Beyond overheads – Redefining philanthropy for maximum impact

One of my LinkedIn followers recently shared some thoughts on Dan Pallotta’s film, Uncharitable, asking what our clients thought about the issue of charities’ spending and overhead.?Dan has actually spoken at many of our social impact and philanthropy conferences over the years.

His talks often are great eye-openers, bringing to light for many how an over-focus on philanthropic costs and overheads misses the point. It’s like investing in Apple and only worrying about how much it costs to produce the iPhone, rather than being interested in how many will eventually sell, whether it will result in a profit and the impact on share price.

Over the past few years,?I've witnessed a shift in perspective from traditional charity models to a more dynamic form of philanthropy. The distinction between charity and philanthropy is crucial.

While charity often focuses on direct assistance, the evolution in recent years to strategic philanthropy aims not only for immediate impact but also for long-term, systemic change. Strategic philanthropy supports implementation of a proven early childhood education program rather than sending books. It supports capacity building for local community health workers rather than simply sending medical supplies. Strategic philanthropists support systems change that helps keep children in families rather than give money to orphanages.

So, what do our clients think about spending and overhead?

What we’re seeing is an interest in sustainable outcomes rather than merely minimizing overheads or salaries. It's about getting the job done efficiently and maximizing impact.

If we take that same kind of focus to philanthropy as commercial investing (as with Apple), strategic philanthropists similarly don’t look at costs and overheads in isolation. The equivalent to “profit” in philanthropy (and impact investing) would be “results.” The equivalent to “share price” would be “outcomes.”

The key question for investing in social and environmental impact is to ask whether it will result in positive results and, if so, what’s the ultimate cost per outcome. A rigorous focus on cost per outcome rather than simply assessing resource input and where it goes can help us evaluate which non-profits, or social enterprises, are good investments for social and environmental impact.

The investment analogy has never been more fitting. Many of our clients are now focusing more on using their philanthropic giving to leverage the most outcomes. In a way, philanthropy is often moving more toward impact investing, where philanthropic capital is a tool for achieving social and environmental returns.

Another way in which our clients are maximizing the impact of their giving is by engaging blended finance, which uses philanthropic capital to catalyze private investment by providing risk reduction. The blended finance approach not only has the power to catalyze commercial capital, but it also creates the potential for financial returns alongside the main goal of social and environmental returns. For philanthropists, this means any financial returns can then be recycled into other philanthropic investments – achieving even more impact.

In this evolving landscape, the emphasis is on aligning financial and social impact goals. What investors, including philanthropists, want to know is that a particular non-profit organization or social enterprise can demonstrate that its spending contributes significantly to positive change and offers attractive cost per outcome. Here, the question is as it is for every investor, “Will I get the most returns from my investment?” Costs and overhead are only important insofar as they contribute to that.

Here at UBS Optimus Foundation , we’re fortunate that many of our clients choose to work with us because UBS is deeply committed to its mission of social impact. UBS absorbs overheads and salary costs, ensuring that 100% of our clients' donations reach their chosen impact partners, along with a match of 10% by UBS Optimus Foundation.

This approach enables us to maximize the impact of philanthropic efforts and helps with our partner's costs – paving the way for a redefined philanthropy that can bring proven innovations to scale.?

Read more about how we’re using blended finance to drive impact here .