For many, Ethical Finance is an oxymoron. Corporate responsibility (CR) almost by definition is about corporations and is rarely associated with banks, insurance companies, and other forms of financial institutions. Their financial analysts and portfolio managers are often accused of being the cause of much of the external pressure on corporations for quarterly earnings estimates and short term financial results. But, to the surprise of many, these same financial institutions are increasingly joining the corporate world in seeking ways to improve internal operations through improvements in customer service, employment practices and workplace conditions, to become more involved in local community development, and to reduce their own ecological footprints through. At the same time, they are recognizing the importance of their own direct external influence on customers for their products and services as well as through more active ownership of shares in their portfolios.

In this knowledge centre we provide information on eight areas of ethical finance:

Socially Responsible Investing
Cleantech Venture Capital
Financial Services
Institutional Investors
Social Investing
Microfinance
International Institutions
Philanthropy

Then we offer a powerpoint presentation on Ethical Finance that readers are welcome to draw upon should they have opportunities to make presentations on this theme.

1. Socially Responsible Investing (SRI)

According to Wikipedia, Socially Responsible Investing or Socially Responsible Investment, often abbreviated to SRI, is an umbrella term for a philosophy of investing based upon financial, social and environmental criteria. SRI investors seek to align their personal values and financial goals by choosing to invest in companies and organizations displaying values comparable to their own. Many think of SRI only as screening (avoiding companies that do not meet certain social or environmental criteria). But SRI has three levels, of which Screening is just the starting point. The other levels are Community Investing and Shareholder Activism, both of which have far more beneficial impacts because they seek to engage and transform a situation rather than ignore it and hope it goes away.

An important issue to confront with SRI is its critics' oft-repeated claim that responsible investors must sacrifice return in order to invest more in line with their values. This has been shown to be an unsupportable assertion. Despite persistent attempts to discredit SRI, it has now been demonstrated that social screens and shareholder engagement do not harm financial return, and in some cases have improved performance. A sampling drawn from dozens of longitudinal academic studies that demonstrate the benefits of social investment activity is summarized in section 4 of "What is SRI?"

With SRI assets at an estimated $3 trillion globally and climbing it is timely to assess the future of the global SRI industry. An important thought leader study, "The Future of Socially Responsible Investment" was published in 2005. It captured and analyzed the 10-year-ahead thinking of 42 of the world's leading SRI practitioners, who collectively see SRI, and in particular Screening, as becoming mainstream investment practice - entirely because SRI analysis does provide valuable insight into management's ability and thoughtfulness. Other significant trends include the continued growth and robustness of Community Investing, and in particular the evolution of Shareholder Engagement as the defining factor that distinguishes the 'Deep SRI' firm from others.

There is an increasing number of rating agencies which offer research and rating of the CR performance of companies. Among the better known are:

2. Cleantech Venture Capital (CVC)

Only in 2002 was Cleantech defined as a distinct concept of venture capital (VC) investment. In four short years it has become the fifth largest and fastest growing segment of venture capital. Of the expected $85 bn in new global venture capital investment expected to be raised between 2006 and 2009, Cleantech should represent 9 or 10 percent. What is driving this growth in CVC? A number of factors such as: high and volatile oil and commodity prices, less expensive and more reliable alternative energy technologies, increased interest by major corporations, national and local policy initiatives, advances in science and technology, the rise of serial entrepreneurs, large investments by pension funds, and maturing energy technology. Somewhat over 50% of CVC is from professional VC firms. In addition to CVC, individual ‘angel investor’s also play an important role in providing equity and working capital to start-ups. While one would like to think this interest is in part socially or environmentally motivated, most practitioners are attracted largely by the increasing number of investment opportunities in Cleantech companies and the high expected returns.

What is Cleantech? According to Joel Makower, co-founder of Clear Edge, Cleantech is "a diverse range of products, services and processes that harness renewable materials and energy sources and substantially reduce the use of all resources and dramatically cut or eliminate emissions and waste." Essentially, CVC products and services optimize productive use of natural resources, eliminate or reduce waste, and add economic value. Examples include solar cells, wind and bio fuels, water filtration systems, software to manage a building’s air conditioning, and ozone-water systems for disinfecting fruit.

CVC in Europe is quite similar to that in North America. In volume it amounts to about 50% of that in North America. Investments in renewable energy play a relatively more important role in Europe, while advanced materials and nanotechnology are less developed. The UK represents about 40% of CVC in Europe.

