Grant-making is a powerful part of the social sector’s finance mix, the value of which is hard to capture in numbers alone. Grants can do things that other types of finance often cannot, such as enabling innovation, growth, and future planning. Grant-making done well confers other distinctive benefits on both granters and grantees, while often also unlocking other income streams.

Most of the funding that comes to charities and community groups from within the social sector is in the form of grants. Charitable trusts and foundations are among those organisations best positioned to give grants in a way that capitalises on their potential value. The independence of charitable grant-makers enables them to take risks, support marginalised causes, fund long-term solutions to knotty problems and work with diverse partners.  The value of grant-giving by foundations has increased in recent years, and there has been striking innovation and flexibility by many in response to the challenges of the Covid pandemic.

Yet the ways that some funders disperse grants create problems for charities and their beneficiaries and holds back the sector from achieving its full potential. This research examines the reasons behind this situation and how the good practice demonstrated by some funders can be spread across more of the sector.

Three broad problems currently hold grant-making back:

• Short-termism, in the length of time for which grants are offered, leads to uncertainty and inefficiency among grant-seekers, alongside a tendency to prioritise narrowly conceived projects in the present over investment in an organisation’s ability to develop and deliver its mission in the longer term.
  
  
• Sub-optimal processes, including, most obviously, expensive and cumbersome application and monitoring processes that directly reduce the value of funds, but also more strategic factors such as determining where and how to direct funds, meaning that funding does not always go to where it can have the most impact.
  
  
• Reproduction of wider social inequalities, meaning that some groups disproportionately suffer the consequences of problems in the system, resulting in funding not always getting to those that most need it.

Improved grant-making requires greater focus on sustainable, stable funding for social sector organisations, unencumbered by overly laborious processes, to maximise the efficiency of the system and the impact delivered. Grant-makers can achieve this vision through incremental improvements, significant shifts in approach and transformative practices.

Incremental improvements can significantly reduce the time and cost of applying for funding, especially for small- and medium-sized charities. For example, publishing funding priorities and criteria, providing an eligibility checker and ensuring application forms make all questions visible upfront, avoid repetition and can be saved during the process. Even very small funders could help to improve the funding landscape by steps such as allowing their grants to charities to be used to support core costs, as well as specific projects.

Bolder steps can achieve even more, particularly for better resourced funders. For example, increasing funder collaborations, using joint application forms, striving to reduce numbers of ineligible and unsuccessful applications and ringfencing funding for charities serving and led by people from ethnic minority and other marginalised groups.

Many grant-makers have already started to fund in these ways, however these good practices are not spreading quickly across the sector at large.

So, what needs to happen to help spread good practice through the sector? Drawing on semi-structured interviews with a wide range of charitable grant-makers, in-depth consultation with sector experts ranging from regulators to infrastructure bodies[1] and existing literature on grant-seekers’ views, this report identifies four main barriers holding back grant-makers from making the changes that grant-seekers would like to see and realising more of the potential impact of their unique form of funding:

• Awareness and motivation. Some grant-makers are unaware or unconvinced that their practices are causing avoidable problems for grant-seekers, seeing their approach as inevitable or as beneficial to their own operation.
  
  
• Control over strategy. Some grant-making staff feel that their trustees or donors do not have sufficient understanding of the needs of the organisations and communities they seek to help, and because of this place unhelpful restrictions on how staff can operate.
  
  
• Capacity and capabilities. Many grant-makers do not invest sufficiently in both staff and skills, making it difficult for them to assess the impact of their practices, design more efficient processes or collaborate with others.
  
  
• Engagement with grant-seekers. Some larger grant-makers feel that they intimidate smaller grant-seekers out of applying, while some smaller foundations find that they lack the profile to reach them. These issues can be particularly acute in relation to engaging with grant-seeking organisations run by and for ethnic minority communities.

