Private Foundations - International Development Committee Contents

2  The contribution of foundations to development

9. Philanthropy has a number of characteristics that enable it to 'add value' to global development efforts in ways that more traditional donors cannot (or choose not to). Foundations are currently providing a welcome injection of much-needed funding and skills at a time when national aid budgets are under pressure. But their advantages go well beyond the mere sum of their assets.

Innovation and risk-taking

10. Because they are using private funding, foundations can take risks that national donors cannot. As one witness told us, foundations "can be more flexible, test new approaches and take a longer term view than agencies or departments funded by tax payers [...] they are much less influenced by political cycles."[18] However, this is not always the case. The Chair of our Committee participated in a conference during November 2011 organised as part of the Bellagio Initiative, a series of global consultations held during 2011 exploring trends and opportunities in philanthropy and development, which is led by the Institute of Development Studies (IDS), the Resource Alliance and the Rockefeller Foundation.[19] Participants at the Bellagio conference expressed frustration about the lack of innovation amongst some foundations. It was asserted that foundations want to appear in the best possible light and therefore are put off from taking certain risks. Experts from the Institute of Development Studies said

    The philanthropic sector needs to better balance risk with opportunities. It needs to view risk at the strategy, rather than individual project level, and create cultures where failure is accepted and seen as a source of learning. [...] [Philanthropists need] to better understand their own risk tolerance and to construct portfolios of grants and projects that reflect a mix of risk rather than those that gravitate toward the lowest level of risk for all projects.[20]

11. Official donors are generally good at innovation but there are examples of foundations pursuing a more inventive and ground-breaking approach than official donors. The UK-based Children's Investment Fund Foundation told us that it targets those communities most in need in Africa and Asia "regardless of most political considerations", giving the example of its $50 million 5-year programme to prevent mother-to-child transmission of HIV/AIDS in Zimbabwe.[21] CIFF's financing is for a Government of Zimbabwe national programme. In comparison, DFID currently has a policy position of not channelling any of its funding to the country through the Government of Zimbabwe.[22]

12. Another example of foundations' riskier political approach is the Mo Ibrahim Foundation's annual Ibrahim Prize for Achievement in African Leadership. The Foundation can award the prize each year (worth $5 million over 10 years and $200,000 annually for life thereafter) to a democratically elected former African Head of State or Government who has served their term in office within the limits set by the country's constitution, has left office in the last three years, and has demonstrated excellence in office.[23] David McNair of Christian Aid told us

    Foundations [...] do quite risky things. [The Ibrahim prize] is a really innovative approach to rewarding best practice and encouraging African leaders to manage their countries in a way that benefits the people. In addition, they engage at a country level to help civil society hold Governments to account. That pincer movement of both rewarding the leaders and helping civil society to hold Governments to account is really important and political.[24]

13. Secondly, foundations can take risks with their choices of what to fund. They can choose focused interventions, often accompanied by substantial financial resources, which can often produce quick results. In part this advantage stems from the fact that foundations often have more staff per pound spent than official donors, and hence can make upfront investments and pilot 'expertise-heavy' ideas.[25] For example, the Rockefeller Foundation provided support to the 'Green Revolution' in Asia in the 1940s-1970s which, through technology transfer—especially the development of high-yield crops, irrigation, fertilisers and pesticides—increased agriculture production significantly in the region. The Gates Foundation is working in partnership with the Rockefeller Foundation to attempt to emulate these successes through the Alliance for a Green Revolution in Africa, launched in 2006.

