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To drive social change, we must unshackle philanthropic capital

Paul Klein is founder and CEO of Impakt and founder of Impakt Labs

Today, good is for everyone. Blackbaud's Rachel Hutchisson said this in a recent Champions for Social Good podcast called Innovation & Social Change and I couldn't agree more. The combination of technology and social innovation has created a new context for social change that makes solving complex problems possible. There's never been a more promising time to be involved in social change and, for the first time, many of the most innovative initiatives are coming from outside the charitable sector.

Consider Impact Fitness, a franchisee of Planet Fitness that addresses some of the key barriers to health and wellness by providing access to health clubs at affordable prices. By locating its 13 health clubs in underserved communities in Michigan and Indiana, the company is helping to increase physical activity and make a positive contribution to key health indicators such as blood pressure, obesity and cholesterol. The company was recently chosen by Bain Capital Double Impact as one of its first two investments in mission-driven companies.

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More than ever, organizations of all types have the potential to help solve social problems. Sometimes this is being done by charities such as Rise Asset Development, an innovative organization that provides low-interest business loans to individuals who have experienced mental-health and/or addiction challenges and are interested in self-employment but unable to secure traditional bank financing. Increasingly, however, private ventures such as Living Earth, another recipient of new investment by Bain Capital Double Impact, are getting results. Living Earth is taking action on climate change by manufacturing and providing mulch, compost and other landscaping materials to commercial landscaping contractors, nurseries and other retailers at its 25 locations in Texas.

As proponents of social change expand beyond the charitable sector, there is a new imperative: ensuring that funding for social change is accessible to the most promising social ventures, regardless of there tax status. Today, it's not wrong to support charities – but it is wrong to only support charities.

The problem is most corporate and independent foundations have not caught up with the times. Last week, I scanned of some of North America's largest corporations and found the criteria for support from most corporate and independent foundations still hinges on these words: "organizations must be registered charities." For example, Wells Fargo only makes contributions to organizations with tax-exempt status, the private foundations administered by JPMorgan fund only charitable organizations and Suncor and the Suncor Energy Foundation support registered charitable organizations.

In order to more effectively address the 17 Sustainable Development Goals that the United Nations have targeted as global priorities, capital that is currently only available to charities must be accessible to organizations of all types. Here are three recommendations to help unlock philanthropic capital and accelerate social change.

  • New legislation is needed to enable businesses that have a social purpose to access capital from corporate and independent foundations. In addition, legislation is needed to explore and foster new types of entities such as charities that can also receive investment capital. Promising examples include British Columbia’s Community Contribution Companies and Britain’s community interest companies.
  • All corporate and independent foundations should have the flexibility to support organizations of any legal status that can most effectively achieve the social outcomes they are mandated to address. This includes charitable organizations, not-for-profit organizations, B Corps and corporations, social enterprises and other businesses.
  • Programs that match employee donations with donations from corporate foundations are no longer adequate. Employees should also have opportunities to invest in social enterprises and receive a matching investment from their employers.

In the past few months alone, Amazon bought a grocery chain and Volvo announced it would use electric motors in all its cars from 2019. Achieving the UN Sustainable Development Goals depends on the same degree of innovation and unlocking philanthropic capital is essential for this to happen. The new criteria for support need to change from "organizations must be registered charities" to "organizations of all types are welcome to apply."

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