To Attack Global Poverty, the Shell Foundation Works at the Bottom of the Pyramid

The Shell Foundation was established in 2000 through a $250 million endowment from the Shell Group. To be clear, the foundation operates as a separate entity from the Shell Company, with its own board of trustees and governing structure, and averages around $20 to $25 million in annual grantmaking.

The Shell Foundation uses a social impact investment model in its grantmaking rather than the typical grant-and-go approach of traditional philanthropy. A major reason behind the decision to take the social impact approach is that according to the foundation, the traditional grantmaking approach led to an average project failure rate of 80 percent while its "enterprise-based" giving model has a potential success rate of 75 to 80 percent.

The Shell Foundation is super-focused on raising up the poorest people of the world, and it understands that change doesn't come quickly, which is why grantees/partners of the Shell Foundation can expect ties with this funder Shell to last anywhere from between 5 to 10 years. To learn a bit more about this cradle-to-capacity approach and dig deeper into what the Shell Foundation is all about as a whole, we spoke with Policy and Advocacy Manager, Richard Gomes.

The foundation seeks to tackle some of the most pressing global development challenges for which no large-scale solutions have been found. It does this predominantly through three main focus areas: access to energy, sustainable mobility, and sustainable job creation through the small to medium enterprise (SME) sector.

The simple theory behind Shell’s grantmaking, according to Gomes, is “The idea is that we would find solutions that would grow to become to deliver large scale impact in developing countries while also being sustainable.”

Simple in theory, complex in implementation. Which sort of explains why the foundation likes to stick with its grantees for up to 10 years.

Related: Shell Foundation: Grants for Global Development

The Shell Foundation wasn’t always this forward-thinking. In its early years, it traveled down the road of traditional grantmaking, and according to Gomes, was “writing lots of small checks, looking at short-term projects with no real progression. So it was more like buying impact rather than building sustainable impact with no real additional support given other than the money.”

That lack of progress, the high failure rate of traditional philanthropy, and failing to address sustainability are three major catalysts for the foundation’s about-face. Now, instead of staying on the well-beaten paths of traditional philanthropy—like funding projects that have been in place for years—the foundation is now looking to rectify market failures. Gomes explains:

We’re looking for reasons why the market can’t support or provide new types of products and services that can solve their social or environmental challenges in a way that’s sustainable and can ultimately be financially independent.

To help identify those failures, Shell works with a small team of people who have entrepreneurial, commercial, and global development expertise. This team is not only digging into the reasons why the market is unable to provide a product or service to bottom of the pyramid (BOP) consumers, but it’s also identifying social entrepreneurs who are coming up with innovative solutions to most pressing global social or environmental challenges that show significant promise. Gomes explains where the foundation takes it from there:

So what we do then, is pilot a number of different types of social enterprises, and we co-create them with entrepreneurs and we provide patient support and that’s a blend of patient grant finance as well as extensive business support while they prove new technologies or while they prove how new business models can be adapted for very hard to reach rural and urban low-income consumers.

For now, the foundation is keeping its geographical funding focus where most of the world’s BOP consumers live—Africa, Asia, and parts of Latin America. However, it’s exploring its options to expand its work to the Middle East as well.

The overarching principles behind the Shell Foundation’s long-term support is to sustainably provide large-scale deliverables in its area focus, so that these organizations won't have to rely solely on charitable and NGO support in the future.

It’s clear that the Shell Foundation isn’t afraid to take a few calculated risks, and with an endowment that now sits at around $500 million, it has the financial means to do so—even if it means failing every once in a while.

Needless to say, this funder isn't the only one focused on addressing market failures to improve living standards for the poorest people in the world. We've been covering a growing number of funders working along these lines, and extending this approach into more issue areas, including energy, education, micro-finance and WASH.