THE WORLD IS CHANGING, AND WITH IT, THE ROLE OF PHILANTHROPY. HNWIs WHO WANT TO MAKE A SOCIAL IMPACT ARE INCREASINGLY CHOOSING PHILANTHROPIC ENGAGEMENT OVER CHARITY DONATIONS. LFF SAT DOWN WITH TONIKA HIRDMAN, DIRECTOR GENERAL OF THE FONDATION DE LUXEMBOURG, TO LEARN MORE ABOUT THE RISE IN PHILANTHROPY AND THE ROLE LUXEMBOURG HAS PLAYED IN THE SECTOR OVER THE LAST DECADE.
People are becoming more aware of the responsibilities that come with having wealth.
“You hear more about giving back today than you did 10 or 20 years ago. People are becoming more aware of the responsibilities that come with having wealth,” says Tonika Hirdman, Director General of the Fondation de Luxembourg, set up by the Luxembourg government in 2009 to meet the growing need for a centre of expertise in philanthropy in the Grand Duchy.
Since its establishment, the Fondation has managed to build up a fully-fledged framework for philanthropy under its umbrella structure, guiding both international private individuals and businesses in their commitment to give back to society.
“The interest from private individuals is growing and every year we steadily increase the number of our sheltered foundations. Our founders are mostly European. They can be entrepreneurs who want to give back to society, families who see it as a way to educate their kids, as well as companies. Most of the foundations are created with an endowment capital for an unlimited period of time, but it is also possible to create a turnover foundation, whereby the founder contributes every year with a cash flow, which is being used to support the projects selected.”
To date, over 80 foundations supporting a broad diversity of more than 150 projects worldwide are being managed under the aegis of the Fondation de Luxembourg.
From social inclusion to culture or research, the causes backed by the founders are broad. Over the last decade, the Fondation has provided support for major international projects such as an endeavour to put an end to female genital mutilation in Ethiopia; financing knowledge transfer through European doctors training local medical staff in Congo; funding research programmes on Alzheimer’s and Parkinson’s disease and an innovative animal-assisted therapy project in a French prison.
Wealth managers have realised that, through philanthropy, they tend to deepen their client relations.
AN INTEGRAL PART OF THE WEALTH MANAGEMENT ECOSYSTEM
The achievements of the Fondation, just ten years after its establishment, are testament to the major role it plays in philanthropy in Luxembourg and beyond.
“When we started our activities, with a few exceptions, philanthropy was not really a topic that wealth managers were discussing with their clients. Today, most private banks in Luxembourg have included philanthropy as a key pillar in their wealth management offering and they are able to offer their clients the full spectrum of philanthropy advisory services by leveraging on the activities of the Fondation de Luxembourg.”
Hirdman considers that philanthropy advisory services, more than any other service, contribute to enhance the value of the relationship between financial advisors and their wealthy clients.
“Private banks have started to proactively discuss these questions with their clients.
Wealth managers have realised that, through philanthropy, they tend to deepen their client relations. If you start a conversation with your client about their values and personal motivations, rather than about their investment strategy, it opens a completely different response from the clients.”
Over recent years, the Fondation has seen a rise in the number of international philanthropists looking to set up a foundation under its aegis. For Hirdman, it is not surprising that they chose Luxembourg over their home-country.
“Last year, we created a foundation for a Swiss resident with the aim of supporting young people who have dropped out of school or are at risk of being excluded from the educational system. That’s where Luxembourg’s cross-border expertise comes in. This country understands the issues raised by cross-border activity and is recognised globally as a stable environment both politically and economically. It is widely regarded as an ideal location to set up a European-based foundation due to its supportive attitude towards philanthropy and sustainable investments. Moreover, the fact that we are still a young institution allows us to maintain a personal touch with all our founders. This close oversight is very valued.”
The Fondation de Luxembourg has increasingly operated at a European level through its participation in the Transnational Giving Europe Network, thus facilitating cross-border donations. In 2017, it became the first foundation internationally to be recognised fiscally by the French authorities followed by the Dutch authorities in 2018.
“Luxembourg is well-known across Europe for its pragmatic and non-bureaucratic approach to philanthropy. The Luxembourg government recognises fiscally similar foundations and non-profit associations in other European countries. Unfortunately, it is not reciprocal, that’s why being recognised as a public utility foundation in France and the Netherlands is an important milestone.”
Over the last few years, the Fondation has seen a rise in the number of French private donors and has deepened its ties with the US, leading to a rise in American private donors and businesses.
