planning".
While tax efficiency is important, so too is supporting organizations that do good work. Giving to charity should come from the heart, but getting our head involved can help amp up our impact. The trouble is, with the shockingly large number of charities around, picking one can be tough. Paralysis by analysis stops many people in their tracks.
"The most common misconception I see is donors looking for charities that give 100% of every dollar to people in need."
Worse yet, many people with good intentions look at the wrong metrics. The most common misconception I see is donors looking for charities that give 100% of every dollar to people in need. The idea being that charities with low overhead are more impactful. On the surface this makes sense but it is a deeply flawed idea for two reasons. First, it costs money to solve social and environmental problems. Even kids running a bake sale at their school incur some costs in the process.
What's more, some charities inherently require more overhead. For instance, a local youth group providing mentoring to inner-city girls and boys should have much lower overhead rates than a large multi-national humanitarian organization installing wells in countries throughout sub-Saharan Africa.
In the for-profit world, we all recognize that oil exploration companies have much higher overhead costs than a local bakery. Stock investors realize the profit margins are lower in certain industries. So why do we expect charities to be any different?
On the bright side, new tools exist today to make charitable giving easier and more impactful. One great example is donor-advised funds (DAFs). DAFs allow ordinary Canadians to set up their own family foundation without needing millions of dollars to do it. For instance, my wife and I recently set up the Melani & David O’Leary Foundation with the Toronto Foundation. We donated $5k up-front and received a tax credit for that amount. Our funds then get invested in a diversified portfolio of securities that grow over time. In exchange for the tax benefit, the $5,000 must remain in the DAF and we must give away at least 3.5% of its value to charity each year. We can also contribute more to our DAF in future years if we wish.
What excites me about this approach is that it forces us to think each year about the organizations and causes we want to support. It also gives us an opportunity to involve our daughters in the process. Each year we can sit down with them to discuss as a family which causes and organizations we want to support. I view this as a great tool to help us instill values in our daughters.
Of course, there are downsides to DAFs, but the advantages make giving to charity his way a good fit for our family.
Other cool ways to do philanthropy
For all the cash-strapped entrepeneurs out there who are working hard getting a startup business off the ground, you can consider pledging to give away a small percentage (say 1%) of your equity in the business to charity through a cool organization like The Upside Foundation. If and when you eventually successfully exit your startup or experience a liquidity event, your shares will be valued and donated to a cause of your choice. As the name suggests, your giving away a little of the upside in your business.
Another great approach is to take part in a giving circle. A giving circle involves a group of people pooling their donations and deciding together which organizations to support. This communal approach allows donors to learn from one another and make a bigger collective impact. While giving circles aren't new, they are becoming increasingly popular as today’s donor becomes more active in the giving process.
Practicing conscious consumerism involves choosing where to spend your money based on the impact it can have. And whether you know it or not, you're probably already doing it. If you've ever decided to buy from a local small business over buying something off Amazon, you've engaged in conscious consumerism.
Many consumers are choosing to support companies that share their values and stand up for issues they believe in. According to a recent study by Accenture (To Affinity and Beyond, 2019) 62% of consumers choose to buy from brands that have ethical values and show authenticity in all their actions.
"Management of the company cited social activism as the primary reason for the disastrous results"
For my part, I am happy to pay more for my coffee if it means the beans could be ethically sourced. And I'm unlikely to buy a t-shirt that seems too cheap because it makes me wonder whether it was made so cheap off the back of slave labour?
As the Accenture study suggests, most of us want to buy from companies that operate responsibly. We want the companies we buy from to treat their employees well and be environmentally friendly. And we'll stop spending money with companies that don't act right.
Furthermore, we'll consider the impact that our purchases have on the world. For instance, in 2018 gun manufacturer Smith & Wesson reported earnings that were down 70% over the previous year. Management of the company cited social activism as the primary reason for the disastrous results. Conscious consumerism is the reason giant companies like Starbucks are racing to get rid of plastic straws from their stores and improve the diversity of their management teams.
Companies are getting the message loud and clear. In 2019, I attended a conference called the Sustainable Brands conference in Vancouver. Hundreds of the world's largest brands (from Coca-Cola to Nestle) gathered to learn how to infuse a set of values into their businesses.
