Nine Predictions for Philanthropy in 2016

January 12, 2016

Jeff Clarke, CEO

Welcome to 2016! Philanthropy’s core DNA is love for humanity and community. Here in the Pacific Northwest, we celebrate a unique philanthropic culture marked by optimism, generosity, civic engagement and stewardship. It rests upon our nation’s unique commitment to philanthropic freedom and donor intent. But above all, our big, diverse place defines us, from Alaska’s North Slope to southern Oregon, and the Pacific coast to eastern Montana and Wyoming. In other words, as American farmer and writer Wendell Berry observed, “If you don’t know where you are, you don’t know who you are.”

At the same time, our sense of place and our unique philanthropic culture energize us to support people and causes both close to home and across the globe. We are a creative community, employing many forms of capital — financial, human, intellectual, natural, social — to influence change.

Looking ahead to what is sure to be a dynamic year, civil society continues to endure immense stress, marked by bitter partisan divide, uncivil debate about diversity, equity and inclusion, intensifying consequences of global economic forces, continued erosion of public trust in traditional institutions and a not-inconsiderable dose of fear. These trends affect our local communities. Philanthropy, with its ability to gather people around the public good, is more important than ever.

I’ve reread my forecast for 2015, thought about the many amazing conversations I had last year and reviewed the feedback many of you shared just before the new year, in an effort to share some thinking about the road ahead for philanthropy in 2016. In late 2015, we surveyed the Philanthropy Northwest network to understand what 2016 means to you. I’m pleased to report that the response rate is double that of 2014 with 61% of respondents representing family and community foundations! You told us:

Opportunities: advocacy, collaboration and impact

  • Collaborate with cross-sector partners to build community (in 2015 it was collaborate with other philanthropists)
  • Investing to better understand our impact
  • Advocacy (both direct and indirect) to raise awareness and influence change

Challenges: remarkably similar to those of 2015

  • Time, organizational focus, staff capacity and adaptability
  • Barriers to collaboration including leadership, capacity and community engagement
  • Partisan politics and philanthropy’s role as a neutral convener
  • Keeping family and / or board members engaged and in an adaptive mode

Here are nine themes that I believe will influence philanthropy in 2016:

1. The economic recovery continues to mean more philanthropic resources for impact...for now

Over the first three quarters of 2015, the U.S. economy grew at an annual rate of roughly 2% while creating jobs rapidly. At year’s end, the unemployment rate stood at 5%, the level economists define as “full employment.” To the extent that philanthropy is no different from anyone else in deriving energy and optimism from the economic environment, the news is that 2015 was marked by the fact that the stock market ended the year essentially flat, delivering its weakest performance since 2008.

At the same time, Giving USA Foundation reports that 2014’s recovering economy translated directly into more dollars for philanthropy as gifts from individuals, corporations, and foundations reached an estimated $358.38 billion, surpassing the peak last seen before the Great Recession. The report found that giving increased 7.1% in current dollars (5.4% in inflation-adjusted dollars) compared to the revised estimate of $339.94 billion that Americans gave in 2013. In addition, 2014 marked the fifth consecutive year in which giving increased. Foundation giving was up 8.2%, to $53.97 billion; corporate giving was up 13.7% to $17.8 billion and individual giving — the single largest contributor to the annual increase — was up 5.7% to $258 billion.

What about 2016? The first 10 days of the new year have been volatile. Most experts expect very modest, low, single-digit returns not unlike 2015. Unless you believe that the U.S. is decoupled from the global economy, there is certainly plenty of volatility, including China, currency fluctuations, commodity prices, terrorism, economic inequality and geopolitics.

But what does all this that mean for you? Individual returns will vary based on one’s ability to diversify risk. As investment advisor and Philanthropy Northwest member Alan Biller reminded us in March 2015, diversification in today’s market is difficult for everyone but less so for large endowments. Mid-sized and smaller endowments typically take on greater risk for lower returns. Alan’s slide deck tells the story.

2. Northwest philanthropy leaders are cautiously optimistic about 2016

  • 56% of the foundation leaders we surveyed expect 2016 grantmaking to remain about the same as 2015. Of the 34% who indicated that their grantmaking would increase, they pointed to a median increase of 10-20%.
  • 80% of foundation leaders expect their staff levels to remain the same as 2015. Of the 20% who indicated that their staffing levels would increase to handle more activity, they expect a median increase of three FTEs.
  • Foundations with investable assets are decidedly optimistic about their financial prospects, with 50% of respondents expecting a median investment return of 7.5%. Nearly 40% of respondents expect returns that more closely reflected 2015 market performance, ranging from 0–5%.

3. Collaboration remains essential, but the “with whom” is changing

The focus of philanthropy’s collaboration is evolving towards collaborating with cross-sector partners and away from collaborating primarily with other philanthropy. Given our focus on vibrant, equitable and inclusive communities, this shift may well reflect a better understanding of “community” as the complex system that it has always been. Your feedback of “time, organizational focus, staff capacity and adaptability” as a significant barrier to effectiveness may also be an indication of the challenges associated with being “of the community” as you do your work.

Through our 2015 Local Matters series, we witnessed this complexity in action as philanthropists, nonprofits, government, business, academics and other community members came together to discuss their place, its opportunities and challenges. What struck us was this: for the vast majority of those in attendance, regardless of the venue, this was their first time to meet, build relationships with and discuss new ways of working together with people from outside their professional “silo.” At the end of the day, Local Matters was, if nothing else, about rewiring existing local networks. As a result, we’ve been invited into dozens of communities across the region to host these conversations. Most importantly, there are early signs of local action emerging from the Local Matters conversations.

We celebrate collaboration across our six-state region in our just-released 2015: A Network in Action retrospective.

