by Shawn Landres

The philanthropic paradigm that funded the organized Jewish community for much of the 20th century is in terminal crisis. Federated giving and allocation platforms no longer are the dependable revenue streams they once were. Within the organized Jewish community, at least three factors are challenging assumptions that governed donor behavior for generations:

Increasing numbers of individual Jews question not only the significance of Jewish communal involvement in their own lives but also the relevance of inward-looking Jewish institutions to global concerns.

At a time when Jewish federations and human service agencies report growing demand for their core priorities – educational initiatives, anti-poverty programs, health services, assistance to the aging – they face a sharply declining donor pool.

Many of those who do give to federations, especially younger donors, expect to be able to direct their contributions to specific beneficiaries and programs, irrespective of the budgetary needs of the broader service platforms. Growing numbers of donors want to know the measurable impact of their gifts and grants.

While the traditional Jewish nonprofit economy is reacting to these seismic shifts, a new sector dedicated to public benefit is flourishing in North America and around the globe. This “impact economy” encompasses social enterprise, social entrepreneurship, social business, and impact investing, and it does not focus purely on profit or social benefit. Instead, the impact economy combines multiple bottom lines: financial returns, social gains, environmental benefits, and economic development. Impact investing rapidly is becoming a vital part of contemporary individual, institutional, and foundational investment portfolios. Analysts estimate that by 2020, the global impact economy will reach $400 billion to $1 trillion, mostly from individual investments of less than $25,000 each.(1)

Impact investing in social enterprise blurs the boundaries between profit seeking and charitable giving. This is a market paradigm governed as much by Adam Smith’s The Theory of Moral Sentiments, writes the White House’s Jonathan Greenblatt, as it is by Smith’s The Wealth of Nations.(2) Social enterprise transforms welfare recipients into stakeholders in their own socioeconomic future; impact investment transforms donors into investors who can expect to do (reasonably) well while doing good. For example, bonds available through the Community Investment Initiative created jointly by Jewish Funds for Justice and the Calvert Social Investment Foundation provide inexpensive microcredit in economically distressed regions. At the same time, they guarantee investors the return of principal plus interest of 1 percent to 2 percent interest. Social venture funds, another impact investment vehicle, build on principles of “patient capital” and can achieve an even more sustained impact and higher payouts. In many respects, these financial instruments are 21st-century versions of Maimonides’s highest levels of tzedakah; they create job opportunities and enable beneficiaries to sustain themselves.

Social enterprise also offers Jewish donors and investors the opportunity to apply Jewish principles and values within the organized Jewish community and around the globe. Jews are disproportionately represented among impact investors and social entrepreneurs alike, just as they are in other areas within the public benefit sector. Jewish community involvement in social enterprise honors and involves Jews working globally in tikkun olam and expands our understanding of what it means to “do Jewish.” Agencies gain the added benefit of access to the latest innovation engines for improving core human service delivery. In Los Angeles, for example, Beit T’Shuvah, a combined Jewish congregation and substance-abuse-recovery organization, won Los Angeles Social Venture Partners’ 2010 Social Innovation Fast Pitch competition through its social venture, BT Communications, a nonprofit advertising and social media agency that employs and trains treatment center residents.

Impact investing generates self-renewing revenue streams that fund core priorities. Furthermore, access to those streams attracts and engages high-net-worth investors and funders who may not be interested in traditional Jewish federated philanthropy. Research suggests that for most investors, funds for impact investing are redirected from other investment vehicles rather than from charitable commitments, which results in more funding for the social good. In short, greater investment in the impact economy could generate a net increase in overall Jewish giving.

The future of the Jewish nonprofit sector depends on new mixes of investment income, charitable gifts, and earned revenue. With an investment mix that includes high-growth, socially responsible industries, such as clean energy, financial returns on impact investments will not only benefit investors, but also provide backstop funding to social service programs that lack an adequate donor base. They also can supplement funding for truly philanthropy-dependent initiatives focused on identity, culture, or broad-based social change – many of which struggle to find stable income and do not have earned income streams. While there are no panaceas for the challenges facing the field of social service, the natural parallels between Jewish values and those of the impact economy augur a creative and promising future for the Jewish philanthropic and nonprofit sectors.

(1) Hope Consulting, 2010, “Money for Good: The U.S. Market Opportunity for Impact Investments and Charitable Gifts from Individual Donors and Investors”; J. P. Morgan, 2010, “Impact Investments: An Emerging Asset Class”.

(2) Jonathan Greenblatt, “Investing for Change: The Emergence of the Impact Economy.” Huffington Post, January 14, 2011.

Shawn Landres is the co-founder and CEO of Jumpstart – a nonprofit that works across the globe to empower organizations and leaders committed to compelling, relevant, and meaningful visions of Jewish life. Jumpstart’s most recent publication is The Jewish Innovation Economy: An Emerging Market for Knowledge and Social Capital. A 2009 Ariane de Rothschild Fellow and a 2010 Nahum Goldmann Fellow, Landres is a member of the ROI Community, a Jerusalem-based global community for young Jewish innovators initiated by philanthropist Lynn Schusterman. He serves on the Sh’ma Advisory Committee and on the board of Keshet, a grassroots advocacy organization for lesbian, gay, bisexual, and transgender Jews. He was named to the Forward 50 in 2009 and to Jewcy.com’s The Big Jewcy 100 in 2011. He thanks Joshua Avedon, Jonathan Greenblatt, and Renata Landres for their helpful comments on earlier drafts of this article.

Reprinted with permission from the October 2011 issue of the journal Sh’ma, as part of a larger conversation about philanthropy and tzedakah.