The billion-dollar question of corporate giving

Businesses play a big part in philanthropy. Between 2018 and 2019 corporate giving in the United States went up by 13%, coming in at just over $21 billion. A survey by Candid across 40 countries showed that 44% of philanthropic funding in response to Covid-19 came from the corporate sector.

Those are big numbers. However, when we look deeper, the link between dollars and impact is not straightforward. Open Road Alliance, an organisation providing bridge funding to nonprofits and social enterprises that encounter roadblocks in impact projects, states that 

“1 in 5 impact projects encounter roadblocks, with a staggering 46% of these obstacles being caused by funders” - Open Road Alliance

In many cases, corporate donors may hinder impact, instead of helping. 

“Imagine if an investor said to Elon Musk, ‘You can have a hundred million dollars, but you can only use it to spend it on staff lunches, because we think morale is really, really important’. And Musk’s thinking, ‘You have no idea what the most serious issues are in our company.’ It’s the same approach with development." - Peter Yao, Chief Impact Offcer, Thankyou.

"There are amazing locally led organisations who know the root causes, who know how to get systems moving and changing, but they just need funders to get out of the way.”

Businesses that are giving to create positive change need to ask some fundamental questions about what impact they are truly making, and what they can do to make sure they are not contributing to that 46% of funder-created roadblocks. We will get to grips with the challenges businesses should be aware of when they are integrating a giving model, and avoid the pitfalls of others that have gone before them. 

With a current funding gap of $2.5 trillion to meet the SDGs, and the impacts of Covid-19 setting us back, it is more pressing than ever that the funds businesses commit to impact achieve their aims. But what should those aims be? Is your business clear on what “impact” means? Often, what is labelled “impact” is an earlier step in the chain - an activity or an output.

As we will explore, when a nonprofit is held to metrics on specific activities and outputs, rather than meaningful impacts that address root causes, it can do more harm than good. As the saying goes:

What gets measured gets managed —even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so.

While we talk to people involved in international development, there are takeaways that you can apply to whatever area of giving your business is looking to engage in. That could be the environment, or social issues closer to home.

What’s business got to do with charity?

Corporate giving is not a new phenomenon. Andrew Carnegie, magnate and titan of America’s steel industry during the late 19th and early 20th centuries, was a fierce proponent that those who made vast amounts of money through industry should give it away to achieve social good.

Through the twentieth century, and particularly in the economic boom that followed WWII - what’s known as The Golden Age of Capitalism - major companies began creating charitable foundations as an arm of their business, including the likes of Ford and General Electric. As corporate competition grew through the later decades of the 20th century, corporate giving became part of businesses’ strategies and brand positioning, as a point of competitive advantage, under the banner of CSR.

Today, there is a growing trend for businesses to commit funds to impact. Organisations such as Pledge 1% and Good2Give are amplifying the conversation around corporate giving, and businesses are looking to align their philanthropic decisions with their business purpose and identity.

We look at how businesses are giving today. We speak to a social enterprise that after 12 years, had a realisation that fundamentally changed their giving model; a global non-profit that relies on funding to understand what they actually want from donors; and the certifying body for B Corporations, about what they look for in a business’s giving model.

The power of partnerships 

Businesses with philanthropic giving programs will typically partner with existing non-profit organisations and support their initiatives. The businesses themselves don’t do the actual impact work on the ground; instead, they work through partnerships. The relationships businesses have with their chosen charity partners are critical to make their giving effective. For a non-profit receiving the funds, their experience can vary hugely, based on the particular direction and perspectives of the donor.

“Not a lot of donors want to take risks. They want to know what they are putting the money for. This constrains you a lot. Our role is to tell them, trust us. We know what we are doing.” - Nadia Campos, Director of Innovation Lab, iDE Global

How businesses are giving 

Buy one, give one: do in-kind donations work?

In 2006, TOMS founder Blake Mycoskie introduced a buy one, give one, or ‘One for One’ model. Mycoskie started the business after travelling in Argentina and seeing children without shoes to wear.

“You can’t really talk about baked-in corporate giving without talking about TOMS shoes. They have really pioneered and defined the modern construct of corporate giving through their buy one, give one model." - Andrew Davies, CEO, B Lab Australia and New Zealand

"Historically they were best known for the idea that if you bought a pair of TOMS shoes, they would donate another pair of shoes to a developing nation to help a local community. It was a beautifully compelling and very simple model.”