14. Foundations can also take financial risks, for example investing in projects with a higher risk of failure or with results that are still at test stage. Bill Gates has a strong commitment to innovation and risk. In his 2010 Annual Letter, he stated

    Melinda and I see our foundation's key role as investing in innovations that would not otherwise be funded [...] Our framework involves funding a range of ideas with different levels of risk that they could fail. The ones with low risk are where the innovation has been proven at a small scale and the challenge is to scale up the delivery. High-risk innovations require the invention of new tools. Some are at the frontiers of science, such as finding a new drug and running a large trial to see how well it works. Other high-risk efforts involve changing social practices, such as persuading men at risk of getting HIV to get circumcised.[26]

15. A powerful example of this risk-taking is the support given by the Gates Foundation to vaccines to combat infectious diseases. Gates has contributed $200 million to a new malaria vaccine announced in October 2011 by its developer, GlaxoSmithKline. Initial trials show that the vaccine may be able to cut the risk of malaria in young children by approximately half.[27] As Jeff Raikes, Chief Executive Officer of the Foundation, told us, Gates effectively identified a market failure and 'filled the gap':

    GSK did not really see a real market opportunity for a malaria vaccine, because it largely affects poor populations that cannot afford it. But with our stepping in and helping to underwrite the R and D, we now have not just the first phase 3 malaria vaccine candidate but the first phase 3 vaccine candidate trial results.[28]

16. Whilst the vaccine's efficacy across different groups still needs to be proven—trials will continue until 2014—the Gates Foundation has clearly contributed to a landmark in malaria research. This follows other major contributions to the fight against malaria, which are likely to have contributed to a 20% reduction in malaria deaths over the last decade.[29] These include the Foundation's role in developing the Roll Back Malaria Partnership's Global Malaria Action Plan, which aims to reduce global malaria deaths to near zero by the end of 2015.[30] The Foundation's commitment to eradicating malaria is also borne out through its support to the Global Alliance for Vaccines and Immunisation (GAVI). Gates provided $750 million in 1999 to launch GAVI, a public-private global health partnership committed to increasing access to immunisation in poor countries.[31] In June 2011, donors pledged a further $4.3 billion bringing the amount committed for 2011-15 to $7.6 billion. Of this, the UK Government and Gates were the largest donors with amounts of $2.45 billion and $1.34 billion respectively.[32] The major pledges to GAVI were for new vaccines, such as rotavirus and pneumococcal infection, rather than the traditional 'expanded programme of immunization' (such as TB, diphtheria, whooping cough, tetanus, polio, and measles).

17. Foundations can take political, 'focus' (in terms of project choice) and financial risks that official donors cannot. The world's largest foundation, created by Bill and Melinda Gates, has shown that risk-taking and innovation can produce outstanding results. The Foundation has made significant contributions to reducing the burden of malaria in developing countries. Thanks partly to funding from Gates, it is hoped a malaria vaccine will come to market in less than five years' time. New vaccines for rotavirus and pneumococcal infection, to be funded through the latest replenishment of the Global Alliance for Vaccines and Immunisation (GAVI, which receives around 18% of its income from foundations),[33] hold the promise of reducing millions of child deaths from diarrhoea and pneumonia.

Contributing to policy development

18. As well as making growing contributions to international aid flows, foundations are having increasing influence on international development policy. This was demonstrated by the G20's invitation to Bill Gates to present his vision on how to finance global poverty reduction to the Summit in Cannes, France, held from 3 to 5 November 2011. Gates' report to the Summit focused on innovation. It also made a strong challenge to donors to adhere to their aid pledges and recommended a number of ways to achieve this, notably through tax proposals that could raise extra funds to meet aid targets.[34]

19. Yet there are risks associated with foundations' involvement in policy. Christian Aid said that their involvement must be "accompanied by accountability and transparency with regard to [...] funding and the ways in which foundations are steering policy."[35] The Children's Investment Fund Foundation highlighted the importance of bringing foundations within global policy initiatives:

    Because foundations have the power to advocate for priorities of their own choosing there is a risk that they can skew the priorities of other donors, and, importantly, recipient governments and multilateral institutions. For example, some faith-based Foundations may focus their education and health programmes on solutions which may align closely with religious beliefs. The development community, including DFID, have been very helpful in promoting and disseminating initiatives such as the Copenhagen Consensus and the Millennium Development Goals in order to capture the expertise of many of the leaders in the development field and to try to align the priorities of all actors, including Foundations, around the most pressing issues and the most effective solutions.[36]

