As we round out the first quarter of 2023, we need to consider economic, social, and technical currents impacting foundations and grant managers. The external environment weighs heavily on operations and financial choices, setting the course for a challenging year. Here are four trends affecting charitable growth in 2023.
Inflation is impacting all industries, and foundations are not immune. So how does this impact affect current and ongoing funding? Increasingly, an institution will hold back earnings to account for inflation (e.g., a 10% return on an endowment may only allow the foundation to support giving of seven percent while holding back three percent to protect the investment power of the asset overall). Due to the pressure to preserve the endowment, many foundations are decreasing future-year funding for ongoing support and, in some cases, cutting funding altogether.
Inflation can cause severe problems for years and affects grant managers in the following ways:
- Funding levels: Inflation can lead to decreased funding levels for grant programs, as funding agencies may struggle to keep up with rising costs. This can result in fewer grants being awarded, making it more competitive for grant applicants.
- Grant budget management: Grant managers must consider the increased costs of project expenses when making funding decisions. This can lead to changes in funding levels and limitations on what can be funded within a grant budget.
- Compliance requirements: Grant managers must ensure that grant funds are being used in accordance with the grant agreement and that inflationary impacts are taken into consideration.
- Reporting requirements: Grant managers must consider the impact of inflation on grant expenditures and project outcomes. This can lead to additional reporting requirements and increased scrutiny of grant budgets and expenditures.
Despite these challenges, grant managers must strive to make informed decisions that protect the future of their funding while balancing the needs of the nonprofits they support.
In the past, foundations were not required to disclose much information about operations or funding activities. However, as the philanthropic sector has grown, there is an increasing demand for greater transparency. This has led to changes in regulations and increased pressure from stakeholders to provide more information about activities.
There are significant benefits for foundations to provide transparency, including strengthening credibility, increasing public trust, improving grantee relationships, facilitating collaboration, and building a community of shared learning. So while this is a significant culture shift, the benefits justify the need for change.
Transparency means being open and honest about operations, funding activities, and impact. This includes providing regular updates on activities, publishing financial information, and engaging with stakeholders. Additionally, foundations can leverage technology to track and evaluate their impact and make the results publicly available.
Shifting Award Requirements
The philanthropic sector is constantly evolving, and foundations are under increasing pressure to demonstrate the impact of giving and be accountable for funding activities. This has led to a shift in pre- and post-award requirements as foundations seek to ensure that funding has the greatest possible impact.
In the past, when it came to pre-award requirements, foundations primarily considered the worthiness of the proposal. Today there is a greater focus on a wider array of factors, such as the organization's ability to execute the project successfully, the compatibility of the project with the foundation's goals, and the project's potential impact. Grant managers may need to spend more time reviewing these elements and working with potential grantees to ensure they are well-positioned to deliver on the project.
Grant managers may also need to support potential grantees in developing their proposals and building their capacity to deliver on the project, which can increase the workload.
Still, the shift in pre-award requirements can also help improve the quality and impact of the funded projects, which can benefit the foundation and grant managers' work.
The need for greater transparency and accountability in the philanthropic sector has driven a shift towards more stringent post-award requirements. As post-award requirements become more rigorous, the grant manager’s job becomes more demanding. More time and resources will need to be spent on monitoring the progress of the project, tracking outcomes, and collecting data for reporting.
Additionally, grant managers may need to be more proactive in working with the grantee to ensure that they meet the requirements and that the project is on track. This could involve providing support and guidance, as well as working with the grantee to address any challenges that arise.
While this may translate into additional work, greater accountability and transparency can enhance the foundation's reputation and increase trust with stakeholders. This, in turn, can improve a grant manager's ability to secure funding and support for future projects.
Sustainability is a growing trend in the philanthropic sector, as foundations seek to ensure that giving has a lasting impact. The concept of sustainability in philanthropy refers to the ability of a community or organization to continue functioning and delivering benefits over time without relying on continued outside support.
The trend towards sustainability is driven by a desire to address the root causes of problems rather than just addressing symptoms. By supporting sustainability, foundations aim to create long-term solutions that will endure after their funding has ended. This includes funding for capacity building, infrastructure development, and program sustainability planning.
To support sustainability, foundations increasingly seek evidence-based practices and innovative solutions. They are also looking for partnerships between nonprofit organizations and other stakeholders, including the public and private sectors. By working together, these partners can create comprehensive solutions that address the root causes of problems and ensure that the benefits of their efforts will endure over time.
Additionally, foundations are prioritizing community involvement and collaboration. Guided by the belief that the most effective solutions come from the communities themselves, foundations are increasingly investing in community-led initiatives. They are also looking for ways to measure the impact of funding and assess the sustainability of the programs and initiatives they support.
By supporting capacity building, infrastructure development, and community-led initiatives, foundations can help create long-term solutions that will endure after their funding has ended. This trend towards sustainability is a positive development, demonstrating a commitment to creating a more equitable and sustainable world.
The charitable sector faces significant challenges due to the economic climate, the demand for transparency, shifting award requirements, and sustainability concerns. Foundations must navigate these to protect endowments and provide funding for programs and services. While these trends bring new hurdles and added responsibilities, the benefits of transparency and sustainability justify the need for change.