Shifting your funding practices during Covid-19

When the pandemic first hit, funders rightly focused on getting money out quickly to charities most affected by Coronavirus. Charities of all sizes were impacted financially, as fundraising events like the London Marathon were cancelled. Our research with the Gatsby Foundation showed that furloughing staff was not an option for many because they delivered essential services. Emergency funding made sense: charities had immediate needs in what many expected to be a short crisis.

But as the pandemic has endured, the crisis for charities has shifted from acute to chronic. It no longer makes sense to think of emergency funding to tide charities over until ‘beyond the crisis’: we now know that Covid-19 is a prolonged crisis with far-reaching impacts across the whole of society for months if not years to come.

It is therefore unsurprising that many funders are moving away from short-term emergency funding. Many emergency funds (including CAF Coronavirus Emergency Fund, National Lottery Heritage Emergency Fund, and Clothworkers’ Emergency Capital Programme) have closed to new applications.

Several funders that paused their normal funding to offer emergency grants for a few months are now reviewing their strategies to respond to the longer-term crisis. Comic Relief has launched a Capacity Building Grants programme to support charities to be “better able to deliver projects that bring about lasting change” and the London Community Response Fund is now focussing on renewal grants “for the future beyond Covid-19”. This is indicative of a shift away from weathering the storm to build back better.

Social investors are doing the same. SIB launched its Resilience and Recovery Loan Fund (with £25m investment from Big Society Capital) to support organisations over the medium term through 5-year loans at favourable rates.

Funders have been keen to understand how they can complement government money and address gaps. We analysed the £750m package announced in April 2020 to allow philanthropists to do just this. The UK government announced in January 2021 that it will make an extra £800m of dormant assets (unclaimed financial funds) available to charities as part of the coronavirus recovery. The sector is still awaiting details on the timing and use of these funds but we expect it to be ringfenced for youth, financial inclusion or social investment.

What does all this mean for funders? Below we explore what shifts in practice we have seen, what shifts we think are valuable, and what else funders could be doing.

1. Re-engage with your grantees

When covid hit, many funders proactively contacted their grantees to express support and offer flexibility on reporting requirements and funding restrictions. Since then, charities have had to grapple with an ever-changing environment as lockdown restrictions eased and returned, staff have been off sick or exhausted, and emergency funding has started to dwindle.

Given how fluid the situation is, you should be in semi-regular contact with grantees to understand their current challenges. But be careful not to place an undue burden on grantees who are already stretched. Funders can do this by:

• Inviting grantees every couple of months to give an update if they have experienced material changes, but making it clear there is no expectation that they respond.
• Encouraging grantees to submit reports already prepared for other funders, rather than requiring each charity to reformat information to fit your own forms.
• Supporting grantees to further adapt if needed. For instance, a charity may now need help setting-up a Covid-secure work environment, where previously they needed support moving to entirely remote working.

Try to reduce the burden on charities when considering new organisations to support. It’s appropriate to carry out careful due diligence, to ensure funding reaches the charities best placed to support people most in need. But due diligence should be proportionate: both to the size of grant to the likelihood that you will award it. Proportionate due diligence has always been best practice for funders, but the current stress charities are under makes it especially vital.

When discussing with charities how they are managing with service, you should also explore internal operational questions with grantees. We are seeing increasing numbers of charities concerned about the wellbeing of their staff, who are invariably exhausted, so it is important that charities can address these challenges if they are to keep delivering. Explore how well the charity is managing with remote or covid-secure service, whether their systems and process are supporting their efforts properly, together with any challenges around recruiting and retaining an engaged staff and volunteers.

2. Regularly review how much you give

Many foundations and philanthropists dramatically increased their giving at the start of the pandemic to meet increased need. This was very helpful as incomes dramatically changed, even if they didn’t drop for everyone. But the ongoing crisis and the need to support long-term needs means foundations need to consider how much spending is appropriate on an ongoing basis.

There are compelling reasons to think that foundations should be increasing their payout ratio now. Some funders are drawing down on their endowments, changing their investment strategies or selling assets to enable them to support new grantees and their existing grantees. For example, Joseph Rowntree Charitable Trust announced it was increasing grant spending by at least £5m to expand its grant-making. The role of the foundation trustee is to guard against seeing the argument purely as one of affordability from an investment point of view rather than a mission perspective.