4. Change requires bold experimentation

Structures

Last month’s announcement of the Chan Zuckerberg Initiative generated a firestorm of comment and hand wringing. By using a limited liability company instead of a nonprofit corporation or foundation, the Zuckerbergs will be able to go beyond making philanthropic grants. They will invest in companies, lobby for legislation and seek to influence public policy debates, which nonprofits are restricted from doing under tax laws. This is only the latest of many examples, including several here in the Pacific Northwest, of philanthropists pushing sector boundaries in new and unexpected ways. Expect this trend to accelerate.

Strategies

Individuals and family offices are adopting impact investing much more quickly than institutional philanthropy. According to the Center for Effective Philanthropy, those few foundations that have embraced impact investing are devoting only a median of 2% of their investible assets. With recent policy changes, the traditional barriers to considering social and environmental factors alongside financial return will help. But philanthropy has almost $1 trillion of assets on its balance sheet and the public may begin to wonder why such a small percentage of it is aligned with our missions. The rest of the world will continue to move forward with or without us.    

Tools

Technology will continue to democratize philanthropy. Every day it becomes easier to directly connect people with the causes they care about. For example, crowdfunding continues its explosive growth as a source of community capital. Some have estimated 2015 activity at as much as $34 billion (versus $10-15 billion in 2014) and are predicting it to account for more funding than venture capital in 2016. All estimates continue to project it growing to $100 billion dollars by 2025, increasingly focused on small business and nonprofit financing.

5. Philanthropy is increasingly expected to serve as an anchor during times of community crisis and aftermath

The Pacific Northwest has more than its share of natural disasters from wildfires, to earthquakes, flooding and landslides. And like the rest of society, we have our share of human-caused community disasters including mass shootings, pipeline failures, train derailments and economic loss. While community expectations are growing around philanthropy’s community leadership during times of crisis, this expectation is particularly strong in our rural communities. Our community and private foundation colleagues who reside in places impacted by disaster report that their response to meeting community expectations has required significant real-time learning and rebalancing of capacity over time.

6. Philanthropy will come under increasing public scrutiny and criticism

“This then is held to be the duty of the man of wealth: ….to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community – the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could for themselves.” —Andrew Carnegie, Gospel of Wealth, 1889

To the extent that the public believes persons or organizations of wealth embrace Carnegie’s perspective, the confluence of politics, populism, policy, growing income inequality, the documented influence of wealth in our society and social media will lead to more consistent scrutiny. At risk? Philanthropic freedom and donor intent.

Two recent examples of sector press serve as good reminders of what this scrutiny will look like. The first, “Gates, Koch and Common Core: What are Citizens to Do?” is a brief piece on the intersection of wealth, charitable giving, public policy and the nonprofit community. The second, “A City in Remission: Can the ‘Grand Bargain’ Revive Detroit?” is a lengthy piece that, among many things, examines the democratic or inclusive nature of The Grand Bargain.

The question is: how will philanthropy respond? These conversations, regardless of the community in which they occur, are complicated. My suggestion is that intentionality, transparency, proactive communication and inclusion can go a long way.

7. Advocacy and impact investing to continue as mainstream elements of Northwest philanthropy

  • Nearly 40% of foundations we surveyed expect to engage in direct policy advocacy with policy-makers and 37% expect to fund their grantees to engage in advocacy work.
  • 21% of foundation leaders expect to make below market-rate program-related impact investments and 5% expect to make market-rate impact investments.

Despite this promising economic recovery, philanthropic commitment and creativity:

8. The domestic economic recovery continues to be a “tale of two cities” while global instability continues to disrupt

Here I’m primarily restating last year’s observations. Economic growth has not been evenly distributed and many Americans and the globe remain in profound distress.

  • Only 7% of U.S. counties have fully recovered from the Great Recession. According to a study from the National Association of Counties, reported in the Wall Street Journal, with most of those in states benefitting from the energy boom.
  • Global wealth concentration and extreme economic inequality continue to accelerate. Based on Credit Suisse and Forbes data, Oxfam International concluded that the world’s 80 richest people now possess more wealth than the poorest half (3.5 billion) of the world’s population. Today the richest 20% possess 94.5% of the world’s wealth. Oxfam predicts that the world’s richest 1% will own more than half of the world’s wealth at some point this year.
  • According to the U.S. Census Bureau, the incomes of those in the top 5% of the income range are nine times the incomes of those in the bottom 20%. More than 47 million Americans — over 15% of the U.S. population — live in poverty. Here in our region, all six states are now at or below the national rate. Women, children, persons of color and seniors continue to experience disproportionate hardship. In late 2015, the New York Times reports that a new study on long-term unemployment from the Federal Reserve Bank of St. Louis found that the prospects for women over 50 darkened after the Great Recession. In 2006-2007, before the downturn hit, less than a quarter of the unemployed in this group had been out of work for more than six months. By 2012-13, older jobless women accounted for half of the long-term unemployed in this group.
  • The global refugee crisis cannot be ignored. More than 60 million people, the highest number in recorded history, have been forcibly displaced from their homes. Globally, one in every 122 humans is now either a refugee, internally displaced or seeking asylum. If this were the population of a country, it would be the world's 24th biggest.

9. Philanthropy and civic leadership have never been more important

Philanthropy in the Pacific Northwest reflects the wonderful legacy of optimism, entrepreneurial risk taking and civic leadership that has defined our region from its earliest days. We are a people in a place that thrives on adaptive challenge. Given that, I’m confident that our collective bets in 2016 will reflect and respond to the broader societal change we see and, in being sensitive to how we do our work, will allow us to continue to build upon the region’s legacy of innovative philanthropic and community leadership.

Philanthropy Northwest looks forward to continuing our work together in 2016. View our interactive presentation of recent milestones in our network, and a glimpse into the year to come.

Comments

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