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NGOs forge new partnerships for sustainability as public funding dwindles

IRC NGO & Not For Profit Practice Group | June 11, 2021

On 20 and 22 April 2021, IRC Global Executive Search Partners hosted virtual roundtables with leaders of non-governmental organizations from the Americas, APAC, Africa and Europe to discuss how the changing political and economic landscape is requiring a new approach to fundraising and commercial partnerships as part of its Future Leaders for a Sustainable World series.

Executive Summary

  • Larger NGOs have proven most adept at going online, retaining donors as public funding sources dry up amid a shifting focus to more immediate, localized causes
  • Corporates are being held to account more than ever, spurring partnerships with NGOs to put ESG policies into practice, but alignment of interests is critical
  • Funding for organizations focused on climate and the environment has been sustained, while education and science lose support
  • NGOs are increasingly seeking new revenue streams to finance operations and compete for top talent with for-profit enterprises

Non-governmental organizations (NGOs) have been caught in the midst of a turbulent sea of change over the past 18 months as wildfires spread across the globe and then SARS-CoV-2 gripped the world in shock and fear, presenting a new set of challenges to secure financing and maintain forward momentum.

Larger NGOs have demonstrated greater flexibility and an ability to take activities online, suffering a lot less over the past year-and-a-half than their smaller peers, according to Netherlands-based Consultancy for Equality Founder Monique van ‘t Hek. Smaller NGOs have faced a 13.4% drop in fundraising over the past 12 months, while larger organizations have taken only a 0.3% hit, on average, she noted.

NGOs focused on climate and the environment have benefitted from an increase in donations, she said, because people have discovered and embraced nature again in the Covid crisis. Also health-focused NGOs that support Covid-related medical care, like the Lung Foundation, have received more donations, van ‘t Hek said. However,  NGOs focused on education and science have received less, as have smaller organizations that rely more heavily on fundraising events.

IRC NGO NFP Mal Duncan

Structural donors, or those committed to an organization for several years, have been quite loyal, with little discernable impact over the past year, van ‘t Hek added, while legacy giving by deceased donors has increased by around 33%.

The massive wildfires across the globe in 2019 drew a lot of attention and money to environmental organizations focused on conservation and climate change, while generally reducing donations for more far-flung, international causes, noted David Nathan, non-executive chairman and director of Sydney-based insurance law firm Wotton + Kearney.

Resource Constraints and Regulation Pose Challenges

I see two headwinds that NGOs and not-for-profits will have to contend with in the years ahead, said Laurence Kubiak, CEO at the New Zealand Institute of Economic Research (NZIER). The first is risk tolerance, he said. “The commercial entities with which we engage at NZIER are much more cautious now, even if their operating results are good,” he said. That obviously could be a problem for non-profits and NGOs, because it’s better for those organizations when everything is buoyant and there's lots of money on the table,” he added.

The other issue NGOs will face in the years ahead is the level of public debt and the implications of that, he said. Many countries around the world followed some variant of the furlough type of thinking, he noted, paying people to tide them over until they could come back to work. “That's been funded by running up the public debt,” he said, adding, “It's essentially a mortgage on the future taxpayer.”

Charities will also be under increased scrutiny, according to Nathan. “We're going to see more regulation, less spending, and more expected for the dollars we get,” he said, adding, “The combination of more regulation and less money from government is going to be a delicate cocktail.”

The African Development Bank (AfDB) has already faced increased difficulty in securing financing from its bilateral partners to assist with ongoing challenges, given that these countries are also faced with huge spending due to immediacy of the health threat across the globe over the past year, said Nnenna Nwabufo, Director General, East Africa Region.

“Every country needed resources to support mitigation measures at home,” she said, while in the past, the Bank’s partners were able to do much more following major incidents, like locust invasions, widespread flooding and Ebola outbreaks.

Governments have been preoccupied trying to balance health safety and economic stimulus while funding historic vaccine campaigns, all of which has taken a toll on public finances, explained Nwabufo.

Focus on ESG Fuels Corporate Partnerships

With more and more for-profit businesses adopting environment, social and governance (ESG) frameworks, partnerships between corporates and NGOs are on the rise, however, presenting new financing opportunities, as well as new challenges, as these organizations shift gears to stay afloat while reinforcing their missions and building resilience.

“The shock of the past year had two major impacts for my organization and the movement I represent, both with silver linings,” said Adrian Zammit, CEO of Landcare New South Wales (NSW), a 60-thousand-strong member-based organization in Southeastern Australia that protects natural resources and plants trees. Restrictions on contact forced Landcare members to use technology rather than rely on face-to-face meetings, which resulted in greater efficiency, Zammit said.

“Secondly, it's really shaken C-suite executives to rethink their corporate social responsibility and environmental and social governance, not because the market has been telling them to do so, it's coming from within now, which is a change in mindset,” Zammit added.