TOMS was built on an in-kind donation model. Rather than distributing funds directly to impact partners, they donated goods. TOMS established a number of partnerships with nonprofit organisations to distribute the shoes to people in need across more than 80 countries. A number of businesses followed suit, including the eyeglasses company, Warby Parker, with their ‘buy a pair, give a pair’ program.

What made this giving model attractive and compelling?

1. A simple, elegant concept

TOMS were able to create a giving model that was easy to communicate and to understand if you were a customer buying these products. This kind of giving model enables a business to align your brand identity and products with your philanthropy.

Not only is a business gaining the benefit of a giving model that is intuitive and tangible, they are also strengthening their brand identity with existing and potential customers, by aligning their business with a positive purpose. From a business perspective, this purpose alignment piece is extremely powerful. In a global study of brands in 2020, Zeno Group found that

“consumers are four to six times more likely to trust, buy, champion and protect those companies with a strong purpose over those with a weaker one.” - Zeno Group

There is a compelling case for businesses to align their brand with their giving in a way that resonates with customers. Buy one, give one models are a straightforward way to achieve this.

2. Easily measured outputs

TOMS had a simple metric to measure the reach of their program, in the number of shoes distributed for people in need. By 2019, TOMS were able to report that they had donated more than 95 million pairs of shoes. For a business looking to ensure their intended impact is measurable and tangible, one-for-one in-kind donations is an attractive option.

That said, the buy one, give one model is not without its drawbacks. 

TOMS chose shoes, Warby Parker chose eye glasses; any number of businesses adopting the ‘buy one, give one’ model have their own particular good of choice. However, are these product donations solving persistent problems facing communities in need? Do they tackle root causes of poverty or inequality?

A 2016 study published in the The World Bank Economic Review tested the impact of TOMS shoe donations in a randomised trial of 1578 children in rural El Salvador. 

“Their assessment found that the overall impact of the shoe donation program was close to zero.” - The World Bank Economic Review

Most children in this context already owned a pair of shoes, and the donations resulted in insignificant impacts on the children’s foot health, self-esteem and overall health.

TOMS has reported that close to two-thirds of its nonprofit partners agree that the donated shoes “help to protect recipients against foot infection and disease, and 70% have reported protection from injury.’ Still, of those close to 100 million pairs of shoes, we are not able to determine what proportion of those donations led to meaningful, measurable change in the lives of the recipients.

Where does this leave buy one, give one as an option for businesses? In-kind giving models may be effective when they are highly targeted, and where the goods being donated are helping to improve a locally identified problem within a community. However, what the 2016 study reveals is that when it comes to in-kind donations, one size does not fit all.

When helping hurts

Worse still, in some cases in-kind donations do more harm than good, damaging local economies: 

“There was a study done on clothing drops in Sub-Saharan Africa. It looked at the effects of just clothing drops of free clothing from 1981 to 2000, into different Sub-Saharan African communities, low income communities, low resource communities. It found that half of all clothing industry job losses were attributed to these clothing handouts." - Peter Yao, Chief Impact Offcer, Thankyou.

"It makes you think about the number of people that would be donating clothes and thinking that it’s such a great outcome and output for communities. But in fact, it’s actually destroying livelihood opportunities. The solution that we think could really help lift someone out of poverty might actually be destroying someone’s livelihood”.

TOMS has been on a learning journey as a business, and perhaps in response to findings such as this, has stepped away from the very One for One model it created, as detailed in their 2019/2020 Global Impact Report.

Today, instead of in-kind donations, TOMS’ giving model has shifted to financial donations. They are committed to giving a third of their net profits ‘in support of grassroots good’, providing grants to locally-led nonprofit partners across three pillars: promoting mental health, ending gun violence, and increasing access to opportunity (including work and education).

Given the problematic aspects of a one for one giving model, what alternatives exist?

Track Your Impact: a case study

Thankyou is a social enterprise that makes consumer products and distributes its profits all for the end of extreme poverty. They started in 2008 and are working to expand across Asia, Europe and the US in partnership with the world’s largest consumer goods brands.

“We started our business saying, we’ve got consumer products like bottled water generating hundreds and hundreds and millions of dollars in the economy. So can we usurp that?” - Peter Yao, Chief Impact Offcer, Thankyou.

Unlike TOMS, Thankyou didn’t adopt a buy one, give one model. While one for one models like TOMS directed their funds to provide primarily one particular product, in their case shoes, Thankyou took more of a holistic development approach, funding water projects, hygiene and sanitation projects, maternal and child health projects and the like.

