Can COVID-19 revive philanthropy’s risk appetite?

 By Clare Woodcraft, Executive Director, Centre for Strategic Philanthropy, Cambridge Judge Business School


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


Covid-19-philanthropyPhilanthropic capital is risk capital – an attribute often overlooked amidst the race to secure measurable positive outcomes to report back to donors and boards. Philanthropy has always accepted investing for zero financial return and with the advent of Venture Philanthropy that mimics the principles of Venture Capital, can readily embrace and learn from failure. Indeed, perhaps the most powerful proposition of philanthropy is this ability to focus primarily on social impact rather than financial gain. In theory, this could drive innovation, radically new ways of thinking and experimental ways of finding new solutions to old problems. Unfortunately, this is rarely the case.

The OECD’s “Private Philanthropy for Development” 2018 report notes that larger foundations working in development actually favour investing in stable, middle-income economies through large, established partners rather than in riskier environments with untested actors. Only a few foundations provide unrestricted funding that might encourage trial and error. And long-term commitments – those of five or more years – are still scarce. Eric Stowe reiterates this point arguing in the Stanford Review that ambitious systemic approaches are rare: “Most non-profits have little appetite for risk. Small, one-off initiatives, isolated pilot projects…are the norm…[and]…rarely ever go to scale.”

COVID 19, however, has brought a timely reminder that risk and philanthropy should go hand in hand. Some have already risen to the challenge. The Bill and Melinda Gates Foundation, along with Wellcome and Mastercard, have set up a $125mn seed fund for the accelerated identification and development of treatments for Coronavirus. They rightly note that swift collaboration is of the essence: “The COVID-19 Therapeutics Accelerator will focus on identifying, assessing, developing and scaling-up potential treatments for the virus…we need to find a way to make research and development move faster [which] requires governments, private enterprise, and philanthropic organisations to act quickly…” This shared risk appetite could provide a precedent for other pressing global challenges where capital needs to be mobilised quickly with no strings attached. Rodin and Madsbjerg argue that philanthropy is increasingly heading in this direction notably with the rise of ‘innovative finance’ that harnesses private capital markets for public good to create products such as pooled risk insurance and social impact bonds. But they also conclude that it is not enough.

Beyond COVID19, the UN’s 2030 Sustainable Development Goals could also potentially be accelerated if the trillions of dollars of philanthropic capital available were systematically pooled for innovation. The more pressing climate crisis could easily absorb large unrestricted philanthropic cash injections to test, prove and scale new green technology and turbo boost existing R&D. As Muhammad Yunus writes in Le Monde, the COVID19 crisis opens up all kinds of new horizons for some fundamental rethinking about the world we want to live in. After all, he says, “the economy is just a means of achieving objectives that we ourselves define…we should not forget that it is a tool of our own creation.” Philanthropy can be a powerful partner in this creative – albeit risky – process.

As the crisis forces governments to move out of their comfort zone and contemplate more disruptive innovation, civil servants and advisors alike should keep philanthropy top of mind. Neither the public sector nor the philanthropic one have yet been able to mirror the “shark fin” pace of disruption of private enterprise. Tech companies are well placed to test, scale and bring new products to market swiftly, often rendering their predecessors obsolete overnight. Philanthropy, in principle, is capable of being equally transformative.

While spotting the ‘silver lining’ of the Corona virus ‘cloud’ may be premature, the pandemic has shone new light on how fast innovation needs to be and indeed how fast it could be, with cross-sector collaboration. Governments should and are working with the market to provide incentives to expedite solutions. Effective alliances with philanthropy already exist with perhaps the best known, GAVI, having created a programme that immunised over 183 million people.

Calling on philanthropists to help create, iterate and accelerate solutions to the Corona virus crisis may not seem like an obvious policy strategy. But given the wealth of capital in the sector – growing rapidly due to the significant intergenerational wealth transfer in emerging markets – it could provide a metaphoric if not literal shot in the arm for fast tracking the beginning of the end of the crisis. It might also set new precedents for how future philanthropic capital can be deployed for real long-term system change.