Nike gave us a spectacular example of this when they launched the Colin Kaepernick ad. Sadly, Kaepernick's calls for racial equity were and still are a divisive issue in the United States. At the time, industry commentators and investors were nervous about the company taking this stance. Soon after the ad launched, unhappy consumers took to social media posting videos showing them burning their apparel or cutting out their Nike swooshes.
Yet other consumers applauded the move and expressed their support by buying more Nike goods. I remember my wife calling me the day the ad launched telling me she had bought new shoes even though she wasn't in desperate need of new shoes at the time. A year after the ad launched, it was clear the move had paid off as Nike sales had increased 31% earning the firm $6 billion.
But purchasing more from responsible consumers isn't the only strategy. Conscious consumerism can involve reducing our consumption altogether. The manufacture of goods and delivery of services come at an environmental cost no matter how responsibly it is done. And certain goods and services take a bigger toll than others.
Consider children's toys. The plastic and cardboard created and disposed of is harmful to the planet. Carbon emissions in the manufacturing process and the resources consumed in the disposal or recycling process are environmentally costly. The same goes for clothes.
To reduce our carbon footprint, my wife and I get 90% of our kids' clothes and toys second hand. Given how
quickly they go through toys and clothes, it feels like a good place to buy second hand. My wife has become an expert on Facebook Marketplace and the many local buy/sell groups there. We not only save a ton of money but feel a lot better about the environmental impact.
Individually your dollars may feel insignificant but don’t let anyone tell you that your money and words don’t matter. Together, with others, our spending choices can change the world.
For those of us who want to get our hands dirty and get into the fight for a social cause, there are more than a few options available. The most obvious options are to volunteer with or go work for a charity. If you were really ambitious, you could start your own charity.
Today, we recognize that a non-profit model is not the only way to solve serious societal challenges. There is increasing recognition that we can solve these problems while making a profit. We call these not-just-for-profit businesses social enterprises.
"A social enterprise is not a legal structure."
To qualify as a social enterprise, a business must deliver a positive impact that is both intentional and measurable. This stands in stark contrast to the established view today that was popularized by Milton Friedman. Milton Friedman was a conservative economist who argued that a business should only concern itself with "maximizing shareholder value".
If you’re entrepreneurial, starting a social enterprise can be a great way to make a big impact. It's the reason I started Kind Wealth. I wanted to help extend affordable, unbiased, financial advice to underserved Canadians. The more successful Kind Wealth is, the more underserved Canadians who will become financially secure.
I didn't think a charitable model would work for Kind Wealth since we needed a sustainable way to afford high quality financial planners. Setting up as a social enterprise allows us to charge a fair price for our services so we can attract talented financial professionals. Whereas in a charitable model, the pressure to raise donations and keep overhead low would make it difficult to afford high quality financial planners. The downside to being a social enterprise is that the lowest income Canadians can't afford our services. There are always trade-offs.
It is worth noting that the term “social enterprise” is not a legal structure. And drawing hard lines can be blurry. Still, there is a meaningful difference between a socially responsible business and a true social enterprise.
Ben and Jerry's is a great example of a socially responsible business. The founders think carefully about how they treat staff and source ingredients. They also use their fame and business resources to stand up for issues they care about. At the end of the day though, the business makes ice-cream. Sure ice-cream makes us happy but ice-cream making won't solve complex problems.
On the other hand, a business dedicated to solving climate change by inventing technologies that can remove carbon from the atmosphere are more likely to be considered a social enterprise. One litmus test I suggest, if you're unsure, is to see whether a business has a Theory of Change (TOC). A Theory of Change is essentially a mapping out of the logic of how your business addresses the key issues in solving a challenge.
Investing with your values
If starting a business isn’t your jam, you could always invest in social enterprises instead of starting one yourself. This practice is known as impact investing.
Unless you’ve been living under a rock, you’ve probably heard of impact investing or related terms like ESG investing or socially responsible investing (SRI). For simplicity we'll group them all under an umbrella term called responsible investing. Each shares in common an attempt to make a positive impact on the world through our investments.