Concern about future funding is one of the biggest worries for charity leaders. Foundations should regularly review their thinking and, just as importantly, explain their thinking to the sector. Any foresight about what foundations are likely to do will help charities plan their own response.

3. Redefine relationships based on trust

When the UK first went into lockdown, many funders moved fast to reassure their charity partners. London Funders, a group of major London trusts and local authorities, led the way with an immediate coronavirus commitment to funding flexibly. Over 400 funders signed the ‘We stand with the sector’ pledge, committing to:

• Permitting changes to grant periods and delivery dates.
• Permitting changes to activities, allowing grantees to repurpose funds for urgent coronavirus related needs.
• Listening to grantees about their specific situation, challenges and needs.

Over 150 funders renewed their commitment to these principles in November 2020. Alongside the original commitments, the new pledge committed funders to:

• Sharing and applying learning to continue to be effective funders for the future.
• Supporting communities and civil society to thrive in the long term and being open as their funding response develops.

At the heart of these commitments is a redefinition of the relationship between funders and grantees—one where funders trust their grantees to know how best to spend funds to support the people and communities they work with. Throughout 2020, we saw more funders than ever agreeing to new kinds of asks and being understanding about bad news—such as delays in achieving a set of outcomes or a need to change planned activities.

Whilst correctly focusing on the short-term need for flexibility and agility, we think these shifts could also be used as a pilot for a radically new way of working. Our Rethink Grant-making work is exploring the potential for models like trust-based philanthropy to reshape the UK grant-making sector. We know that grant-making relationships based on trust can rebalance power, value the knowledge and expertise of all parties, and deliver better results for communities.

Funders can build trust through:

• Giving unrestricted funding, which signals to grantees that you trust them to make the best decisions about what will achieve an outcome.
• Making multi-year funding commitments where possible or indicating clearly whether and under what conditions you will consider charities for a re-grant.
• Simplifying and streamlining applications, planning and reporting to save grantees from jumping through unnecessary hoops. One charity told us how a £500 grant application recently took staff five hours to complete. Keep processes proportionate. A good tip is to complete your own application, so you are clear on what you are asking applicants for and how long it will take.
• Taking on the burden of due diligence, gleaning as much as you can from publicly available information so grant seekers don’t have to input everything.
• Soliciting feedback and—crucially—acting on it. Feedback can often be most helpful where it is collected by a third party and anonymised, allowing grantees to be confident in their responses.
• Being transparent about priorities and challenges.

Moving towards trust-based relationships does not mean only working with existing grantees, who you already know and ‘trust’. Charities tell us it has been harder to establish relationships with new funders during the crisis as many are focusing exclusively on existing grantees. As the crisis progresses, it is important for funders to think about the needs of the collective sector as well as individual charities.

4. Focus on equity and fairness

Covid-19 has exposed huge inequalities in society, including systemic racism that means that BAME communities have been disproportionately affected by the pandemic. The murder of George Floyd and the Black Lives Matter movement shone a brighter light on racial inequality. We also know that the climate emergency is already having a disproportionate impact on groups who are already disadvantaged such as BAME communities, people living in poverty, and young people.

Many funders are working out how to respond to these inequalities and how to embed a focus on equity and fairness into their funding.

Funders can:

Redesign the grant application process to be more effective and inclusive

Avoid technical jargon and allow applicants to make the case for their work in their own words. Think about who is making the funding decisions and whether their experience is meaningful and effective for the context in which you are funding.

We provide further guidance in our guide to power dynamics: A rebalancing act.

Invest time in understanding the pipeline, both who is applying and who isn’t applying or isn’t getting funded

Funders like the National Emergencies Trust have collected and shared data on what percentage of their Coronavirus response funding is going to BAME-led charities. If particular communities or types of charity are under-represented, you should investigate possible reasons and what you can do about it.

This might include investing in targeted outreach or civil society infrastructure to support a more diverse pipeline. For example, The London Community Response Fund made grants to six equality-led organisations to support BAME, Deaf and Disabled, Women’s and LGBTQ+ led organisations to access more of the support that is available.

Set up dedicated funds or ringfence portions of existing funds for BAME-led organisations

For example, Comic Relief and the National Emergencies Trust launched a £3.4m fund for BAME-led organisations and also earmarked £1.8m from the new Change Makers programme for BAME projects. In partnership with Imkaan, Rosa set up the Covid-19 response fund for BME women’s organisations delivering frontline services tackling violence against women and girls. Working with specialist intermediary organisations can help you reach small and micro projects that you might otherwise have been missed.

