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Trust-based philanthropy the Asian way

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Trust-based philanthropy the Asian way

May 1, 2024

Over the next decade, some 70,000 high net-worth individuals in Asia are set to pass on an estimated USD2.5 trillioni, an amount that is almost equivalent to the GDP of Franceii. This wealth transfer is taking place in a complex socio-economic context. Global issues such as food security, climate change, water scarcity, and equity are gaining greater attention, especially amongst the wealth-inheriting generation. In addition to investing in start-ups and enterprises, philanthropy, when done well, can contribute to tackling these challenges. But how does one “do philanthropy well”? 

The rise of trust-based philanthropy

Every decade or so, a seemingly new idea that brings the promises of reinventing philanthropy catches the attention of the philanthropic community. Compared with government spending or resources in the business sector, philanthropic capital is small. As such, donors are eager to explore new ways to be more effective in their giving, as they want to make sure that their capital is making a difference. 

With multiple disruptions taking place over the past few years - the pandemic, the war in Ukraine, extreme weather events and so forth - donors started to experiment with trust-based philanthropy as they sought ways to disburse their funds quickly and in a manner that could reach impacted communities effectively.

Trust-based philanthropy doesn’t mean using legal trusts: it refers to the traditional meaning of the word – that is, confidence in the probity, intentions and capabilities of the recipient. In practice this means providing unrestricted funding to non-profit organisations (NPOs). It is not a completely new idea. It is based on some of the values and practices that have guided philanthropy throughout history, whereby donors believe in an organisation’s mission and provide funds to help them realise it. 

Practitioners of trust-based philanthropy spend time getting to know an organisation, conduct due diligence on the NPOs up-front, and assess how the NPO’s mission fits with their giving strategy. There is no lengthy grant application process, nor extensive reporting requirements. These unrestricted grants offer NPOs flexibility in allocating funds to areas with the greatest need. It could be used to cover general operating costs or be channelled towards a new initiative to address an immediate community need. The decision on how to apply the funds rests with the NPOs and allows them to make decisions to respond to the dynamic world that we live in.  

The way trust-based philanthropy is practiced varies by donors’ preferences. Mackenzie Scott in the US has a team of advisors and consultants who identify and screen NPOs. If the NPO’s work aligns with her giving strategy, a donation will be made. Donors can also take a comprehensive approach that strengthen both organisational and talent development – key elements that enable organisations to thrive. 

In response to the impact of the pandemic, The D.H. Chen Foundation in Hong Kong launched “Project Fuel”, which provided funding for small-sized NPOs to cover their core operational expenses, and a co-learning fellowship programme for NPOs selected to join the project. Grounded in the foundation’s value of compassion, the fellowship program included mindfulness, self-care practices, and mutual peer support. The application process only required NPOs answer four questions and some basic documents such as registration. In addition to the regular due diligence process, the foundation’s team spent time getting to know each applicant before making a decision. Fifty organisations out of 513 that applied were selected to join the project.

A counterpoint to “philanthrocapitalism”

This “no-strings attached” approach contrasts sharply from the practices popularised by proponents of “philanthropcapitalism”, which advocates for discipline and the application of managerial practices from the business sector to the non-profit sector. The movement introduced concepts and practices such as “social return”, key performance indicators, extensive reporting, and external evaluation requirements. Their grants also tend to be earmarked for the planning and implementation of specific programmes or activities, and overhead is viewed unfavourably. If funds are deemed not being spent effectively, a remediation plan must be in place or funding could be cut. Many donors, who are successful business leaders or entrepreneurs, embraced this concept.

Meeting the reporting and evaluation requirements resulted in NPOs being tied up in bureaucracy. Many established dedicated teams to complete grant application forms, manage donor communications, conduct impact assessments, and fulfil reporting requirements in specific formats that different donors prescribe. The restricted funding approach, i.e. earmarking funding for specific projects, also means NPOs may not have sufficient funds to invest in organisational development. As a result, many face long-term planning, hiring and retention challenges. 

Not surprisingly, the business-minded donors question whether it is possible to know the impact of trust-based giving when there is less oversight, feedback, and evidence in the trust-based approach. With high-profile scandals that hit the non-profit sector every now and then, some also argue that the trust-based approach undermines accountability and transparency by giving too much discretion to nonprofit organisations, which could squander the funds. 

However, data gathered from the NPOs shows the contrary. The Center for Effective Philanthropy in the US surveyed 632 NPOs that received funding from Ms. Scott to understand whether her gift increased their impact, how they allocated the funds, and whether there were downsides to receiving the gift.iii Almost all respondents stated that these grants had strengthened their organisation’s ability to achieve their mission, their ability to innovate, and their ability to reach communities where they seek to have impact.

The 50 NPOs that participated in Project Fuel, meanwhile, reported that not only did the funding help them survive the effects of the pandemic, it boosted staff morale, and enabled NPOs to explore other means to be more efficient and innovative to carry out their mission. The fellowship programme also strengthened participants’ wellbeing and led to policy changes at the organisational level. The NPOs formed a tight-knit circle of trust that accelerated knowledge transfer and cross-pollination of ideas, and some even formed new collaborations to address underserved needs.iv

Worthy of trust

These examples show that the impact of trust-based philanthropy can be measured, and that unrestricted funding furthers a NPO’s mission.

Of course, giving needn’t be entirely based on one or other approach: philanthropists should maximise the best elements of both schools of thought. A sophisticated investor diversifies; similarly, philanthropists can allocate a portion of their giving budget for trust-based practices while elsewhere maintaining their targeted approach that requires clear outcomes and metrics.

Using food security as an example, a targeted approach could take the form of making nutritious meals available in schools, in shelters, and community centers. A donor will be able to track the number of meals delivered, the number of beneficiaries, or the number of food banks established in neighbourhoods with fewer resources.

To address the root cause of food insecurity, donors could apply the demographic data gathered in the targeted project to inform policy development. They could engage in educational campaigns to reduce food waste or increase public awareness of the effects of climate change on food security.

For policy advocacy, public awareness and behavioural change initiatives, though, these are longer term initiatives where hard metrics such as “social return per dollar” are difficult to establish upfront. A trust-based approach would enable NPOs to adapt and adjust their work to respond to constantly shifting end-user preferences and socio-economic contexts.

A portfolio-based approach that combines targeted approach with clear outcomes and metrics and a trust-based approach that offers NPOs flexibility can achieve great and diverse things.

A contribution piece by Dorothy Chan, Regional Head of Philanthropy Services and Advisory, Asia Pacific, HSBC Global Private Banking. A version of this piece was first published in The Business Times on 3rd April 2024.

i Preservation and Succession: Family Wealth Transfer 2021 – Wealth X. Available here

ii Investopedia. Available here. 

iii Center for Effective Philanthropy, “Emerging Impacts: The Effects of MacKenzie Scott’s Large, Unrestricted Gifts” available here 

iv The D.H. Chen Foundation, “Project Fuel: Impact Report” available here 

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