A Force For Good: IFCs At The Forefront Of Philanthropic Innovation In The Post-Pandemic Era

The Pandemic And Its Effects

The pandemic has exposed many working practices and protocols that are outdated and due for overhaul. Besides the grave impacts of social distancing and the rendering of entire industries defenceless overnight, what lockdown and working from home showed was that much of the ecosystem both onshore and offshore was surprisingly resilient. Although many business-continuity sites were rendered instantly obsolete by a combination of social distancing and strict limitations as to who counted as a “key worker”, a substantial majority of pre-existing business was able to be picked up and conducted from the dining rooms and spare bedrooms of assorted nations with remarkably little interference. A mentality of disaster recovery became one of make do and mend, with concomitant tweaks to policies and procedures. This has also led to a freeing-up of some resources to devote to philanthropic enterprises.

How Can IFCs Help?

Although the provision of philanthropic and impact design, measurement and evaluation services is not regulated as a core financial service, such services are often able to be added to the existing client offering of a licensed entity. This brings strength, credibility and fringe benefits from the prior ecosystem.

Many philanthropic projects in consideration as we emerge into an era of adjusting to life alongside COVID-19 will require larger and more sophisticated solutions. IFCs in general and Guernsey in particular are extraordinarily well placed to offer the infrastructure and expertise for choosing, funding, administering and reviewing philanthropic proposals. Most of the UK’s leading banks, investment managers, auditors and tax advisors are available in or have offices in Guernsey and beyond.  Much philanthropy starts on generational transfer of wealth, especially where the incoming generation has not been at the metaphorical coalface of raising the initial family wealth.

IFCs have also been at the forefront of developing and implementing:

• legislation to cause charities to register publicly, subject to threshold conditions[1];
• registers of beneficial ownership in the light of global transparency and regulatory push towards that aim[2];
• maintaining robust systems for finding and deterring the enablement of the transmission of the proceeds of crime and the curtailment of the financing of terrorism and the proliferation of nuclear, chemical and biological weapons[3]; and
• making the key players from a financial-services perspective the subject of registration, licensing, regulation and minimum criteria for continued operations[4].

Some or all of these elements are missing in the onshore world. This is not to view IFCs uncritically, however: many IFCs lack incentives to foster domestic give-as-you-earn schemes or even any advantages in their tax codes for charitable giving, such as corollaries to the UK’s Gift Aid scheme or the deductibility of certain donations against US federal income tax. Notwithstanding this, Jersey does offer a lump-sum donation scheme (subject to conditions) and Hong Kong offers generous deductions for qualifying charitable donations. (At the other end of the spectrum, Mauritius offers no credits, exemptions or deductions for charitable gifts and donations.) Offshore centres and islands, however, may have already trimmed central-government expenditure considerably compared to onshore jurisdictions, so service levels are already operating on finer margins. Many IFCs permit donors to remain involved in the decision-making processes of disbursing their funds, whether through bespoke trusts with reserved powers or the ability to appoint specialist guardians, enforcers and advisers to niche roles to suit the circumstances.

Philanthropic Innovation

As the sums needed to fund philanthropy grow, inevitable cross-over arises between private and public sector participants. Whilst impact projects are often not required to deliver solely a financial return, a private-sector funder will no doubt require some form of monetary reward for their time and efforts. An innovative solution in the market involves particularly risky projects being funded by public money in first-loss position with private funders then able to support a project, each with the knowledge that the other funders jointly provide a bulwark whilst offering the chance for a risky but suitably worthy project to advance. This was a focus of potential development aid prior to the arrival of the pandemic at the Guernsey Overseas Aid and Development Commission, for instance. The Commission has also acted as a co-ordinator for the VaccinAid scheme[5], fundraising locally and passing the proceeds to UNICEF.

With the abolition of the UK’s Department for International Development and the passing of its functions to the re-named Foreign, Commonwealth and Development Office, there has been a diminution in the UK’s contribution financially to global development projects. One way, without entirely plugging such a gap, that IFCs can help to redress this loss is by combining public and private resources and re-shape their image for the better. It is important to remember, however, that many MPs as well as their constituents are lobbying for development funds to be restored to their previous levels sooner than HM Government may like. There is a gap in philanthropic funding which can be partially filled by private wealth working together with IFC government support. Some of this is being deployed already by the likes of the Bill and Melinda Gates Foundation[6].

Many projects are now being brought forward for funding or consideration with a sophisticated package of documentation, milestones, KPIs, monitoring, evaluation and re-configuration that would have struggled prior to the pandemic to be developed.

