In this column, contributors offer perspectives on economic and financial topics.

Switzerland is a nation of philanthropists. Two-thirds of all households donate regularly, contributing over CHF 2.3 billion per year — almost four times more per capita than neighboring countries. Swiss grantmaking foundations distribute an estimated CHF 6 billion each year, and the country is now home to nearly 14,000 charitable foundations.

«We are witnessing one of the most exciting evolutions in philanthropic practice in recent years.»

Yet in a rapidly changing world marked by upheaval and budget cuts, the question remains how foundations can further strengthen their contribution to the public good.

New Approaches in Philanthropic Funding

At a strategic level, foundations already rely on evidence-based and participatory grantmaking methods to direct funds where they can generate the greatest impact. Ultimately, however, the question is how to mobilize additional capital. 

Here, we are witnessing one of the most exciting developments in philanthropic practice in years: the rise of entrepreneurial funding approaches, supported by improved regulatory conditions for foundations pursuing such strategies.

«A pioneering example is the world’s first ‘Humanitarian Impact Bond’ by the ICRC.»

When the Zurich tax authority issued new guidance in February 2024 on how charitable foundations can use financial instruments beyond traditional grants to increase their social impact — without jeopardizing their tax-exempt status — it sparked broad debate. Why shouldn’t a charitable foundation, for example, provide a working-capital loan at a below-market rate to help a nonprofit strengthen liquidity for its operations? Or take an equity stake in a profit-making social enterprise?

The Example of the ICRC’s Humanitarian Impact Bond

Innovative finance and impact investing have long been common practice for many grantmaking foundations. A milestone example is the world’s first «Humanitarian Impact Bond,» developed by the International Committee of the Red Cross (ICRC) together with partners. This novel, results-based financing model mobilized CHF 26 million in private capital to build three physical rehabilitation centers in Nigeria, Mali, and the Democratic Republic of Congo — giving thousands of people with disabilities access to essential services.

The structure follows a payment-by-results model: private impact investors — identified in part by Lombard Odier — provide the upfront capital. After five years, governments and foundations, acting as «outcome funders,» repay the investors partially, fully, or with a return depending on the verified performance of the centers. It is therefore an impact investment that ties financial returns to achieving health outcomes.

Definitions, Precedents, and Criteria

What is new today is that such approaches are increasingly used to invigorate grantmaking practices. To tap their full potential, it is essential to understand clearly what entrepreneurial funding models are — and how they can be deployed without endangering a foundation’s tax-exempt status.

A key distinction must be made between entrepreneurial funding and impact investments. Since 2007, the Global Impact Investing Network (GIIN) has defined impact investments as investments that aim to generate measurable social or environmental impact alongside a financial return. By contrast, the new inclusion of «entrepreneurial funding models» in the tax guidelines provides clarity: financial instruments can qualify either as investments held in the foundation’s portfolio or as capital deployed to beneficiaries for the purpose of fulfilling the charitable mandate.

«The Zurich tax authority has provided an important stimulus.»

Entrepreneurial funding, which encompasses a wide range of instruments, can be distinguished from impact investing through three tests: it must serve the public interest and advance the foundation’s mission; it could not be executed under purely commercial conditions; and it should mobilize capital rather than crowd it out.

Boosting Social Impact: The Next Milestones

The Zurich tax authority has offered a significant impetus for strengthening the social impact of Swiss foundations. The next step is to ensure — through supportive regulatory conditions and the exchange of best practices — that a new standard can emerge in which innovative financing approaches are systematically deployed whenever they can advance a foundation’s purpose.

Maximilian Martin, Global Head of Philanthropy der Lombard Odier Group and board member of SwissFoundations.

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