Overcoming these barriers and spreading good practice to more grant-makers is not straightforward, especially because of the diversity of the funding community.  Clearly, the practices that are appropriate and feasible for a multi-million pound endowed foundation would be neither right nor possible for a small family trust giving a few small grants each year. However, the top 300 foundations in the UK account for about 90% of foundation giving and do tend to have significant budgets. It is reasonable for many of these to take up the improvements which some have already demonstrated to be possible and successful.  Even much smaller grant-makers might well be able to make minor changes to their practices, which would not require great investment but could make a big difference to the grant-seekers they aim to support. While they may be smaller in size, many family foundations play a vital role in supporting small- and mid-sized charities with seed capital. They therefore form an important part of the funding ecosystem.

Grant-makers need to be encouraged and enabled to invest in their own skills, capabilities and cultural competences in order to move towards better practice, whether they are best suited to making incremental improvements or more transformative changes. 

Three measures could help to drive a step-change in spreading good practice further through this diverse community of funders:

1. An active role for the Charity Commission.

The Charity Commission should play a more active and vocal role in highlighting the problems caused by poor quality grant-making, what good grant-making looks like and the resources that exist to support improved practice.

For larger grant-makers, this would play an important persuasive role, using the Commission’s soft power to set standards and encourage trustees, as well as staff, to adopt good practice.

Among smaller grant-makers, many are not members of other networks or in touch with fellow funders that can share ideas and learning. The Charity Commission may be the only organisation with reach into this part of the funder community. It can thus play a pivotal role in sharing information, ideas and signposting sources of support. The Commission can encourage trustees and staff to consider possible improvements and show support for them to invest a little more resource in their own operations, to achieve greater impact with the rest of their funding.

2. Expand independent benchmarking.

Grant-maker benchmarkers should explore opportunities for expanding the scope of their work and the Charity Commission should encourage greater participation in and use of such benchmarks across the sector.

Independent benchmarks have been used in many sectors to raise awareness of good practice, enable organisations to compare their performance with their peers and increase interest and motivation to improve. In recent years, some independent benchmarks have been introduced for the foundation sector and been well received by many. Expanding benchmarking to cover more of the aspects of good grant-making highlighted in this research and increasing the number of organisations participating (with an appropriate segmentation of large and small foundations) could speed up the adoption of better practice. This would be most likely to influence those parts of the grant-making community that have greater resources, are part of networks, place a high value on their reputation and want to demonstrate that they are achieving the best outcomes with their resources. It would also require greater investment in benchmarking infrastructure to maximise its reach and impact.

3. Amplify the voice of grant-seeking charities.

One of the most powerful levers for change among funders may well be increased awareness of the problems that sub-optimal practices cause for the charities and communities they seek to serve.

Individual charities are often reluctant to raise such issues with funders, fearful of reducing their chances of being awarded funding in the future. There is therefore a role for charity sector infrastructure bodies to speak out on behalf of the sector; making visible the negative consequences of some current grant-making practices (as organisations such as IVAR - the Institute for Voluntary Action Research - have been doing), working with the Charity Commission, the government and benchmarkers to define and highlight better approaches, and encouraging grant-makers to take these up.  These organisations should work with the Association of Charitable Foundations (ACF), which has published reports highlighting the highly effective approaches of some funders and set out principles, or ‘pillars’, of better practice.

Making the changes highlighted by this research is likely to require more grant-makers, particularly larger ones, to invest in their own skills, capacities, and cultural competencies, in order to enable better, fairer giving. And this shift needs to be underpinned by greater focus on the experiences of grant-seekers, with a view to maximising engagement with them.

Read full report

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[1] Such as such as AVECO (Association of Chief Executives of Voluntary Organisations), NCVO (National Council for Voluntary Organisations), WCVA (Wales Council for Voluntary Action), SCVO (Scottish Council for Voluntary Organisations), NICVA (Northern Ireland Council for Voluntary Action), and NAVCA (National Association for Voluntary and Community Action)