Resources:

CleantechVenture Capital Report 2006 (North America)
Cleantech Venture Network
VC Journal

3. Financial Services

The following excerpts from a recent survey identify some of the significant trends in CR practices of financial services institutions (banks, insurance companies..):

"The financial sector has made significant progress on CR in the last few years. Whereas the sector had seen responsibility for protecting human rights and the environment as an issue for industrial companies, it is now increasingly recognizing its own responsibility and the benefits as well. Due to the increase in public interest about where money is invested and the growing evidence of long-term financial benefits of social and environmental considerations, financial service providers have started to incorporate CR in their core business. Surprisingly to many, almost 60 percent of global financial institutions included in the KPMG survey publish an annual CR report.

Among the most significant sector developments in terms of CR have been the Equator Principles guidelines for project finance, industry-wide attempts to encourage socially responsible lending in emerging markets, and the growth of sustainable asset management in Asia, Europe and the USA. Under pressure from external stakeholders like customers and NGOs, the main challenges for the financial sector are the incorporation of CR related risks and opportunities in mainstream asset management, credits and insurance activities."

The Equator Principle is a "third party" code of conduct supported by the International Finance Corporation in which some 40 “E-banks” agree to consider the social and environmental implications of all large scale, capital intensive project-financed investments. Seven of the top ten global finance lenders have accepted the code to enhance their reputation within their institutional environment.

It comes as a surprise to learn from the KPMG Survey mentioned above that 60 percent of the banks in their sample prepared sustainability reports in 2005. Among the actions highlighted in these reports are the following:

Adapting products and services to meet the needs of increasingly diverse customer base
Sustainability reporting in accordance with the Global Reporting Initiative guidelines. (Note: Rabobank won the 2005 award for Europe’s Best CSR Report)
External assurance of sustainability reports
Developing model business practices and new social and environmental indicators
Microcredit: lending to the poor who otherwise could not obtain financing for small and micro businesses
Ethical funds, loans, and other financial services screened for social and environmental criteria
Internal environmental management, eco-efficiency measures, e.g. one bank reports that 80% of all paper consumed is from recycled paper
Suppliers: sustainable procurement policies and practices
Diversity: promoting and reporting on the inclusion of women, ethnic minorities, disabled, and other groups within different levels
Employee training for sustainability (Banco Real, an ABN Amro affiliate in Brazil, is the first bank to require all of its staff to follow a three-hour online tutorial package on CR developed by the WBCSD and the University of Cambridge’s Programme for Industry.)
Socio-environmental financing
Developing a new management and assessment culture which incorporates CR
Employee-friendly working programmes (ex: equal opportunity, flexi-time, work life balance..)
Community involvement through philanthropy and volunteer work

There are many examples of responsible banks, among which are The Cooperative Bank (UK) (the fastest growing bank in the UK, finds that over 25% of its profit in 2005 came from customers who chose the bank because of its sustainability strategy, policies, and practices), Van City (recently won the coveted Ceres-ACCA Sustainability Reporting Award for its sustainable reporting practices. It was the only bank in North America to be so recognized.) Among the European banks publishing sustainability reports are Rabobank, ABN AMRO (Netherlands) and its Brazilian affiliate Banco Real, Triodos Bank, Lloyds, Barclays, … (to be completed)

4. Institutional Investors

In 2001 more than 60% of all outstanding shares of the US publicly traded companies were owned by funds controlled by professional asset managers, and this percentage continues to increase with the growth of pension funds and mutual funds. As of January 2004, the global total of assets under professional management worldwide was $70 trillion, 50% of which was in the United States. These were divided as follows (in dollars US):

Pension fund assets
Non-pension mutual funds
Fiduciary assets controlled by insurance companies
Assets of wealthy clients

18 trillion
11 trillion
10 trillion
32 trillion

These immense funds are managed by a couple of hundred teams of independent professional investment managers. These institutionally managed funds account for an even larger percentage of equity trading and, in effect, are the market. Furthermore, the professional managers are empowered to exercise shareholder voting powers to ensure sound corporate governance practices. How active are institutional investors in exercising their voting power? In the United States, 60% of shares whose corporate control rights are vested in institutional investors are voted. Examples include CalPERS and TIAA-CREF in the United States. In Europe, large banks and insurance companies are becoming more "active" shareholders. While they have traditionally voted these shares in favour of management, an increasing number are not. Corporate governance and climate change are becoming top issues for fund managers.

