A recent Luminarias Series webinar featuring Dr. Jason Jay, Director of the Sustainability Initiative at MIT Sloan School of Management, explored systemic investing. This model deploys capital across various solutions and asset classes, including philanthropy, aiming to transform the financial investment industry. Systemic investing initiatives such as ReFED represent “a new form of impact investing driven by five forms of capital – financial, intellectual, human, social, and spiritual – all focused on sparking multiple, simultaneous shifts throughout a system.”

Dr. Jay positions systemic investing at the forefront of impact investing. It transcends the effectiveness of singular investments by deploying capital from various sources into systemic interventions in a concurrent, coherent, and adaptive manner. This approach heralds a new frontier for philanthropy, where philanthropic organizations and donors move beyond isolated support to a managed system that utilizes the full spectrum of philanthropic capital as a strategic and adaptable backbone resource to enhance and complement financial investments.

The concept of “systemic philanthropy” aggregates, mobilizes, and leverages philanthropic financial, human/organizational, and relational assets in a comprehensive, managed, and purpose-fit manner. Systemic philanthropy would place philanthropic capital, as proposed in a previous Impact Entrepreneur/Rockefeller Philanthropy Advisors Call to Action, “under the same strategic umbrella with debt and equity capital to expand available capital and create a more sophisticated funding continuum better suited to the evolutionary cycle and needs of revenue-generating organizations and social enterprises.”

Systemic philanthropy in collaboration with systemic investing could fully realize its collaborative leadership potential, advancing societal impact. This counters the traditional view, as noted by David Wood in his SSIR article “Roles Foundations Play in Shaping Impact Investing,” that finance and organized philanthropy are inherently oppositional — where one is perceived as profit-driven and the other as benevolent: “One makes money; one gives it away. One is cutthroat; the other is communal. One is hard-nosed and efficient; the other is soft-hearted and fuzzy… Impact Investing, and the foundations that support it, must navigate these tensions, alternately enticing, cajoling, redirecting, reimagining, or taming the field of finance.”

A systemic philanthropy model can help make the case for increased acceptance by the investment industry that philanthropic financial capital is more varied and catalytic than previously thought – and that it is more than a de-risking, first-loss resource to secure private sector engagement in public sector, blended finance mechanisms. Rather, the full range of philanthropic capital is the necessary, co-equal input to mobilize, match, and maximize impact investments and to drive the impact economy.

Moreover, as philanthropic capital evolves, it should align more with investment strategies to create mechanisms that balance impact and finance, stimulating investor interest and accelerating private finance toward public goals.

This shift requires a broader understanding of philanthropic capital, aligning with Melissa Berman’s definition in an RPA handbook on impact investing: the voluntary use of private resources for public benefit, extending beyond monetary donations. Says Berman, “nowhere does that concise formulation say this resource can only be money that’s donated.”

With increasing calls for systemic change and greater collaboration across public, private, and nonprofit sectors, it becomes clear that these two worlds are not as opposed as once thought.

The philanthropic sector’s expansion includes recognizing its human and relational capital—public goodwill, the ability to convene diverse stakeholders, and community engagement. These elements are crucial yet underappreciated by both the investment community and traditional philanthropy. Innovations in social finance are redefining philanthropic financial tools and mechanisms, challenging their conventional perception as merely voluntary, concessional assets.

For example:

• Grants can be structured as recoverable loans or convertible into investments upon project success.
• Nonprofit venture funds like Acumen and Root Cause pool charitable resources for patient capital investments aligned with philanthropic missions.
• Place-based impact investment funds, such as Benefit Chicago, merge private and philanthropic resources to offer community investment notes with a total return for socially motivated investors.
• Pay-for-success models leverage philanthropic contributions to secure multi-sector financial support in risk-sharing initiatives that create impactful outcomes beyond what isolated efforts could achieve.

Philanthropy’s role in systems change

Philanthropy has long supported initiatives calling for systemic change, evident in projects like the Shifting Systems Initiative by the Rockefeller Philanthropy Advisors and the Trust-Based Philanthropy Project spearheaded by the Robert Sterling Clark Foundation. These initiatives, along with collaborative grant-making, funding circles, and other community-led systems philanthropy efforts, aim to disrupt traditional power dynamics in funder-recipient relationships. This shift fosters a more equitable and democratic approach to philanthropy, enabling positive social change.

However, adopting a systems-change perspective requires philanthropic organizations to venture beyond traditional practices, which typically prioritize grant-making. A growing number of philanthropists are adopting more flexible, agnostic social investing strategies, which ensure capital is provided to organizations in the most effective form, at the optimal time, and under favorable conditions, maximizing impact.

Actions to enhance philanthropy’s effectiveness

Philanthropic leaders have pinpointed several strategies to boost the effectiveness and responsiveness of philanthropy, facilitating the integration of systemic philanthropy with investing:

• Educational Initiatives: There is a vital need to educate about the diverse spectrum of financial capital and its potential for social impact. This includes mechanisms, sectors, and asset classes. In my graduate teaching, I emphasize the intersection of philanthropic capital with impact investing opportunities to equip nonprofits with the necessary skills and enthusiasm for innovative financial investments.
• Collaborative Practices: Enhancing cooperation between a foundation’s program staff and its endowment investment teams is crucial. A rising number of advisory services are emerging to support this niche, enhancing collaboration and creating synergies between the philanthropic sector and financial investment communities.
• Promotion of Systemic Investing: Philanthropy should lead the promotion and adoption of the systemic investing model. This approach, historically supported by leaders like the Rockefeller Foundation, integrates various foundation activities into the broader impact investing field.

Furthermore, the expanding field of systemic investing could collaborate with philanthropic and academic entities, such as the Center for High Impact Philanthropy at the University of Pennsylvania. Together, they can establish sustainable shared service enterprises, where experts from various sectors unite to streamline and enhance due diligence processes for financial, legal, and social outcomes, thus promoting the uptake of impact investing activities.

Reconciling philanthropy and investing

Phil Buchanan, president of the Center for Effective Philanthropy, correctly observes that “giving is not like investing.” Traditionally, philanthropy focuses on social improvements with little to no return expectations, whereas investing prioritizes financial returns. However, with increasing calls for systemic change and greater collaboration across public, private, and nonprofit sectors, it becomes clear that these two worlds are not as opposed as once thought. A systemic philanthropy approach, in harmony with systemic investing, can address calls to reform both sectors. This collaboration will enhance their effectiveness and create a more holistic approach to advancing the necessary systemic changes in the impact economy.

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References / Resources

Wood, David. “Roles Foundations Play in Shaping Impact Investing”

Godeke, Steven. Briaud, Patrick. Impact Investing Handbook: An Implementation Guide for Practitioners.

Buchanan, Phil. Giving is Not Like Investing. The Center for Effective Philanthropy