Working With Onshore Centres

For many clients, working with IFCs is an established part of daily life. They are used to dealing with the structures and services on offer, but it would be helpful to pause to examine these more closely for a prospective new user of IFCs. The ecosystem and its major players are as well connected as between the onshore and offshore jurisdictions.

Another forum for international co-operation is the UN Financial Centres for Sustainability (FC4S), which has already given its input into TCFD[7], with its related reporting benefits, and is currently in the throes of TNFD[8] engagement and leadership.

One innovative use of cross-border solutions is the Cayman Islands National Recovery Fund[9], which has beneficial tax status in favour of donors from Canada, the UK and the USA, among other countries, and has been successfully re-purposed from its original 2004 establishment and stands poised to handle any future recovery from unexpected disaster than other IFCs in a similar part of the world.

Global Benefit

By working together as a meaningful and cohesive part of the entire philanthropic ecosystem, IFCs can materially impact the lives of benefactors, charities, beneficiaries and intermediaries for the better. Whilst on-going confusion reigns and we await the detail of the Biden Administration’s push towards a minimum global tax rate, philanthropists and their advisers are extraordinarily well placed to roll out, support and grow impact-rich projects with longer-term philanthropic objectives in mind.

A recent project combined an urgent need for a response to a problem during the pandemic with a sound footing for continuing performance and community benefit. In Tanzania, funding was required for a secured warehouse for the storage and bulk-breaking of large pharmaceutical consignments. As well as providing an immediate boost to the local economy for the builders, it will provide continuing employment for medical, security and logistics staff long into the foreseeable future. Whilst the total funding requirement was modest and co-ordination of the fundraising was organised via London, a truly global clientele was able to assist with this opportunity, with Guernsey playing its part. The measures of impact and benefit meant that this project offered a compelling investment case balanced with a guaranteed demand for the services of the warehouse and its workforce.

Scotland as a jurisdiction, working across public and private sectors, has created the Scotland−Malawi Partnership, bringing the benefits of Edinburgh’s financial expertise, Scotland’s charitable generosity and a friendship of nations going back nearly two centuries to help work on the (original) Millennium Development Goals and (now) the Sustainable Development Goals as co-ordinated via the UN.

At the local level in Guernsey, the Overseas Aid & Development Commission awarded an emergency grant of £85,000 to UNICEF UK as part of the broader COVAX initiative to ensure equitable access to COVID-19 vaccines around the world[10].

The Pandemic As A Spur To Action

In some cases, the pandemic has provided the means to bring about change. With additional time on their hands during lockdowns, including through periods of inclement weather, we have seen some clients use the time available - when they might have been travelling or being otherwise engaged - to research, develop and implement their own bespoke philanthropic solutions. This includes designing and implementing what a successful philanthropic intervention would look like for a particular benefactor, agreeing suitable KPIs, and starting to fund initiatives, all driven by a long-held passion to do something but never previously quite having the time to devote properly to the project.

Guernsey as an IFC has taken the pause brought by the pandemic to assemble industry participants through the set-up of Guernsey Finance, its national financial promotion agency, and develop its philanthropic offering with a particular expertise on sustainable investments.

Whilst the pandemic is starting to fade or feel “over” in some places (or at least a surmountable part of daily life), in others it is only just getting going. IFCs on the whole have had a less torrid time than many developing countries, so are much better able to assist in the post-pandemic world of philanthropy and beyond. This can include sharing know-how of handling and rolling out vaccines, the logistics of handling temperature-controlled items, and training sufficient numbers of volunteers to assist.

Footnotes:

[1] Since 2008 in Guernsey

[2] Since 2017 in the BVI

[3] Since 2002 in Singapore

[4] Since 1972 in Guernsey

[5] https://www.vaccinaid.org/guernsey

[6] https://www.bbc.com/news/uk-57791538

[7] The Task Force on Climate-related Financial Disclosures

[8] The Task Force on Nature-related Financial Disclosures

[9] Although this was set up very quickly in the aftermath of Hurricane Ivan in 2004, its charitable remit enables it to support and continue a wide range of Cayman-related charitable endeavours.

[10] https://www.gov.gg/Oversees-Aid-COVAX

Kit Hobbs
Kit Hobbs is Head of Legal at Bellerive Trust Limited in Guernsey, specialising in private wealth structuring and with experience in private equity and regulatory matters. He has previously worked in England and Guernsey in legal private practice. Kit is a Solicitor of the Senior Courts of England & Wales and holds an MBA from the University of Cambridge’s Judge Business School. He has a keen interest in sustainability and philanthropy as a member of the Sustainable Finance Guernsey Council and one of the Guernsey representatives on the UN FC4S TNFD panel.