The UN’s Principles for Responsible Investment (PRI), launched in April 2006, represent a major support for sustainable investment. A group of the world’s largest institutional investors controlling more than $4 trillion in assets have agreed to follow a set of common guidelines when they assess environmental, social and governance (ESG) risks and opportunities, and to apply these principles to all investment functions – i.e. not only to SRI products. The principles also reaffirm the primacy of fiduciary responsibility, declaring that because ESG issues can affect investment portfolio performance, investors acting in the interest of beneficiaries need to take them into account. (www.unepfi.org) The six principles are:

Incorporate environmental, social and governance issues into investment analysis
Be "active owners", integrating the issues into their ownership policies and practice
seek "appropriate disclosure"
Encourage other investors to adopt the principles
Work together to put the principles into practice
Report on what they are doing to implement the principles

An important issue for institutional investors is their fiduciary duties with respect to environmental, social and governance (ESG) issues. The Asset Management Working Group of the UNEP FI asked a large law firm, "Is the integration of ESG issues into investment policy (including asset allocation, portfolio construction and stock-picking or bond-picking) voluntarily permitted, legally required or hampered by law and regulation; primarily as regards public and private pension funds, secondarily as regards insurance company reserves and mutual funds?" The reply: "far from preventing the integration of ESG considerations, the law clearly permits and in certain circumstances, requires that this be done… Ultimately, the findings of this report should encourage fiduciary duty to shift its responsibility from the idea of maximizing profits, that in "agency theory", ...duty to shareholders should instead consider an investor’s wider legal obligations to weigh ESG considerations into each investment and subsequently provide reasonable returns for their shareholders."

5. Other Social Investing

There are a number of other forms of social investing that deserve mention. One definition of social investing is the transfer of financial resources and business skills and discipline to the social sector. This includes include community development financial institutions (CDFIs), socially responsible angel investing, microfinance (see following section 6), and social enterprise, which is the object of a separate knowledge centre.

Community development financial institutions. CDFIs fill both a market gap and a social need by providing loans and other financial services to low- and moderate-income communities and minorities who are underserved by traditional financial outlets. In the United States, there are an estimated 1,000 CDFIs with about $10 billion in assets. These institutions take the form of community development banks, credit unions, loan funds, venture cpital funds, and mircoenterprise funds. A recent report, "CDFIs : Providing Capital, Building Communities, Creating Impact" provides comprehensive data on this field in the USA.

www.socialfunds.com

Angle investors. Another of the unheralded facets of social investing is the socially responsible "angel investor." Angel investors are individuals who are willing to provide seed, start-up, or growth capital to high-risk companies in return for an expected large return on investment. A national network of angel investors in the United States, members of the non-profit organization Investors' Circle, have been dedicated to providing venture capital to socially responsible start-up companies since 1992. These investments are largely for-profit but the expected returns are lower than those expected from investments in ventures without clear social or environmental missions. One study in the United Kingdom showed a lower percentage of successes among social angel investments (35 vs. 53%) as well as lower returns but the percentage of bankruptcies was the same (about 35%).  

See: A halo for angel investors by Stephan Carden and Olive Darragh, The McKinsey Quarterly 2004 Number 1.

To be completed with more information about social investment in Europe.

6. Microfinance

Much of the current interest in microcredit stems from the Microcredit Summit in Washington D.C. (2-4 February 1997). At that time, a goal was set to reach 100 million of the poorest of the poor with small loans by the end of 2005. As of the end of 2004, 67 million "very poor" people were reached by microcredits, of whom 84% were women. More recently, the Microcredit Summit has set new goals for 2015 to 1) reach 175 million of the world’s poorest families affecting some 875 million family members and 2) ensure that 100 million poorest families rise above the $1 a day threshold. These are stunning goals and critical to fulfillment of the Millenium Develoopment Goals.

Microcredit, which is used here interchangeably with microfinance, is the extension of small loans to enterpreneurs too poor to qualify for traditional bank loans. It has proven an effective and popular measure in the ongoing struggle against poverty, enabling those without access to lending institutions to borrow at bank rates, and start small business.
The key implications of microcredit is in its name itself: "micro". A number of issues come to mind when "micro" is considered: The small size of the loans made, small size of savings made, the smaller frequency of loans, shorter repayment periods and amounts, the micro/local level of activities, the community-based immediacy of microcredit etc. Hence microcredit is not the solution, but is a menu of options and enablements, that has to be put together, à la carte, based on local conditions and needs.
An aspect of microcredit that has contributed greatly to its success is its "credit-plus" approach - where the focus has not only been on providing adequate and timely credit to low income groups, but to integrate it with other developmental activities such as community organizing and development, leadership training, skills and enterpreneurship management, financial management etc. The success and sustainability of microfinance programmes has depended upon, and has fostered, these aspects.