“There’s a $2.5 trillion funding gap as of today to meet the SDGs. Everyone’s trying to figure out, gosh, how are we going to come up with that funding? So for us, it became this business model. We make household products and then distribute all the profits to our charity partners.” - Peter Yao, Chief Impact Offcer, Thankyou.

The approach was to find a profitable market in the FMCG space, build a profitable product business, and then channel those profits to help charities working to help end extreme poverty. From here, the question becomes, how to figure out where and how to distribute the money raised.

In order to distribute the profits they raised through the sale of consumer goods, Thankyou created a system called Track Your Impact. A customer would buy a Thankyou product, say a bottle of hand wash, with a Track Your Impact ID number stamped on the back.

They would go to the website, tap out the number, and see a map with the location of the hygiene and sanitation project that their purchase helped fund.

“Our consumers are almost like our micro donors. And they are people that genuinely do care about what’s happening with their dollar." - Peter Yao, Chief Impact Offcer, Thankyou.

"Something that we thought through as a corporate philanthropic organisation is connecting the dots between their purchase on the supermarket shelf and the impact that our partners were having.”

High transparency approach

Track Your Impact fostered a high level of transparency by Thankyou to its customers.

“We would showcase this tangible output to our consumer and connect the dots." - Peter Yao, Chief Impact Offcer, Thankyou.

"It was something that we had high hopes for. We required a lot of reporting and our partners spent a lot of time on it. We prided ourselves on that because we felt like it was keeping our partners honest. Really it was trying to connect a consumer’s understanding of development with a tangible output that our partners were doing.”

Not only did Track Your Impact create transparency from Thankyou to its customers, but it also relied on a high level of transparency from Thankyou’s nonprofit impact partners.

The drive for honesty and openness is admirable, and understandable given that funders want to know how the money is being spent. But it also sets a high expectation for charity partners to report on their activities and outputs.

“If money comes with a need to report on the activity, and that reporting is about satisfying the expectations of donors, it can create more burden and cost." - Andrew Davies, CEO, B Lab Australia and New Zealand

"Anyone who’s donating in a business capacity needs to be really thinking about what extra pressures they’re putting on the recipients of that funding. The focus should always be on impact, with accountability. We’re seeing more examples of this done well in the B Corp community.”

Is the motivation of the business to be able to tell their customer base the numbers and figures of tangible interventions in a given time period?

While highlighting these numbers is not necessarily a bad thing, relying on them to communicate the story of impact is problematic.

It matters what we measure

It is critical for businesses to consider what they want a nonprofit partner to report on, and to clarify what constitutes ‘impact’. While there are numerous impact methodologies to choose from, a common thread is mapping a theory of change from inputs to activities, activities to outputs, to outcomes, to impact.

“A lot of donors look to the quantity and not on the quality. That’s another problem in the sector. They want numbers and numbers and numbers. Instead of looking at the depth of the innovation." - Nadia Campos, Director of Innovation Lab, iDE Global

"For a clean cooking project that we are doing we submitted a funding proposal with an indicator that 500 people will buy a clean cooking device. The donor said, ‘only 500 people?’ How many people in rural areas that only have $2 a day to eat, will buy a clean cooking device?

I had to add another indicator that more than 1000 people will at least see our flip chart. Because the donor wanted big numbers. They said that was good enough, to include the number of people that have interacted with the marketing material. I said, that is not deep enough. They’ve seen it, but it doesn’t mean anything. They are not going to change their behaviour. However, if they buy a clean cooking device, they will not get the smoke in the kitchen. This is a much deeper change, but then quality is not the same as quantity.”

Not only did Track Your Impact create transparency from Thankyou to its customers, but it also relied on a high level of transparency from Thankyou’s nonprofit impact partners. The drive for honesty and openness is admirable, and understandable given that funders want to know how the money is being spent. But it also sets a high expectation for charity partners to report on their activities and outputs. 

Imagine that your business is looking to fund projects to support access to clean, safe water. You want to be able to say to your customers, ‘we’ve been able to fund X number of water wells or water pumps this financial year’ to help provide water access to this number of people. But what if the solution to water access isn’t always a case of building more wells?

