2013 Outlook Uncertain for Small Nonprofits, Brighter for Impact Investing

While the on-again off-again "fiscal cliff" negotiations involving the White House and congressional Republicans have created uncertainty around the future of the charitable deduction, giving by wealthy individuals is unlikely to be significantly affected by the failure of the two sides to reach agreement, AdvisorOne reports.

Rockefeller Philanthropy Advisors president and CEO Melissa Berman told AdvisorOne that many ultra-high-net-worth donors already have "locked in" the existing charitable deduction rate of 35 percent. "They are putting more funds than they usually do into either a private foundation or a donor-advised fund," said Berman. "I don't think that trend is going to be large enough to have a significant influence on charitable giving across the whole U.S." At the same time, said Berman, large education, healthcare, and cultural institutions, which typically are among the favorite beneficiaries of wealthy donors, are in a good position — indeed, an improving one.

That said, for most donors the economy will be the key factor in determining how much they give in 2013. The bulk of the approximately $300 billion a year in U.S. charitable giving takes the form of small donations from lower- and moderate-income individuals to local nonprofits, and for those donors job security and cost of living are key drivers of how generous they can be. Moreover, the average American's giving budget for 2013 may already be stretched, even before the year begins, which could translate into a very uncertain fundraising environment for small nonprofits. "Some of them, especially in areas...hard hit by Hurricane Sandy, are already feeling that some of their donors gave more in 2012 to help out with [relief efforts] and essentially borrowed from their budget allocation [for charity] in 2013," said Berman.

In contrast, the field of impact investing — any investment made with an eye toward generating a social or environmental return as well as a market return — has been growing rapidly and promises to gain even more traction in 2013. Funders are becoming more sophisticated, said Berman, especially in using impact investing to support global health and development projects. And donor collaboratives — which enable donors to pool ideas and resources toward a common goal — also are likely to gain traction in the new year. "[A]s more and more people start to think about the idea of solving a problem rather than being a generous funder of good organizations," she added, "they begin to realize that the numbers are not on their side and that it might be better to find partners."

A third trend to watch in 2013 is the continued emergence of a global culture of giving, as the world's wealthiest individuals use conferences like the annual World Economic Forum meeting in Davos and the Clinton Global Initiative meeting in New York City to discuss their philanthropy and share successes and failures. "They are beginning to cross-fertilize with one another about the idea that a family with significant wealth should be deeply involved in philanthropy; more than merely generous, it should be involved and knowledgeable on the issues," said Berman. "There's the sense that as income equality begins to rise, people with wealth should be part of addressing how to make the system work better for more people."