At the outset we strongly recommend to researchers serious study of the contents of the "Virtual Library on Microcredit" prepared and maintained by The Global Development Research Center. Much of the material in this section is taken from this site, which offers internet resources, bibliography, documents, case studies, mailing lists, and much more. To summarize briefly,
Microfinance is not new. It is important to understand that the concept of microfinance is not new. The precedence for microfinance lies in the numerous traditional and informal systems of credit that have existed in developing economies for centuries, long before modern, western-based commercial banking came into the picture. Many of the current microfinance practices, in fact, derive from community-based mutual credit transactions that were based on trust, peer-based non-collateral borrowing and repayment. Transactional (eg. money lenders), mutual (eg. ROSCAs) or personal (eg. friends and neighbours) credit suppliers have always lent to the poor, providing the right quality and quantity of credit, at the right time and place, to low-income households.

However, this "adoption" of traditional financial systems and its integration in modern banking and financial systems is relatively new, and much of the credit for this integration will have to go to Grameen Bank, and other microfinance institutions such as SEWA (India), BRAC (Bangladesh), Accion, and Bancosol (Bolivia).

The integration of microfinance systems into the larger macro systems in developing countries has not been smooth and many barriers have existed. This is where second-tier institutions (multilateral institutions, donor agencies, universities and research institutions, international NGOs etc) have played a critical role in mainstreaming microfinance programmes and institutions. They have played both financial and non-financial roles - in terms of supporting microfinance initiatives financially, and in instituting capacity building and good governance practices in microfinance programmes.

Thus microfinance institutions and the governmental and non-governmental entities that support it have to face two key challenges if microfinance is to become a viable tool for poverty alleviation and development. Firstly, there is a need for repackaging microfinance, focusing on capacity building of microfinance institutions. Microfinance needs to "graduate" from its dependence on grants and its charity orientation, to one of self-sufficiency and financial sustainability. Technical advisory, management tools, appropriate and timely information are some important inputs. Secondly, there is a need for mainstreaming microfinance, focusing on governance of MFIs. This calls for a facilitative and supportive legislative environment to be put in place by national and local government agencies and financial institutions - essentially as a complement to the growing trend of self governance by MFIs.

Microfinance is not just about money. Much has been written about microfinance being the provision of "small loans" to "poor people" who live on "less than two dollars a day." However, the viability of microfinance needs to be understood from a dimension that is far broader - in looking at its long-term, non-money aspects too. The idea of microfinance not being just about credit transactions takes its inspiration from the "Credit-Plus" approach, which integrates adequate and timely credit into larger developmental processes such as comunity organizing, leadership training, entrepreneurship etc.. It is indeed a two way street - many interlinked and interdependent criteria need to be satisfied for the success of microfinance programmes, and conversly - availability of microfinance assists such activities.

The core of microfinance programmes go beyond mere access and distribution of money, to deeper issues of how money is utilized and invested by low-income individuals. It helps in fostering and developing a micro, community-based environment where existing networks and interlinks are strengthend. It is important therefore to understand that microfinance doesn't stand alone, but overlaps existing developmental activities and helps in their implementation.

Microfinance is not enough. The excitement of microfinance as a 'new tool' to combat poverty is being tempered by the realization that we need more than just microfinance to undo some of our societies' maladies and the developmental lacks, gaps, and mismatches we are facing. Microfinance is an enabling, empowering, bottoms-up tool to poverty alleviation that has provided considerable economic and non-economic externalities to low-income households in developing countries. But there has been a gradual realization that microfinance alone is not enough. Microfinance is not a replacement for jobs that are not there, markets that are inaccessible, or education and skills that do not exist. Particularly, the main objective of microfinance institutions - poverty alleviation - requires a holistic and indepth understanding of the interplay between economic, social, cultural extracts of the developmental process.

Understanding the problems, and the cause-effect relationships, is critical for a holistic view of development. For example, some of the commonly cited 'problems' of developing countries, such as high population growth, poverty and very poor people, pollution and bad local environments, or low water resources are indeed effects of deeper problems that lie behind it: lack of political will and leadership, bad development and manageme nt practices, inadequate human resources and skills, or improper infrastructure provision and management.