“As an example, how do you actually tackle rates of water access decreasing in rural Malawi? Sometimes it’s not just installing a well, and that’s a really nice, simple story that we like to tell. But it could actually be working with the local water municipality authorities and seeing, can we actually add value in tracking your expenses." - Peter Yao, Chief Impact Offcer, Thankyou

"It could be as simple as that, tracking expenses, which ensures that the water utility providers have budget. And here’s the enabling environment that we really need to surround them with, so that there’s operation maintenance and there’s support staff and crew when these water parts and pumps break.”

You are a business donor that wants to support water access for these communities in rural Malawi. As part of your donation, you require your charity partner to regularly report on the number of wells and pumps they’ve installed. 

However, for the project to be a success, perhaps that charity partner wants to do other work in the community, in order for the water pump to be successful in the long term; but because the funding given to them is specifically for installing wells and pumps, they’re constrained.

Your business might be able to say, ‘we’ve helped our partner install X water wells’, but in five years, it turns out most of them are broken down, the community hasn’t got the means of repairing them locally, and there hasn’t been work done on creating behaviour change within that community to use the well as intended.

The impact of this project would be minimal, because the activities and outputs that the business has asked of the charity partner, and tied their funding to, may not be the best way of approaching this development.

“Imagine you have to tell the donor, what I’m going to do is ABCD. So they give you the money, you go into the field and you see very soon that you cannot do B! It doesn’t make any sense; I cannot do C. The donor says, ‘Oh sorry. You say in your proposal that you are going to do ABCD. " - Nadia Campos, Director of Innovation Lab, iDE Global

"You have to do it now. Even if you know that it’s going to be a failure, find a way to do it.’ And you say, ‘We can find a way, but it doesn’t make any sense’.

A lot of organisations keep going and they use the money to do ABCD. Even if we know that it’s not going to take us any farther, even when the problem is not going to resolve and the impact is going to be minimal. This is a shame. It should be a shame for everybody.”

Part of the issue here is about donors asking charity partners to report on activities and outputs, rather than truly measuring outcomes and impacts over the longer term. Connected to this is the temptation of donors to want to be able to claim big numbers.

“I think there’s always a danger with big numbers when you dig into it. We take big numbers with a grain of salt, because we don’t want to be chasing numbers if they’re not the most impactful things to chase”. - Peter Yao, Chief Impact Offcer, Thankyou.

"And so we’ve got to really know what are the most effective and impactful solutions, and that’s the real number that we should be chasing versus an ethereal number to bolster up big claims.”

Impacts vs activities

Often, what is labelled as ‘impact’ in a report is in fact activities or outputs: the number of wells installed, the number of people reached. However, this is only one step in the process of determining a meaningful impact.

Evaluating the impact of a particular project is a much more rigorous process. It involves accounting for what would have happened anyway without the initiative, determining the extent to which changes can be attributed to the initiative, and assessing the length of time that the measured change is beneficial.

However, if anything, this can create a more laborious process of reporting for nonprofit partners, than if they were to report only on particular projects’ activities and outputs. It requires greater overhead spending by nonprofit partners, with longer timelines, more resources, and a detailed framework and methodology for assessing the real impact of their projects.

Yet a five year research project by the Urban Institute’s National Center for Charitable Statistics and the Center on Philanthropy at Indiana University, and further research by Bridgespan, found that nonprofit organisations continue to run with markedly low overhead budgets that stymie their ability to invest further in the administrative work of impact measurements.

As Dan Pallotta has argued, the expectation from donors that a nonprofit organisation’s percentage of spending on overheads should be as low as possible, and that this is a reliable indicator of their trustworthiness, limits their means of growing and accomplishing further impact.

Risk aversion and restricted funding 

A corporate giving model that ties a donation to activities to be carried out in a set time frame by the charity partner, rests on an assumption that solutions to address the experience of people living in extreme poverty are concrete, and that the solutions are already understood.

“It may put pressure on the NGO or the partner... They start to tailor their programs, not with the lens of reaching someone with the most effective solution, but actually reaching someone with a solution that’s dictated by the funder or by the fund is a real strategy of trying to reach as many people as possible.” - Peter Yao, Chief Impact Offcer, Thankyou.

Addressing multidimensional issues

Since 2010, the United Nations Development Programme has been publishing the Global Multidimensional Poverty Index, or the MPI. The MPI charts the complex dimensions of the lives of people living in poverty. It reveals that the road out of extreme poverty is not one or two dimensional. Dimensions of health, education, and standard of living are interconnected. It considers factors such as nutrition and child mortality, attendance and length of schooling, through to access to drinking water, sanitation, electricity, housing, cooking fuel. In this way, it adopts a systems thinking approach to development.