20. Perhaps the most important opportunity to involve foundations in global development efforts is the Paris Agenda on Aid Effectiveness. In 2005, almost all major donors signed the Paris Declaration, aimed at improving aid effectiveness through improved co-ordination, harmonisation and efficiency. Interviews carried out with traditional donors have shown that they are worried about the impact of foundations' work on implementation of the Paris Agenda. For example, one of the Agenda's key objectives has been to reduce the burden on recipient countries of dealing with multiple individual donors, and an array of funding cycles and processes—yet foundations serve as yet another agency with which countries must engage.[37]

21. Even large organisations, such as the Gates Foundation, were not invited to sign the Paris accords in 2005, although the Foundation told us they "participated in the dialogue" and "focus on and believe in some of the principles."[38] On 29 November to 1 December 2011, the Fourth High Level Forum on Aid Effectiveness was held in Busan, Korea, to monitor the implementation of the Paris agenda.[39] Greater efforts were made at Busan to ensure that foundations participated in the Forum's decision-making, and the Outcome Document pledged to "take action to facilitate, leverage and strengthen the impact of diverse sources of finance to support sustainable and inclusive development", including philanthropy (although not foundations specifically).[40] Commentators at Busan argued that a new aid architecture is required to accommodate the full range of development actors rather than just official donors. As Robert Picciotto of King's College, London, said, "the development scene has changed radically and neither the aid architecture nor the goals, principles and practices that govern development co-operation have kept up".[41]

22. On the other hand, Dr Noshua Watson of the Institute for Development Studies cautioned that there were risks as well as advantages to including foundations as signatories. She said, "When you have an agreement to which not only donors can agree but foundations as well, you risk watering down the principles behind it".[42]

23. In order for their increasing contributions to global policy development to be maximised, foundations must be brought inside global development processes. Chief amongst these are efforts to improve aid effectiveness, known as the Paris Agenda. It was encouraging that, at the recent High Level Forum on Aid Effectiveness, held in Busan, Korea, in November 2011, philanthropy was given a higher profile than at previous international fora. We recommend that DFID make efforts as far as are practicable to engage foundations as fully as possible in future development events and processes, including: follow-ups to Busan in 2012; the 'Rio+20' UN Conference on Sustainable Development in June 2012; and discussions of a post-2015 Millennium Development Goal Framework including the MDG 'special event' in 2013.

Venture philanthropy

24. A new form of philanthropy termed 'philanthrocapitalism' or 'venture philanthropy' is increasingly being practised by a wide range of foundations. It aims to apply business techniques to philanthropy with a greater focus on effectiveness, the market, performance goals and on return on investment. Sometimes the returns sought are financial as well as social. Organisations such as the Omidyar Network, created by eBay founder Pierre Omidyar and his wife Pam, are piloting ethical for-profit investments in developing countries. This type of investing is known as 'impact investing'.[43] The Omidyar Network describes its approach as:

    A hybrid model centred on 'flexible capital': we make grants to non-profit organisations but also invest in for-profit companies that we believe can generate both financial and social returns - what is known as 'impact investing.' This hybrid model marries the 'social good' focus of the not-for-profit sector with the market incentives and drive for scale of the commercial world.[44]

The Omidyar Network operates both a foundation and a for-profit investment fund under the same roof, dedicating nearly equal resources to each: of the $450 million invested so far, 46% has supported equity investments and 54% grants.[45] DFID states in its written evidence:

    'Impact Investments' [are] designed to yield equity returns as well as a broader benefit for society. Examples of this 'profit with a purpose' approach include life insurance to people with HIV/AIDS in South Africa and savings, insurance and investment products in Kenya. […] JP Morgan predicts that by 2020 up to $1 trillion could be invested in this way.[46]

25. Matthew Bishop and Michael Green, co-authors of the recent book Philanthrocapitalism,[47] told us that this trend would mark "a significant shift in the way development is financed" and said there was a "powerful case for the mainstream investment community to explore impact investing as a business opportunity".[48] They attributed the recent opening of offices in London by 'philanthrocapitalists' such as Gates and the Omidyar Network to the UK's "leadership role in the fighting against poverty […] drawing interest from private actors".[49] However, they were concerned that DFID was missing an opportunity to exploit these new relationships because "of the continued focus of DFID on working primarily with other official donors […] Many foundations and businesses feel that the door to UK government is closed".[50] Whilst they welcomed the creation of DFID's Private Sector Department, they noted that other donors, such as the US Agency for International Development (USAID), had already created 'partnership offices' to facilitate joint working with private actors.[51]