Problems behind problems therefore require 'solutions behind solutions' that target the root cause of problems - indeed it is critical for the progression of developmental inputs and solutions to run in parallel in achieving all-round progress.

EBBF's Contribution to Microcredit

The interest of EBBF in microcredit dates from its participation at the United Nations Conference on Social and Economic Development in Copenhagen in 1994. As it became acquainted with the importance of microcredit to development, it subsequently sent delegates (Diane Starcher, Eric and Annette Zahrai, Barbara Rodey, and Ruhi Huddleston) to the Microcredit Summit in Washington, D.C. in 1995. The leader of this EBBF delegation, Diane Starcher, was invited to be panelist in one of the sessions. Since that time EBBF has remained member of the Council of Advocates of the Microcredit Summit. In April, 1996 EBBF organized a very successful Global Dialogue on Microfinance and Human Development as part of the 1st UNESCO Business Forum in Stockholm. Nearly 100 participants exchanged views with such leading practitioners as Muhammad Yunus, founder and General Manager of the Grameen Bank ; John Hatch, founder of FINCA International ; Christopher Dunford, President of Freedom from Hunger; Rosalind Copisarow, now Senior Vice President of Accion, and others.

There are several excellent publications of EBBF on microfinance which can be downloaded from EBBF. They are:

Rodey, Barbara. A Global Dialogue on Microfinance and Human Deveopment : Final Report. EBBF, 1998
Roday, Barbara. The Spiritual Dimensions of Microfinance : Toward a Just Civilization and Sustainable Economy. EBBF, 1996.
Zahrai, Michel. The Spiritual Dimensions of Microfinance. EBBF, 1998.

And there are several members and former members of EBBF who are practitioners in the field of microfinance:

Barbara Rodey who is presently leading a microfinance project in Afghanistan
Anda Boros, a Senior Consultant on Microfinance, now in Afghanistan

Gary Reusche: managing a large USAID project on microfinance and SME development in rural development in the Ukraine.

Caroline Sawicki- managing a UNIDO sponsored project on CSR in small enterprises in Slovakia

Christel Scholten, CSR specialist in Banco Real in Brazil

Some major microcredit practioner organizations :

Bibliography

C.K. Prahalad The Fortune at the Bottom of the Pyramid: Eradicatig Poverty Through Profits. Wharton School Publishing, 2005
Sachs, Jeffrey, The End of Poverty, The Penguin Press, 2005
State of the Microcredit Summit: Campaign Report 2005

7. International Institutions

United Nations Environment Program Finance Initiative (UNEP FI) is a global partnership between UNEP and the private financial sector. UNEP FI works closely with the 170 financial institutions that are signatories to the UNEP FI Statements, and a range of partner organisations, to develop and promote linkages between the environment, sustainability and financial performance. Through regional activities, a comprehensive work programme, training activities and research, UNEP FI carries out its mission to identify, promote, and realise the adoption of best environmental sustainability practice at all levels of financial institution operations. www.unepfi.org/investment

UNEP FI Asset Management Working Group is a global platform of asset managers that collaborate to drive the mainstream integration of ESG issues in investment decision-making and ownership practices. The Working Group consists of 14 asset managers with combined mandates of 1.7 trillion USD.

European Bank for Reconstruction and Development: EBRD was created in 1991 to assist the transition of former communist nations to market economies and operates in countries in central and eastern Europe and central Asia. It recently announced a Sustainable Energy Initiative to encourage clean and renewable energy projects and make the region more energy efficient. It aims to double its financing for energy efficiency and renewable energy projects, while developing feasibility studies for newer renewable technologies.