Embed a race lens into mainstream funding programmes

For example, Joseph Rowntree Charitable Trust amended the funding policies for its five existing priority areas to include a focus on specifically responding to the dual harms of the pandemic and systemic racism. Future Foundations UK (a collective of people of colour working in trusts and foundations) has called for more funders to embed a race lens across their programmes, rather than creating siloed pots of funding.

Support organisations focused specifically on racial equality

The Funders for Race Equality Alliance is currently mapping the race equality sector, with the aim of recommending where funders should focus their efforts to support, sustain and strengthen organisations and achieve real change.

Join collaborative funds focused on racial justice and equality

Resourcing Racial Justice is a new UK wide-funding pool to support individuals and communities working towards racial justice. Run by a coalition of people of colour, it has distributed over £1m to projects across the UK. The Baobab Foundation is a new foundation led by the Black and Ethnic Minority community organisations it supports.

5. Use all your assets

At a time of crisis, it is all the more important for funders to think about how to leverage all their assets and types of power—not just grant-making—in pursuit of their goals. This might mean aligning your investment portfolio with their mission, influencing other funders, investing in sector capacity, convening people around a shared goal, or commissioning research into what works.

The pandemic has accelerated existing trends of driving more capital to respond to social and environmental challenges, but it has also spurred innovation around the world in terms of new investment platforms, vehicles and collaboratives—some of which are outlined below. Flows into sustainable investment funds have been on an upward trajectory for some time, but Covid-19 appears to have accelerated this trend, acting as a ‘wake up call’ for investors to consider the impact of their capital. Flows into European sustainable funds, funds that incorporate environmental, social and corporate governance (ESG) criteria in their investment process, more than doubled in Q2 2020 compared to the previous quarter and remained at this high level (€53bn) in Q3. In a survey of wealth holders and family offices, 69% of respondents said Covid-19 had affected their views of investing.

Actions funders can take, building on existing trends or recent innovations, include:

Consider how your investments are managed

There is an increasing trend for charity investors (foundations as well as operating charities) to re-assess their investment strategies. According to a Cazenove Capital survey of 295 charity investors, 77% of respondents decided to implement an investment policy linking mission and aims to their investment strategy, compared to 59% of respondents in 2015 and 23% in 2010. As part of the ACF’s Stronger Foundations initiative, a report was published in July 2020 which maps out seven pillars of strong investment practice for foundations, with clear guidance and examples of other foundations taking action.

In an interesting collaboration, three foundations—the Friends Provident Foundation, the Joffe Charitable Trust and the Blagrave Trust—came together in 2020 to run an open selection process, the ESG Olympics, to appoint an investment manager for a portion of their joint funds to maximise the social and environmental impact of those investments.

As the world recovers from Covid-19, ESG issues are becoming ever more central to investment decisions for increasing numbers of investors who desire a more sustainable, equitable and stronger society.

Look for impact-related investment opportunities, especially those worsened by the pandemic

Covid-19 has driven or accelerated innovation within impact investing, enabling funders to address issues that matter to them through investment opportunities, not just through grants. There are several platforms and networks to make it easier to find these opportunities, such as Good Finance or the ACF’s Social Impact Investors Group.

On a more international front, the Global Impact Investing Network (GIIN) formed the Response, Recovery and Resilience Investment Coalition (R3) to increase the scale and effectiveness of impact investing in tackling Covid-19 and its effects. The coalition aims to mobilise and co-ordinate impact investors around the world to deploy capital to high-impact investment opportunities responding to the crisis, particularly relating to health, connecting investors to each other, showcasing investment opportunities and sharing learnings, insights and resources to support economic recovery.

Just as philanthropic funders are streamlining their grant-making processes to get money out the door more quickly, the same is happening within the impact investing community. For example, some investment committees are meeting more frequently to approve investments, or making it simpler and quicker to apply for a loan.

Think creatively about using your assets to increase your grant-making capacity

Five US foundations, including the Ford Foundation and the MacArthur Foundation, announced a major innovation in 2020 of issuing social bonds to fund a significant Covid-19 grant-making programme. Between them, the five foundations anticipate over $1.7bn of increased grant-making over two years. Essentially through borrowing long-term money against their assets, each foundation could increase their payout without having to dip into their endowments.