“All of a sudden my organization has been swamped with opportunities from corporates here in Sydney wanting to partner with us to deliver some of their more sustainable objectives,” he noted, including banks, insurance companies, airlines, and all sorts of large multinational corporations.

The past year has driven home the importance of global connectedness, and corporate partners really saw that if there's a more equal playing field, everybody suffers less, said Christel House South Africa CEO Adri Marais.

Christel House, which aims to transform the lives of impoverished children by breaking the cycle of poverty, struggled to fundraise from individuals, as many were forced to divert their resources to personal struggles, Marais said, but the organization strengthened its corporate partnerships. “Corporates came to us. It was phenomenal, the ability to be agile, and for corporates to be willing to support us immediately.”

“They're looking for sanctuaries of safety and brand names that are likely to look after the money intelligently,” Nathan said, which favors the biggest non-profits with strong brand recognition.

“It's really been a bit of a shot in the arm, in terms of the opportunities it has presented, and obviously we're very keen to take advantage of that situation and we're working very hard to develop those partnerships,” Zammit added.

The biggest change of the past year for California-based Child Care Resource Center was that childcare became important for a lot of businesses that had never thought about it as being important, said CEO Michael Olenick.

“All of a sudden, we had partners we'd never known,” he said, noting hospital associations, especially, have been keen to support the organization, as well as banks. “They were like, ‘we need to get our folks childcare because they're stuck. They can't use who they were using and they need to have their kids somewhere because they've got to be in the hospital 12 hours a day. So all of a sudden we were getting funding to help those families do that, and we continue to get that funding.”

Organizations with a social intent are the glue between the function of government and the private sector, Marais said. Governments should be very clear about serving citizens, while private enterprise drives the economy and NGOs operate in the public interest with funding from both, she added.

South Africa is a showcase for how beneficial it is to have effective public-private partnerships, said Marais. “We need our private partnerships; we need our corporates to support and employ our kids and help them to pay for universities, to give them internships, to give them exposure.” Only by partnering with the private sector can you start to build a more equal society, Marais said.

Corporate partnerships aren’t a panacea, however, Nathan cautioned. The reputation of corporate partners is the starting proposition, he noted, with a great risk of contagion that NGOs need to be mindful of. “Their experience, if any, as a corporate partner with an NGO is an important element, along with their expectations of what they want from the partnership,” he said.

It’s not easy to find the right partnerships, noted van ‘t Hek. “It's like a quest; you have to develop it together, and I think that's positive,” she said. Corporates are now very much involved in program content, so it's a different dynamic versus 10 years ago, she added.

We need to make sure that the partners that we're trying to work with are aligned in terms of their ethos and their principles and their values with what we represent,” said Landcare NSW CEO Adrian Zammit.

ROI for the Mission

NGOs are increasingly monetizing their services to generate income to help fund their programs and reduce reliance on government and donors. Landcare NSW, for example, is planting trees on behalf of corporate partners as a fee-for-service, Zammit noted.

“Profit is not a dirty word and we need to diversify our funding, even if it's just a risk mitigation strategy,” Zammit said. “We can't just be beholden to government, because that is a very risky proposition,” he added. “The mantra that we use at Landcare New South Wales is that we adopt a business mind, but a social heart.”

Even in the best of times, Government funding is typically insufficient, Olenick agreed, “so unless you have another source of revenue to offset the costs, you can't do it”. This is especially critical when it comes to retaining top talent in an area like information technology or finance, he noted.

Development finance institutions like the AfDB invest in areas where they can make both an economic and a social impact, but they are also expected to generate sufficient revenue to cover costs and shore up capital to support more development work, Nwabufo noted. The Bank has been encouraging African governments to establish public-private partnership (PPP) laws to engage the private sector in investments with a developmental impact, she said.

“Prince of Wales Hospital Foundation is becoming more focused on commercial opportunities and looking to establish long-term relationships with various international companies for ongoing support,” Hohnen said. 

Child Care Resource Center began using its excess printing capacity to print for other NGOs for a fee in the global financial crisis a decade ago, and then broadened its client pool further to for-profit businesses before adding other services like graphic design and video production, Olenick said “The demand for this stuff just keeps going up and up, and so we're bringing in about US$1 million a year in unrestricted revenue just from that print operation.” The NGO recently won a bid roll out an app developed by the Bezos Foundation and is now generating revenue from that initiative as well, Olenick said.

“We need to be able to have a good income. We need to have good profits, or retained income, as we call it, so that we can hold onto the staff,” added Zammit. “We need to move more along commercial lines in terms of the way we run organizations, very lean, very competitive, very productive, but never lose sight of our mission, never lose sight of who we are, and I think that needs to be reinforced over and over and over again.”

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