It is impossible to predict the extent of the impact of the
Coronavirus pandemic on our societies, but the role of charities and
philanthropy in responding will be key.
Whilst the circumstances of the economic crash in 2008 were
entirely different, the impact on charity reserves and grant-making foundations
could be similar to what we saw following the 2008 financial crisis.
In 2008/2009, many charities reported that the donations
they received were down, as individual donors were facing financial
uncertainty. At the same time, endowed
charities which saw a dramatic and sudden reduction in the value of their
endowments were also dealing with reduced investment income to distribute. Charities which operated on an expendable
endowment or total return basis also faced a situation where, unless they
reduced their distribution rate, they faced further reducing their (already
depleted) capital and jeopardising future giving.
However, notwithstanding this, some grant makers not only
maintained their distribution rate, but actually increased the amount they were prepared to distribute, recognising that
continued or even greater funding was needed at that moment – not least because
of the reduction in giving from individual donors – and that when the markets
recovered and the crisis abated they could make up some of their reserves.
Furthermore, arguably there may also have been a similar
response from some individual donors, those who are committed to philanthropy
whether for ethical or religious reasons, and as a matter of principle viewed
the donation as coming before their own personal needs.
In 2020, charities are facing not only a drop of donations
due to financial uncertainty, but also the loss of voluntary income from large
fundraising events. Alongside grant-making
bodies with expendable endowment considering whether to deplete their capital,
many charities are likely to be considering their reserves policy and the
extent to which they can and should use reserves. The Charity Commission has published guidance
on the use of reserves, and it is clear that they are encouraging the use of
reserves where possible.
It is hoped that the current crisis will prompt a greater response from individual donors for ethical reasons than in 2008, due to the devastating impact of the virus on the vulnerable and health workers around the world.
- Chris Priestley, Clive Cutbill and Chloe Harris
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