The International Finance Corporation (IFC)is a huge lender to the private sector in the developing world. Its loan portfolio of $19.3 billion is now subject to its new and stronger social and environmental ‘Performance Standards’. These standards will also apply to project lending by the 41 banks and other financial institutions that have signed the Equator Principles covering loans for large projects (>$50m) which amount to another $100 billion. www.ifc.org

UN Principles of Responsible Investment:issued this document which is signed by institutional investors representing more than USD 4 trillion in assets under management.
Full text
Further information about PRI

Other Resources

Indices

Dow Jones Sustainability Index
DJSI Stoxx
FTSE4Good
FTSE ISS of Corporate Governance
Aspi

Newsletters

Triple Bottom Line Newletter
Sustainable Development International Newsletter

Bibliography

Mainstreaming Responsible Investment, by Simon Zadek et al, World Economic Forum, January 2005
Ed Rory Sullivan and Craig Mackenzie Responsible Investment Greenleaf Publishing Sheffield UK 2006
European Sustainable and Responsible Investment Forum (2003) Socially Responsible Investment among European Institutional Investors (Paris: Eurosif)
Global Compact Investment Sector Initiative (2004) Who Cares Wins: Connecting Financial Markets to a Changing World (New York:The Global Compact)
Sustainable Value of European Industry: A Value-based analysis of the environmental performance of European manufacturing companies
www.advance-project.org
UNEP Finance Initiative Asset Management Working Group, Show Me the Money: Linking Environment, Social and Governance Issues to Company Value. 2006.
http://www.unepfi.org/fileadmin/documents/show_me_the_money.pdf

8. Philanthropy

A simple definition of "philanthropy" is "the provision of finance to any organisation for predominantly social benefit." Some consider it to be "giving back to society." It can be in the form of grants, returnable grants, loans, and equity where the primary purpose is creating social value, not personal gain. Philanthropy can be either corporate or individual giving; it can be both, for example in the case of corporate matching of contributions of employees to certain causes. In the case of corporate philanthropy, it can be simply direct financial contributions to social organizations or it can be strategic contributions closely tied to corporate strategy and operations, as is the case in cause-related marketing. Another form is microphilanthropy, mainly associated with microfinance, self-empowerment, and the alleviation of poverty.

Philanthropy in the USA: Philanthropy, though increasing in Europe, has long been an American thing. Today there are 68,000 charitable foundations in the US, most but by no means all, are corporate sponsored. Last year $34 billion was contributed, according to the foundation Center. Charitable urges - and tax deductibility – can take many forms from sponsoring a United Way or Community drive, to matching employee contributions to their favority charities, to taking up collections for a specific cause, to pro bono work by professional firms, to establishing corporate charitable foundations. Increasingly these corporate foundation grants are focused on needs related to the company’s purpose and strategy, for example a real estate firm contributing to Habitat for Humanity. What motivates such generosity? Unquestionably donors perceive a positive effect on their goodwill and reputation - greater customer loyalty results according to the Council on Foundations. Another benefit of philanthropy is its effect on morale - people take pride in working for companies that do good work and are perceived to be socially conscious.

Of course, wealthy people also establish and manage foundations. The Bill & Melinda Gates Foundation, to which they have contributed over $30 billion, is a notable case. Because of the worthiness of its focus on elimination of diseases in the third world and the quality of its management, Warren Buffet has recently decided to contribute over $30 billion of his fortune to be managed through the Gates Foundation.

Philanthropy in Europe: (To be completed)

Venture Philanthropy: A more recent form, Venture Philanthropy (VP), is the subject of this brief section. The European Venture Philanthropy Association definition of VP focuses on six characteristics: high engagement, multi-year support, tailored financing, organisational capacity-building, non-financial support, and performance measurement. It is distinguished clearly from venture capital in that the bulk of VP activity is based on non-returnable grants.

Researchers of VP would do well to read and study a recent working paper entitled, "Venture Philanthropy: The Evolution of High Engagement Philanthropy in Europe" by Rob John dated June 2006.
The full text can be found here.

It was sponsored by the Skoll Centre for Social Entrepreneurship.

The following table of contents shows its coverage and relevance:

Introducing Venture Philanthropy
The European Dimension
Critical Issues for the Development of VP in Europe
Case Studies
Resources (Bibliography and Web sites)
Appendix

In its summary, this paper describes Venture Philanthropy (VP) as a blend of performance-based development finance and professional services to social purpose organisations. It is distinguished by its high-engagement, partnership approach analogous to the practices of venture capital in building the commercial value of companies. Some have said that VP is to social ventures as venture capital is to entrepreneurship. VP focuses on building organisational capacity in entrepreneurial social purpose organisations, matching appropriate finance with strategic business-like advice, which makes it a distinctive provider of capital.

There is no single accepted definition of VP. It is distinguished primarily by the relatively high level of engagement of the donor, over an extended time period, injecting skills or services in addition to finance. While VP is strategic, the term "strategic philanthropy" is generally used to describe when grant making by a commercial company is strongly aligned to its core business strategy and operations.