“Our engagement goes beyond Europe. We have created Friends of the Fondation de Luxembourg in the United States, enabling US-based philanthropists to donate money through this fund to a foundation under our umbrella. Moreover, last year, we went through the whole vetting procedure of the Silicon Valley Community Fund and thanks to a donation through it, US donors can benefit from tax deductibility from companies based in Silicon Valley,” adds Hirdman.
THE NEW PHILANTHROPIST
Transparency, technology and evolving attitudes toward wealth are reshaping donors’approach to giving.
“HNWIs are generally younger than 20 years ago and they have a different set of values. Very often they have created their wealth themselves, from business ventures, and want to give during their lifetime, rather than leaving a legacy. They take an informed, planned and hands-on approach to see the direct impact of their giving. These changing expectations have led to new forms of philanthropic giving such as venture philanthropy and impact measurement.”
Measuring success means that charities, NGOs and other public benefit organizations are now being called on to define and report more clearly how the funds donated are being put to work.
“It is very important, at the start, to clarify expectations and set clear objectives about what you want to achieve. And you should also think about an exit strategy right from the start because exiting a funding programme that has been supported for several years is often the most difficult. We have to think about how to avoid creating dependencies. If you have done this groundwork well at the start, then it is easier to measure impact.”
RETHINKING WEALTH THROUGH THE SUSTAINABLE DEVELOPMENT GOALS
“With a 2.5 trillion dollars funding gap, there is an urgent need to scale up support for the United Nations Sustainable Development Goals (SDGs) and philanthropy’s role in this has never been more important or more urgent,” notes Hirdman.
“We take a holistic approach to addressing global issues and put a strong emphasis on the SDGs in our daily activity. Not all the founders we work with are aware of them, but we see it as our role to promote them in order to help focus individual agendas and beliefs to the most urgent needs.”
Above all, the SDGs have become a core element of the Foundation’s strategy when considering new projects.
“SDGs are one of the key criteria we use when evaluating and selecting new projects. Among others, we analyse each project on the basis of its contribution to the SDGs. To that end, each project supported by one of our foundations has two SDG targets assigned to it, which helps us to report more comprehensively on the global issues we are addressing,” explains Hirdman.
The crucial role for philanthropy is not just to provide muchneeded financing, but in serving as risk capital to test new ideas and solutions to tackle global issues.
ROCKET FUEL TO CLIMATE ACTIONS
As the world works to tackle climate change, philanthropy is increasingly acting as the rocket fuel to provide seed capital and stimulate innovation.
“In order for the SDGs to succeed, it is imperative that governments, the private sector and philanthropy work together. The crucial role for philanthropy is not just to provide much-needed financing, but in serving as risk capital to test new ideas and solutions to tackle global issues.”
Philanthropists have decades of experience engaging with governments, the private sector, and non-profits in support of innovation and the deployment of new climate solutions.
Hirdman describes a current example of collaboration between the public sector and philanthropists: “Social and environmental bonds are good example whereby foundations and philanthropists invest in a certain project and if the project is successful, they will be reimbursed and may thereby use the money for projects. If the project fails to achieve its targets, then it was at their own risk. It is thus an opportunity for governments to spend money on outcomes rather than inputs.” For the investment of its own endowments the Fondation de Luxembourg follows the guidelines enshrined in its SRI Policy, ensuring that these investments are made within a responsible framework. As of today, 80% of its foundations with an endowment capital are investing according to sustainable investing principals; but with a clear target of 100%.
“Our founders don’t want their assets to be invested in industries or companies whose activities are contrary to the cause they are supporting. We adopt a positive screening approach, that favors investment in companies that are able to demonstrate a positive ESG impact. When a donor comes to us to create a new foundation, we consistently recommend the adoption of our SRI policy with regard to the future management of the endowment of their foundation.
THE FUTURE IS BRIGHT, BUT CHALLENGES LIE AHEAD
The interest in philanthropic giving is clearly on the rise. For Hirdman, new technologies are opening up new perspectives for the greater good.
“It is not only offering new ways of giving, such as crowdfunding, but brings with it the possibility for philanthropists to participate actively in projects, to communicate directly with beneficiaries and monitor projects from a distance. Through new technologies, we can close the distance between the donors and the end beneficiaries.”
While having new opportunities, the sector also faces new challenges.
“Regulation is increasing and puts pressure on foundations which need to be able to prove their positive impact on society.”
“At the same time, the need for funding will grow significantly over the coming decades. Climate change is having the worst consequences for the world’s most vulnerable populations. Add to that the growing proportion of ageing populations and increasing social inequalities in our part of the world. This will create a need for new funding models, whereby contributions from private philanthropy can be scaled up through public-private partnerships,” concludes Hirdman.