Although a bond issuance on this scale is out of the realm of most funders, it is an important signalling effect for funders to explore ways in which they can better leverage their assets for more impact or increase their grant-making capacity. For example, some endowed funders may decide to spend-down to tackle the immediate crisis rather than last in perpetuity. At the very least, all foundations should regularly review their payout ratios.

Use your voice to influence change

In recent years, more and more funders are getting involved in influencing work, often attracted by the idea of addressing root causes to amplify their impact. In NPC’s review of how funders can use their influence for good, we highlight the importance of funders committing for the long term if they want to effectively influence social change.

For this reason, it is not surprising that many of the funders who have used their voice to influence change during the Covid-19 crisis have a long track record of this type of work. For example, Trust for London has built on its research track record to highlight how Londoners living in poverty have been hardest hit by the pandemic and to amplify the voices of people with lived experience in poverty. The Health Foundation used its young people’s future health inquiry as a platform for highlighting the issues facing ‘Generation COVID-19’.

Share your knowledge and learning

Funders can accumulate a significant body of knowledge from their work across the sector. Over the course of the Covid-19 crisis, funders have often had more bandwidth than their grantees to keep up to date with sector-wide trends.

Funders like Paul Hamlyn Foundation are sharing what they are learning from how their grantees are adapting through Covid-19. Others like Esmee Fairbairn Foundation are sharing insights about what they have learned as a funder. Sharing this knowledge can save other funders and charities time and enable a more effective collective response.

6. Support the resilience of the sector

We know many funders are thinking hard about how they can better support charities to develop more adaptive behaviours and processes to be better equipped for uncertainty. NPC have recently been running research alongside Shift Design, exploring what best practice organisational development looks like and the role of funders in enabling a stronger and more resilient sector.

There are several challenges. First, charities often find it difficult to be open about their development needs. This is likely even more so now, with funding pots tightened and charities feeling the pressure to show their best side. Secondly, the needs charities present with are often more surface level, and don’t reflect the underlying development issues they may be facing.  Thirdly, charities often feel pressure to align with their funders’ visions for their development rather than their own. Fourth, models used to support charities to build their resilience have largely been adapted from business, were developed pre-pandemic, and are unfit for the uncertain world we now live in. Finally, many charities feel that the stages of funding are often too rigid and constraining; they anchor a charity’s objectives to a singular point in time, encouraging stasis rather than adaptability and change, and are not tailored to the varied needs and contexts charities operate within.

To make sure that your support has the most value, think about how to tailor or adapt your support offer to different segments within the charity population. Diagnostics can seem like a test, and can sometimes be superficial or too broad to really understand the issues and pressures charities are under. Whilst they can be useful in some contexts (when charities have a clearer sense of what they need, such as financial modelling or IT) active listening is a more important factor.

Exploring what would work best for the charity needs to consider what stage of development they’re at and their future ambitions. If you’re offering outsourced development support, using local providers well versed in the community can be really effective. These relationships would ideally be longer term. Coaching roles seem to work well.

7. Build Back Better

As set out above, evidence is building that the pandemic is reinforcing investor beliefs in ESG considerations i.e. that companies considering environmental and social factors and with strong governance practices should be better equipped to ride out a downturn. In addition there is considerable pressure that the recovery should not solely focus on getting economies back on their feet, but address the variety of systemic vulnerabilities that have been laid bare and in many cases been exacerbated during the crisis—climate change, social inequalities, unsustainable food production, health disparities and many more. In essence, we need to ‘Build Back Better’.

The UK Government’s announcement to issue its first green bond in 2021 signals its intent to move towards a zero-carbon future as the economy recovers from the pandemic, but also responds to growing demand for assets funding environmentally-friendly projects. Alongside this announcement, the government introduced more robust environmental disclosure standards by companies and financial institutions—the first country in the world to make Task Force on Climate-related Financial Disclosures (TCFD) fully mandatory by 2025. These are important steps in the move towards building back better, creating more opportunities for funders to invest in green projects, and moving towards much-needed transparency relating to climate risks.

Increasing numbers of funders are considering how the growing climate emergency is threatening their charitable aims. We are seeing more funders incorporate an environmental funding stream to their strategy, as well as thinking about how their investments are managed. We think this trend is likely to accelerate in 2021 as funders look beyond the immediate Covid crisis and focus on recovery.