26. When we put this to DFID, it told us that its Global Partnerships Department was responsible for co-ordinating engagement with foundations. When we asked the Rt Hon Alan Duncan MP, Minister of State, DFID for his views on whether there was a role for DFID in co-ordinating and encouraging 'venture philanthropy', he said the answer "is an unequivocal yes". He said this form of philanthropy "will be a growing process by which philanthropy can have effective influence" and that it "absolutely ties in with our focus on private sector development and growth".[52] We will return to the issue of how DFID organises it relationship with foundations in Chapter 4.

27. 'Venture philanthropy' or 'philanthrocapitalism' represents an exciting new direction for some forms of development funding by the private sector. The idea of 'profit with a purpose' products, whereby funding brings about financial as well as social returns, merits serious consideration as a new way to incentivise the business community to become more involved in development. DFID is clearly aware of the potential offered by this form of philanthropy work and has indicated it would like to do what it can to support it. We recommend that DFID now take some practical steps to build its support for venture philanthropy where it is appropriate to do so. For example, it could open a 'partnership office', possibly within DFID's Private Sector Development Department, to facilitate collaboration with foundations and businesses, as donors such as the US Agency for International Development have done.

High profile advocates

28. Some foundations use celebrities (for example, Bono, Bob Geldof) or high-profile philanthropists (Bill Gates, George Soros) to promote or even lead their work. This has many advantages, including: building media profile; securing support from young people and new audiences; boosting donations; and increasing political pressure on global leaders.[53] The Gates Foundation's 'Living Proof' initiative is an example of the way advocates—in this case Bill and Melinda Gates—can attract new audiences. Living Proof, now being taken forward by the NGO ONE, aims to communicate concrete results of aid and the value for money it can represent, and is particularly aimed at young people.[54]

29. Like foundations, advocates and celebrities can take political risks that taxpayer-funded agencies cannot. For example, the ONE campaign told us of a recent strongly-worded letter written by Bob Geldof to the French and German governments urging them to scale up their response to the famine in the Horn of Africa. ONE said, "This kind of statement is difficult for diplomatic actors to make in political fora".[55]

30. Many witnesses, including the DFID Minister himself, agreed that a key advantage of advocates and celebrities was their ability to counteract the negative view of aid that was sometimes portrayed in the media.[56] The Gates Foundation told us:

    The media representation of aid predominantly reinforces the scepticism of many people, by focusing on failures of aid programmes and stories of corruption. There is little attention given to stories of aid working, let alone to the full complexity of the realities in developing countries. This representation skews the picture [...] As such, there is a greater need for advocates on international development both to keep international development on the national agenda and to balance the way in which it is discussed.[57]

31. High-profile advocates tend to communicate development ideas well to the public. A recent example of this was the role played by Bill Gates in the June 2011 replenishment of the Global Alliance for Vaccines and Immunisation (GAVI) initiative. It is significant that a recent YouGov poll noting declining UK public support for development showed much stronger support for the UK contribution to the replenishment of GAVI, perhaps indicating that advocates and foundations—in this case Gates—are better at identifying interventions that resonate with the public, and that they communicate them more effectively.[58] It is also certainly true that advocates and celebrities have better contact networks and communications experience in finance and campaigning than official donors.[59]

32. However, there are also criticisms made about foundations' use of celebrity advocates. For example, some believe that their interventions can skew development interventions planned by recipient governments and other donors.[60] Their role may be short-term rather than making a sustainable contribution to development. The Wood Family Trust recommended that, in order to minimise these risks, high profile advocates needed to communicate their activities to both the public and other donors in order to avoid duplication and promote co-ordination.[61]

33. We questioned the DFID Minister about the pros and cons of high profile advocates. He told us that such advocates "have done more for […] development awareness than any DFID budget could ever have done."[62] High profile advocates are good at communicating development ideas. They attract new audiences and draw on contacts in a way that neither foundations nor official donors can. At a time when national and global aid budgets are being squeezed by the financial climate, advocates have an especially important role in underlining 'good news stories' about aid that can help counteract the negative view of aid sometimes portrayed in the media.