“Development is really complex. Extreme poverty is really complex. It is very multifaceted. Sometimes by simplifying a story, it loses all its nuances and worse still, it really doesn’t do justice to some of the partners who are looking at systems and root causes as well." - Peter Yao, Chief Impact Offcer, Thankyou.

"We began to have these conversations with partners, with community members. We have an assumption on the best approach. Over the last six or seven years, we’ve been really challenged by the idea that it’s gonna take a lot of different approaches to tackle extreme poverty.”

Thankyou is one example of a corporate donor making an intentional change to their giving model to be more grantee-centric, designed to enable nonprofit partners to tackle the challenges as they see them. However, this is not currently the norm:

“There’s this element of distrust in the philanthropic sector, and that’s where you get really restrictive funders saying, 'Hey, you can only use our funding if you do it in this way’. While they think it screams of accountability, what it actually means is it makes sense to me, the funder, which is really dangerous..." - Peter Yao, Chief Impact Offcer, Thankyou.

While in the business world, risk is accounted for, and accepted as a necessary element of investment in innovation, the charitable sector is often hamstrung by a low risk threshold from donors.

Donors’ unrealistic expectations of costs needed by nonprofit organisations to roll out projects create a ‘vicious cycle’ of underfunding, or short funding cycles that do not allow time for potentially impactful projects to prove their value. 

“In the beginning, maybe we start with very little numbers. But if you keep funding this initiative, then years later, you will have great success. Donors, they want, in the first year, 100,000 people impacted. But how deep has this impact been?” - Nadia Campos, Director of Innovation Lab, iDE Global

Reporting requirements on outputs and shorter time frames mean that many charity partners are constrained to rolling out traditional initiatives and particular activities in order to secure ongoing funding. If the time scale on which to measure the effectiveness of a project is limited, this also limits the innovations charity partners are able to create.

“I think we need to look for alternative models of corporate giving. Providing short-term cash to a charity in the form of a donation is one model, but providing long-term financing... is a really important space." - Andrew Davies, CEO, B Lab Australia and New Zealand

"Large organisations need to think about their capacity to support beyond those cash donations, because it does create tension for so many charities that they’re reliant on short-term funding. How can you, as an organisation, invest for the long-term, when the funding you’re getting is subject to annual expectations?”

Tied funding, or restricted funding, further limits nonprofits to account for their spending before they have been able to commence a project. Unforeseen challenges or unexpected opportunities discovered along the way are not easily retrofitted into the project scope.

“Problems are not solved and poverty exists and will exist forever because interventions are very traditional. Sometimes funds are not flexible enough to make people innovate." - Nadia Campos, Director of Innovation Lab, iDE Global

"We need to go into the communities, talk to them, see if the solution fits or not. Not all the donors can or are willing to do that. Some donors fund the pilots. Some donors, no. They want you to go and to start as soon as possible, and start doing things [before we] know yet what solution is going to work best. We need to do some research and to pilot things. 

A lot of organisations assume that something that worked very well in Africa is going to work very well in Asia, but the context is completely different. The culture is different, the needs are different.”

Unrestricted funding not the norm

A study by the Centre for Effective Philanthropy found that nonprofit organisations have long called for multi year unrestricted funding. Nonprofit leaders describe how this type of funding enables them to plan for the future, invest in their team, and focus on impactful work.

But as it stands, only 2 in 5 nonprofits received multi-year unrestricted funding, and those that did received only a little, with most reporting that unrestricted makes up less than a quarter of their funding. 

The research found no significant barriers that would prevent funders from providing these types of grants. In seeking an explanation for why it is not commonplace, they found that in many cases it simply had not been made a focus or priority by funders. For nonprofits, they saw it to mean funders did not trust the sector to deliver, and wanted to remain in control.

One of the nonprofit leaders they interviewed was quoted saying,

“For some reason, [funders] expect nonprofits to be miracle workers, when in fact we’re all cutting corners, skimping on resources, doing everything with far less than we should, and then bending over backward trying to find a way to make it sound like we’re succeeding, while also making sure to keep the challenges front and center, but without sounding desperate or as though we can’t handle it.”

The funders that do provide multi year unrestricted funding only do so having made an intentional, concerted effort to provide grants in this way - they are the exceptions that prove the rule.

Unrestricted funding - the way forward?

