Foundations' responses to the rising cost of living

2 December 2022

Francesca de Munnich, ACF’s head of policy (interim), writes about how ACF’s members are responding to cost of living challenges for charities, communities and causes they support. A longer version of this blog is in December's Charity Finance magazine. 

The cost of living crisis has a firm grip on the country, which is set to tighten for many households in the months ahead. Whilst prices have surged across the board, the increases have disproportionately impacted marginalised communities already under pressure and stretched charities to their absolute limit.  Foundations continue to provide a lifeline to many charitable organisations even though they have also been affected by soaring costs combined with falling endowment values. 

As they look ahead to a difficult and uncertain winter, our members are identifying how they can best support charities and communities across the UK and continue to deliver on their missions. 

Mark O’Kelly, finance director at the Barrow Cadbury Trust, told us: “The combination of rising costs for grantees and reduced investment returns will mean a squeeze on programme budgets but we are committed to maintaining support to our grantees and achieving our programme objectives in the coming years.” 

Many grant-makers are adjusting the funding they provide to avoid a real-terms fall in the value of grants, whether by providing uplifts for spiralling energy bills or increased costs more generally. Some foundations planning an uplift are focusing this on smaller charities, such as those with an income below £1 million, rather than offering increases across the board. Hardship funds and other financial assistance have also been established as charities adjust to meet new and growing needs, including the provision of warm community spaces.  Matthew Cox, investment director of the Esmée Fairbairn Foundation, noted that their “trustees have the flexibility to “overspend” at times of great need which was something we did during the coronavirus pandemic.”

Foundations have also been making a shift towards offering unrestricted or full cost recovery grants to help organisations better manage the impacts of inflation, with some foundations also looking at how to increase their multi-year grants in line with inflation for longer-term security. Others are encouraging grantees to use their funds flexibly, such as shortening the length of the grant and bringing spend forward to help address urgent need. 
 
Open and responsive
The funding sector has clearly demonstrated a willingness to be open and responsive in providing immediate support. Many grant-makers are now distinguishing between grants already awarded, which won’t have predicted or taken into account cost of living increases, with new funding applications. Some are asking new applications to factor in inflation and rising costs, as part of efforts to future-proof their longer-term sustainability. Craig Pennington, finance manager of the Francis C Scott Charitable Trust, outlined the steps they have taken: “With inflation now materially higher, we are encouraging applicants to explicitly include inflation in applications. Trustees have also taken the decision to increase spend to 4% annually (from 3.5%) in a bid to ensure grant giving, where possible, can compensate for the effects of inflation on beneficiaries.”

ACF members have also spoken of the importance of taking a relational approach and prioritising open communication and knowledge sharing, particularly at critical moments of change. Many foundations are encouraging current and potential grant holders to share the challenges they are experiencing. For instance, charities who support groups that typically have higher energy needs than the wider public, such as disabled people and people on low incomes, have relayed to funders that energy costs are a greater proportion of their spending and therefore they require additional support. 

Trusts and foundations are well placed to get money to where it is needed, particularly reaching under-served groups and small grassroots organisations. They are already making an important contribution in helping charities provide crucial support to communities. Yet the scale of the challenge is huge and not one that foundations on their own can address. There is an opportunity, much like during the pandemic, for government and foundations to work together throughout this crisis.

Even as foundations grapple with increased demand, many are thinking beyond the current crisis and the need to balance long-term funding with providing immediate support. Funders are often well positioned to address longer-term challenges, recognising that the rising cost of living is exacerbating deep-rooted issues and the need to stay on course in delivering their missions. 

What is ACF doing?

ACF exists to support foundations to be ambitious and effective in the way that they use their resources, which has never been more vital given the current context. 

We have set up a dedicated cost of living resources page on the ACF website, sharing guidance and resources to help trusts and foundations think about how best to consider questions and priorities around the rising cost of living. 

Our learning events have aimed to create a space for members to consider the impact of the cost of living and the decisions facing their organisations. 

Foundations are also looking at how they can work together to coordinate responses and we are supporting these efforts through the Funders Collaborative Hub. 

We will continue to monitor key developments and support members every step of the way as they rise to the challenge of the cost of living crisis.