December 1, 2020, was Giving Tuesday - America’s annual (and very welcome) rebellion against consumerism. It began in 2011 as a fledgling idea to encourage people to give to charity after their Cyber Monday shopping. In 2012, Giving Tuesday gathered $10 million; by 2019 this figure had swollen to an estimated $1.97 billion - fueled by widespread public recognition, increased online participation and massive donation-matching by some of the world’s most valuable companies.
On Giving Tuesday 2020, charities received an estimated $2.47 billion according to Philanthropy News Digest. Pause and consider that for a moment: in 2020, amidst a worldwide pandemic and catastrophic unemployment, our fellow citizens stepped up and raised their giving 25%. Well done, humans.
I wonder how we’d approach this day if wasn’t known as Giving Tuesday, but Investing Tuesday. What if we considered donating to charities not as an act of giving, but as one of investing?
Think about it like this. A giver hands over their money and walks away. They’re pleased with the generosity, but they typically show less interest in the specifics of how their giving performs. An investor likewise hands over their money, but does so with the intention that it will perform - it will generate a return, or a profit.
Supporting charitable causes has the ability to generate a return, or a profit, also. By that, we don’t mean the the giver will be able to cash in at some point and collect a check, or sell their shares, buy a Land Rover and move to Aspen. We mean that the person on the receiving end - the final beneficiary - will benefit economically in a way that outpaces the original amount given. There will be a profit (a social return, if you like), that exceeds the donation value - often many times over, and for many years to come. In fact, when done well, the initial donation can continue to perform into the next generation. That’s impressive investing.
Here’s the kicker (yes, there’s always a kicker): not all charitable giving performs the same. In fact, it’s not even close. But we think they do, and that’s a problem.
We think all charities have roughly the same impact, and that's a problem.
A recent study by the Society for Judgement and Decision-Making, and the European Association for Decision Making, published in July 2020, found that ‘lay people (I’d say this is just another term for a good, compassionate and generous person, but not one who spends hours researching the topic) estimated that among charities helping global poor, the most effective charities are 1.5 times more effective than the average charity.’
Is this estimation of effectiveness accurate? Sadly, no.
So let’s return to our $2.47b given this month and take a little thought walk.
Putting $2.47b in the hands of Average Charitable Organizations:
Imagine that $2.47b given to 100 average charities: they have average-performing interventions (an intervention is an action like providing medical care to the poor, or building schools in developing communities) and average performing financial efficiency (very roughly put, this is the ratio of money spent on program costs versus salaries, fundraising etc).
Research tells us that a scattershot approach to philanthropic work will return around $7 for every $1 given. So all told, the social good created by Average Charitable Organization will likely be around $20 billion. While that in itself is impressive - and way better than the stock market, by the way - it could be better.
Putting $2.47b in the hands of Exceptional Charitable Organizations:
Let’s look at the other end though: those people and groups who are engaging in highly-effective interventions and who have highly-efficient financials (yes, they exist!). These organizations use evidence-backed interventions so that their methods generate the best return possible, and their organizations run like well-oiled machines, funneling the maximum amount of money directly towards their recipients. Research shows these super-performers deliver incredible social returns: 15, 30, sometimes 60 times the value of each dollar given.
If our $2.47 billion was placed in the hands of 100 of the highest performers (spoiler alert: think vaccinations, childhood nutrition and access to contraception), they could turn it into $150 billion in social good.
Say it slowly with me:
One. Hundred. And. Fifty. Billion.
How do we know this? Decades of glorious research and gathering data into the effectiveness of both charitable interventions and the organizations engaged in them tell us one thing, conclusively: some groups are outpacing others, and the race isn’t even close. In the words of Malcolm Gladwell, they’re “the outliers”. These are the groups that perform so far beyond average that comparisons barely exist. They upend the norms, permanently change expectations, and lift the entire field to a higher standard.
In sports terms, they are the Roger Federers, the Jackie Robinsons, and the Sir Donald Bradmans of ‘doing good’.
So, my question now is: how well would we like our charitable investment to perform?
$20 billion in good, or $150 billion?
$17 billion in profit, or $147 billion?
I think it’s easy to see where an investor would put their money, don’t you?
All charitable interventions are not created equally, and all charitable organizations do not behave equally. If you donate for the feeling of doing the right thing, then feel free to write a check to anyone who catches your eye (after all, it’s your money). But if you really want to make an over-sized impact, and set-off a cascade of social good that changes the generations - and this is entirely possible through the superb work of faithful, intelligent and compassionate organizations - take a moment to be more intentional about the target of your investment.
As always: let’s get smart, so we can do more good.