Where it’s been working 

Track Your Impact case study: revisitied

Circling back to Thankyou’s Track Your Impact model, tied funding models with clearly defined project activities are compelling, but they can perpetuate some of the obstacles that charity partners face in partnering with donors.

Track Your Impact and models like it might be intuitive for people to understand and support, but they can underestimate the complexities of the issues needing to be addressed and how to create lasting impactful change.

In fact, it is for these reasons, among others, that Thankyou, like TOMS, has pivoted away from the very giving model they created. Instead, they have shifted their focus to a model of what they term ‘unrestricted funding’.

In this system, partnerships with nonprofit organisations are established over the long term, funding cycles are extended, and funding is not tied to a defined set of activities. While the desired impacts are clear, alleviating people from extreme poverty, the activities and outputs may change as required. 

While a business may look to fund solutions that are simple to communicate in messaging to customers, Thankyou’s experience has demonstrated that this need not be a barrier to change. What is important is taking customers on the journey, allowing them to ask questions and receive honest answers.

“I feel corporates seem to feel pressure to fund something really simplistic because they believe consumers can only understand it to a particular degree." - Peter Yao, Chief Impact Offcer, Thankyou

"We were the test case. We could’ve gone both ways, but we chose to make the step because we knew at the end of the day, we needed to make funding decisions that matter for the community. We’ll wear the risk as a brand. But thankfully, the sales haven’t dropped, and I would even say that there’s been even more positive brand recognition.”

When nonprofits are no longer constrained by tied funding and these short term reporting and funding cycles, it opens up the scope of their activities, and enables these organisations to pilot new programs, test solutions in the field, and measure impacts over a longer time period.

How unrestricted funding allows for innovative approaches

Nadia Campos shares an example of how iDE took a novel approach to solving the problem of access to toilets in Cambodia:

“In Cambodia, 10 years ago, 80% of the population was still doing open defecation. People did not have access to toilets and they didn’t want to use them. So nothing had changed. One, maybe because they did not have access to a toilet. Two, they didn’t know where to buy it. Three, they didn’t know what a toilet was." - Nadia Campos, Director of Innovation Lab, iDE Global

"What iDE did differently is we created what we call ‘sanitation marketing’, using human centered design. We went to the community, and we asked them, ‘Why don’t you have a toilet? A lot of people were telling us, ‘I don’t know what a toilet is. I don’t know where I can buy it. And I don’t know why I should buy it.’”

From here, iDE looked to the local market. Instead of providing toilets for free, they wanted to create a sustainable solution that would outlast their project work. They identified concrete producers and taught them how to produce the toilets and how to sell them.

“What we missed in our first pilot is we assumed that those entrepreneurs could also sell the toilets. But in the Cambodian context, entrepreneurs don’t go out to sell anything. They wait for the customers to come. But how will the customers from the rural village in Cambodia go to a town to buy those toilets? Impossible.” - Nadia Campos, Director of Innovation Lab, iDE Global

After this first pilot, iDE iterated their approach. They began training students and community members how to sell the toilets, using a door-to-door marketing approach.

“Now 10 years later, only 20% of the people don’t have a toilet. So we really shifted the market. And so in 10 years we went from 80% open defecation to 20%, thanks to this sanitation marketing approach instead of just educating or capacity building.” - Nadia Campos, Director of Innovation Lab, iDE Global

A project of this kind - involving iterative pilots and testing, collaboration with the existing market to create an innovative solution, and a ten year timeline - would not be possible with short-term funding tied to a particular set of activities. Yet, this is how lasting and meaningful impact in this context was achieved.

For Thankyou, their shift to a partnership-centric, unrestricted funding model saw them give $10 million of unrestricted grants to 18 nonprofit partners in 2020.

“In shifting our entire giving strategy to support our grantees in what we call a grantee centric or a trust-based manner, it’s having a really, really great impact." - Peter Yao, Chief Impact Offcer, Thankyou.

"In our first twelve months that we’ve switched, the feedback from our partners have been really positive because they’ve had to pivot and they’ve had to meet new needs of the community [in response to COVID-19], which they couldn’t have done if it was restricted funding.”

One of Thankyou’s nonprofit partners, working in rural Uganda, had set up an income training program, but through 2020 saw that the most pressing need was for short-term food relief.

