The report from Perpetual draws on five years of data to forecast trends in philanthropy and the top eight challenges facing NFPs.
Each year, Perpetual provides nonprofit organisations the opportunity to apply for funding through their IMPACT Philanthropy Application Program (IPAP). For FY20 they committed $24.4 million in funding through the program, with a further $85 million distributed through their other managed trusts. Drawing on their wealth of experience in philanthropy and data from IPAP over the past five years, Perpetual has released insights and trends to help the sector navigate the COVID-19 recession.
Trends during COVID-19
Perpetual philanthropy clients increased their percentage of single year funding, a result of the pandemic and the bushfires combined. Philanthropy has been responsive, listening to the needs of the community, but this has come at the cost of multi-year commitments.
Perpetual encourages clients to find organisations that they trust and are willing to support over multiple years. We saw this ‘trust’ play out in response to COVID-19 as more philanthropists agreed to untie grants and release more funding to support the sector. While this should be applauded, security of multi-year funding is necessary for long-term planning and delivery.
In Perpetual’s conversations with their funding clients – faced with market and economic uncertainty and the increasing needs of the sector – there have been discussions around the role and the ability of philanthropy to provide funding outside of their typical areas, supporting NFPs with digital infrastructure, merger and acquisitions, and exploration of alternative revenue sources.
Trending over the medium-term, funding through Perpetual’s IPAP has increased, despite a slight decrease in FY20’s funding due to a larger one-off payment in FY19. For FY21, Perpetual expects Private and Public Ancillary Funds to be conservative, while funding from Private Charitable Trusts are expected to be down by between 30-50% in the same year.
Trends in sub-sector funding
Social welfare organisations received the most funding in FY20 ($8.3 million), in line with the last five years. With the increasing demand on social services, this is a trend Perpetual expects to see continue in 2021.
Quite likely a result of the bushfires, support for conservation and environment causes was up 117% while animal welfare funding was up by 177%. As the climate emergency gains more media coverage and infiltrates public discourse, this trend is also likely to continue.
As NFPs know, a personal connection to a cause is a great motivator for support. Families with personal experiences, or philanthropic families who include multiple generations in funding decisions are more likely to support issues that are prevalent with younger donors.
We may also see shifts in funding approaches and distribution trends as intergenerational wealth transfer carries out in Australia.
Geographical trends in funding
Victorian-based organisations received the highest level of funding, but this is due to nearly 50% of Perpetual’s discretionary trusts being based in Victoria with geographical limitations on funding. As a general rule of thumb, where Perpetual has discretion over distribution decisions, they aim to fund “highly ranked organisations in a wider range of locations so funding is geographically diversified”.
Trends in applications and responses
In this year’s IPAP application, nonprofits were asked to identify up to three UN Sustainable Development Goals that their organisation, or specific program were targeting. The top three goals were identified as 30.8% for good health and wellbeing, 19.2% for reduced inequalities and 13.9% for quality education.
Applicants were also asked if they have undertaken a gender analysis in their project design. Only a quarter indicated that they had completed a gender analysis for the project they were seeking funding for. Many organisations interpreted this to mean reporting on the gender of project participants. Perpetual sees this as taking a gender lens to programs to understand how intervention can affect each gender differently, and then using this information to inform program design.
IPAP Funding for projects targeting Aboriginal and/or Torres Strait Islander people and communities increased in FY20 by 2% to $2.1 million. Applications seeking funding for this group were asked whether they are Indigenous led and/or community controlled. Research suggests that the most successful programs with greater positive impact are implemented by Indigenous-led or community-controlled organisations.
Trends in revenue and fundraising
A strong revenue mix with predictable income allows nonprofits to continue operating and plan for the long term. Perpetuals sees a huge potential in bequest income as Australia begins a major intergenerational wealth transfer. The next generation will be focused on supporting social and environmental outcomes so it’s important for NFPs to steward those partnerships now.
Data collected over the last five years of IPAP applications reveals the top eight challenges the sector is facing. These will be compounded by COVID-19 as organisations move services and fundraising online and seek more efficient ways to operate; potential areas for philanthropy to support.
Perpetual also highlights another key risk area, reputation. While the bushfire season shone a light on the important of the NFP sector, there were unrealistic expectations and criticism around the efficiency of distributing funds to communities and people in need. As the sector sees demand increase over the next few years, a close eye will need to be kept on the risks to reputation and how this is managed.
The shape of things to come
Based on trends from IPAP data and lessons learned by the Perpetual philanthropy teams around Australia, Perpetual forecasts the following trends:
- 2021 will see purse strings tighten as government, corporates and individuals face market volatility. Nonprofits will need to balance this with increasing demand, and be forced to innovate, collaborate, and trim down costs.
- If COVID-19 has taught us anything, it’s the need for a digital transformation – across all facets of the sector: operations, service delivery and fundraising. There is a huge potential for digital applications to amplify the impact of nonprofits at a reduced cost, however, this requires an initial injection of funds. If program delivery changes, NFPs must also adapt their governance, privacy and data collection processes to protect their stakeholders.
- The effects of COVID-19 will reshape philanthropy for years to come. As NFPs adapt, boards and leadership analyse structures and design, philanthropists will also need to consider how they can support NFPs through organisational change.
- Trust will be key, as evidenced with the bushfire disaster in late 2019, where we saw frontline organisations empowered by upfront and unrestricted donations able to respond to disasters and challenges effectively. This trend will continue into 2021.
You can view the full Perpetual report here.