18   Ev w41  Back

19   The Summit was held at the Rockefeller Foundation Bellagio Center in Italy on 8-22 November 2011. Participants included international development practitioners, commentators, social entrepreneurs, donors and philanthropic organisations. The Summit's aim was to bring together thinking about the role of philanthropy in international development, and formulate "a new framework for philanthropy and development for a changing world".  Back

20   Ev 69 Back

21   Ev 42 Back

22   DfID's £80 million 2011-12 Zimbabwe programme is seen as a 'pre-election programme' which, whilst still not channelled through the Government of Zimbabwe,will "complement support with technical advice to the reformers in Government in preparation for transition to a more stable government" following elections (DFID Zimbabwe, Operational Plan 2011-2015) Back

23   In 2007, the prize was awarded to Joaquim Chissano of Mozambique; in 2008 to Festus Mogae of Botswana; and in 2011 to Pedro Pires of Cape Verde. No award was given in 2009 or 2010. Back

24   Q 8 Back

25   Ev w25 Back

26   Ev 35 Back

27  Back

28  Q 78    Back

29   Q 78 Back

30   Ev 57  Back

31   Partners include developing country and donor governments, the World Health Organisation, Unicef, the World Bank, the vaccine industry and private philanthropists such as Gates. Back

32   These figures are taken from the 'Resources Now Assured for 2011-2015' column in the 'GAVI Alliance pledging conference - Key Outcomes' table, online at The UK Government's donation is the second of two large commitments to GAVI: it had existing provisions of £959 million at March 2011, although it is unclear whether some of this sum is included within the £1.5 billion figure for 2011-2015. Source: National Audit Office, Briefing to support the International Development Committee's inquiry into the Department for International Development's Annual Report and Accounts 2010-11 and Business Plan 2011-15 (October 2011), p.10. Online at Back

33   'GAVI Alliance pledging conference - Key outcomes' table, online at: Back

34   Proposals included: a financial transaction tax; a tobacco tax; and a G20 infrastructure fund ('Innovation with Impact: Financing 21st Century Development: a report by Bill Gates to G20 leaders', Cannes Summit, November 2011) Back

35   Ev 45 Back

36   Ev 43 Back

37   Robert Marten and Jan Martin Witte, 'Transforming Development? The role of philanthropic foundations in international development co-operation' (Global Public Policy Institute Research Paper Series No.10, 2008), p.24.  Back

38   Q 59 Back

39   In 2005, almost all major donors signed the Paris Declaration, aimed at improving aid effectiveness through improved co-ordination, harmonisation and efficiency. Back

40   Busan Partnership for Effective Development Cooperation, 1 December 2011, para 10 , online at  Back

41   Robert Picciotto, Briefing Summary, 'Evaluating Development Philanthropy in a Changing World',commissioned paper for the Bellagio Initiative, November 2011, p.1 Back

42   Q 10 Back

43   Ev w24 Back

44   Ev w26 Back

45   Ev w27 Back

46   Ev 58 Back

47   Matthew Bishop and Michael Green, Philanthrocapitalism: How the Rich Can save the World and Why We Should Let Them (London: A&C Black, 2008) Back

48   Ev w24 Back

49   Ev w25 Back

50   Ev w25 Back

51   Ev w25 Back

52   Q 127 Back

53   Robert Marten and Jan Martin Witte, 'Transforming Development? The role of philanthropic foundations in international development co-operation' (Global Public Policy Institute Research Paper Series No.10, 2008), p.20 Back

54   Ev 60 Back

55   Ev 36 Back

56   Q 134 Back

57   Ev 37 Back

58   Ev w25 Back

59   Ev w25 Back

60   Ev 43 Back

61   Ev 54 Back

62   Q 133 Back

previous page contents next page

© Parliamentary copyright 2012
Prepared 20 January 2012