“They were so successful in terms of pivoting that they reached 150,000 people. Now the national government in Uganda looked at their approach in the way that they pivoted. They’ve asked them to reach a million more Ugandans in the space of 12 months. And they were saying you couldn’t have done that without unrestricted funding.” - Peter Yao, Chief Impact Offcer, Thankyou.

Drawbacks of an unrestricted funding model 

For businesses weighing up their current or proposed approach to giving, an unrestricted funding model comes with its own set of challenges and risks.

It requires a higher degree of dedicated input from donors to establish longer term, trust-based relationships with nonprofit organizations receiving funding. Measuring for impact, rather than activities, requires a deeper understanding of complex problems. It demands a high level of trust in grantees to deliver for impact, and to overcome unforeseen obstacles along the way.

Businesses adopting an unrestricted funding model will need to be more comfortable with ambiguity, as activities may change throughout the life of a project. Deliverables may require longer time scales.

In communicating to customers about their impact, businesses have a difficult task in conveying a complex model of development in a concise manner. For businesses moving to a fundamentally different giving model, there is a risk that the change of approach may be jarring to existing customers. This needs to be taken into account in how a business frames their messaging externally.

“I’m a consumer myself. We are bombarded by hundreds of messages each day. If we look at the supermarket shelf, for us, our primary communication method is our on shelf packaging." - Peter Yao, Chief Impact Offcer, Thankyou.

"Consumers may look at a product like Thankyou, and it could be a three to five second read. Not everyone’s going to read the entire blurb as well. That’s the challenge of trying to communicate our impact model - a complex development model - about what our partners do plus the role that you the consumer is playing - all in a very quick and concise manner. So that’s the challenge that we have in front of us.”

How do we get out of this pickle?

There are no simple answers to these questions, and no giving model has the monopoly. Still, there are considerations businesses can make when setting up a new giving model, or refining an existing model.

Prioritise grantee centric funding.

Look to impact, over activities or outputs. Bring customers on the journey. Giving is not a substitute or trade-off.

Challenge any potential assumptions that the particular social or environmental issue your business is intent on supporting is simple or already understood by you and your team. Put in the time to listen to grantees and understand their approach. Seek to explore their own preferences for funding.

“One of the first things to do is start with a posture of listening and learning and doing research on the areas and challenges that you want to play a role in." - Peter Yao, Chief Impact Offcer, Thankyou.

"For too long, we (the corporate sector) have gone in with our own agenda, like a brand leverage promotion. Saying can we maximize CSR or good governance with our brand and tying that to more sales?

But if we’re all serious about tackling injustices or inequity in our world, let’s take the time to listen. To ask our partners what’s really needed as well in terms of what types of solutions, what type of funding is really needed as well.”

Look to impact, over activities or outputs. 

This may require further training and learning about impact evaluations and theory of change methodologies. Get to grips with what meaningful change would look like in this context. Allow room in the budget for the nonprofit to undertake reporting, and be clear on what they are measuring.

Bring customers on the journey.

If you are changing the fundamentals of your existing giving model, be as transparent with your customers as possible. 

While there may be misunderstandings and criticisms, allow space for these conversations and be prepared to explain why your business is taking a different approach.

Authentically conveying to customers about why your business is changing its giving model, and demonstrating your commitment to purpose, also creates an opening to engage with customers in a deeper way.

Providing customers with opportunities to interrogate your decision-making and understand your approach enables them to ‘identify with and feel ownership of ’ the business’s purpose. Peter Yao shares;

"We always try to authentically communicate what’s worked and what hasn’t" - Peter Yao, Chief Impact Offcer, Thankyou.

"We wrote a 10 minute read about why we’ve switched our model on our blog, and have also taken questions on Q and A via social media. A lot of the questions were either resolved, or there was understanding on why we’ve done what we have.”

Giving is not a substitute or trade-off.

While a business committing to donate a portion of profits to achieving impact is noble, it is not a substitute or trade-off.

How else can your business work for equality, and have a positive social and environmental impact through its core operations?

“Financial lenders are increasingly seeing that a robust sustainable and governance framework within a business is a really strong risk management framework for the long term." - Andrew Davies, CEO, B Lab Australia and New Zealand

"And we’re seeing that around the world with different financing models, we’re seeing that with the resilience of businesses that are better designed for impact through the global pandemic and through previous financial crises as well.

It really does come down to not just the immediate impact of your operations, but how are you designed as a business to cope with change?

What we’re seeing is many businesses start to put in emissions management frameworks, and as much as anything that is a good hedge against future regular regulatory change, because your business is already ready.”