Actions funders can take include:

• Sign up to the Funder Commitment on Climate Change, which launched in November 2019 with a small group of foundations and has now grown to 54 signatories. The commitment specifies that all foundations can play a part in addressing the causes of climate change and that funders can use their resources and independent assets to support the transition to a post-carbon future.
• Explore how to contribute to ‘building back better’ within your own resource, strategy and capacity constraints. The Environmental Funders Network’s publication in August 2020, Covid-19 and a green recovery, is a helpful guide to the potential role of the third sector in the green transition.

8. Collaborate more and better

Funders can increase their impact by working with other funders and across different sectors, such as with government. At a minimum, philanthropists and foundations should take time to consider where they sit in an ecosystem of funding and charitable work, and how they can complement, coordinate and collaborate with others to make it easier for charities to navigate the system. Funders can use 360 Giving’s Covid-19 Grants Tracker and Charity Excellence Framework’s Covid-19 Funder Database to understand what other grant-makers are funding, identify potential funding gaps, and identify opportunities for cross-funder collaboration.

In response to Covid-19, we’ve seen new collaborations around place such as the Greater Manchester Funders Forum which was set up in March 2020 to share intelligence, perspective and understanding. Existing collaborations have also set up shared funds or initiatives, from the London Community Response Fund to Yorkshire Funders Forum’s coordination of a regional response to Covid-19. In Scotland, funders including the Corra Foundation collaborated to create ‘shared front doors’, ‘shared back offices’ and sharing of data.

Other collaborations in response to Covid-19 have focused on cause areas, such as The Children and Young People’s Funder Collaboration and The Community Justice Fund, which is hosted by The Access to Justice Foundation. The new Funders Collaborative Hub hosted by ACF seeks to support funders to identify existing collaborations, understand emerging needs and gaps, and join up with others who have similar interests. NPC set out best practice for cause-related networks in our report, Collaborating for a cause.

Contributing to pooled funds and being willing to co-fund organisations can save a funder resource in terms of the time and money spent on identifying and performing due diligence on charities. It also saves the charity from having to put resources into fundraising in a time of crisis and can help it to bring in more funding than it otherwise would have.

Collaboration is time-consuming and not right for every occasion. The benefits of funder collaboration need to be balanced against independence and the value of a pluralism of approaches. But joining forces can help funders and philanthropists achieve collective impact that is not possible on their own. Given the scale of the Covid-19 crisis, funder collaboration is essential for the system-level response that is required.

9. Review your longer-term strategy

As funders emerge from the emergency funding phase, now is a good time to reassess core funding priorities. Strategies set before the crisis need to be reconsidered, given the huge impact of Covid-19 on society and its repercussions across all parts of the sector. Things will not return to the way they were before. This doesn’t necessarily mean that funders should change their strategies, but it is important for funders to invest time ensuring their priorities remain relevant.

Start reviewing your funding strategies on a more regular basis. Before the pandemic, funders often set strategies on a multi-year basis. But the current volatility means strategies refreshed in the next few months are unlikely to be relevant in 18 months’ time. This doesn’t mean that funders shouldn’t be making multi-year funding commitments—such funding is more important than ever to organisations’ survival during such an uncertain time—but should be regularly reconsidering their funding priorities as the crisis evolves.

When reviewing their funding priorities, funders should:

• Ask ‘which charities can we not afford to lose?’ Services which cannot be provided right now (due to lockdown and school closures) are still going to be vital in the future. It is likely to be more effective to support an existing organisation to survive over the next few months, than try to establish a service from scratch once restrictions ease.
• Think about charities not directly affected by Covid-19. Charities whose services haven’t been directly impacted by the pandemic have still experienced financial difficulties as they lost out on donations in favour of charities supporting the NHS. For instance, donations to medical research charities halved in the first half of 2020.
• Consider taking more risks. Funders have an opportunity to support innovative work that capitalises on the disruption caused by the pandemic. Funders can be reluctant to support fast-paced work with unclear outputs, but such work is well-suited to a fast-moving policy environment.
• Consider how to support resilience across the sector. Funders should think about how they can support organisations to build and sustain long-term resilience and agility.
• Use the latest data to inform decision-making. Open data enables the rapid sharing of information and supports funders to target their spending to reflect current need. NPC’s interactive Covid-19 data dashboard provides information on the people and places most affected, and demand for services.
• Think about relative strengths and weaknesses. Many funders have deep expertise in their funding area. When considering a shift in strategy, funders should consider how they can still share that expertise (to strengthen the sector) and develop new expertise (perhaps through collaboration with other funders, so the burden does not fall on grantees).