Shifting Funding Practices

We are Catalyst 2030 members and allies who are working to make the world a better and fairer place for everyone. We are calling on donors and funders to remodel their traditional practices to more effectively support grassroots organisations and sustainable social impact. We have co-written a letter that highlights the changes we are calling for. We invite all organisations working to improve the quality of people’s lives to sign it and join us in our open call to donors and funders.

Our world faces a cascading, connected set of pressing problems. To have any hope of making the world a better place by working towards achieving the UN Sustainable Development Goals (SDGs), we must more effectively confront the root causes of problems through transformative systems change. An increasing number of funders and organisations have realised that now is the time to advance global progress and find new ways of supporting change by shifting current funding/ finance practices and norms in the social sector. Organisations and individuals who have signed our letter and call to action below are inviting philanthropists of all types to embrace the following principles:

We are now in a stage of our civilizational journey where our world faces a cascading and interrelated set of global challenges that threaten the future for people and the planet. From endemic poverty, racial and gender inequity, species extinction, and deforestation, to growing fascism, and the climate crisis, the combination of these co-occurring and overlapping challenges signals that we urgently need to fundamentally transform the entrenched systems underlying these major problems.

To have any hope of achieving the UN Sustainable Development Goals (SDGs) and reversing the destructive trajectory facing people and the planet, we must more effectively address root causes of complex problems, rather than treating symptoms. This is possible if we transform policies, practices, customs, mindsets, power dynamics and resource flows to achieve a lasting impact on a local, national, and global level. This is the work known as systems change. It is a comprehensive approach to social change that seeks to address the complex, large-scale, and deep characteristics of social issues.

A key aspect of systems change is sustained collaboration. True systems change occurs when multiple players across sectors, disciplines, and social groups – including funders and movement leaders – work together towards common goals over extended timeframes.

While we encourage funders to explore different opportunities to finance projects that can lead to social good, including those that offer some financial return to investors, achieving effective systems change, particularly the many aspects that need grant funding, will require a powerful shift from traditional philanthropic approaches where:

1. funders tend to rely on sources of expertise to understand social impact that may not center the leadership and lived experience of those who are closest to the issues we seek to address;
2. most funding goes toward alleviating symptoms of failing systems rather than towards the longer-term work of understanding, addressing, and mobilising change to address root causes;
3. project-specific funding is given in short-term allotments, which also often involves excessive paperwork, transactional power dynamics, and an overreliance on short-term metrics to evaluate success; and,
4. application processes and criteria can lead to unhelpful competition among organisations instead of incentivising the types of collaborations that are needed to change systems.

An increasing number of funders and organisations are discovering that there is a real-time opportunity to advance global progress and model new ways of supporting change by shifting current funding practices that finance the social sector. These needed shifts span across multiple types of funders, including funding from private philanthropy, governments, and multilateral bodies.

The following principles outline what we, a large group of civil society organisations and systems change innovators, as well as many philanthropic thought leaders and funder allies, believe to be the most critical and effective practices funders need to adopt as we tackle the complex problems facing our world today.

We invite you to consider adopting the transformative grantmaking practices below. Given the powerful role of funders and donors in influencing the work and scope of organisations working on systemic issues, these shifts will better enable and empower the social sector and will foster multi-sectoral collaborations that work towards the types of systems changes that are urgently needed.

Principles

1. Give Multi-Year, Unrestricted Funding: Addressing root causes of inter-connected systemic problems requires continuous adaptation and learning over the long-term. Trusting organisations with general operating funds for multiple years (at least three to five years, and preferably longer) allows them the flexibility to take the necessary long-term, iterative approach to tackling big, complex, systemic problems. This type of flexible investment frees up organisations to adapt to changing conditions and enables nonprofits to focus on their mission-critical work rather than focusing on where next year’s grants may be coming from.  If a funder can only offer restricted project grants, make them multi-year and ensure they cover the actual direct (including staff salaries) and indirect costs of delivering impact (such as office rent and equipment).  Consider providing more than enough for these costs to enable nonprofits to grow a surplus and reserves.
2. Invest in Capacity Building. Good ideas are not enough. Help your programme partners to build core organisational capacity and be responsive to what they say they need most. Nonprofits need to build a diverse set of capacities, either in their organisation or through their partners, to bring collective strength and sustainability to their work over time.  Funders who put restrictions on overhead costs constrain organisations ability to achieve optimal social impact.
3. Fund Networks: Networks are tools in our social change toolboxes that support stakeholders to take collaborative action and to develop strategic initiatives that include multiple players who are part of the solution.  Networks are also an excellent source for capacity building for those participating, incentivising collaboration, experimenting with new approaches, and allowing course corrections to happen quicker and more efficiently.  Invest in infrastructure and coordination capacity for organisations to collaborate, build networks, and work together more efficiently and effectively.
4. Create Transformative Rather than Transactional Relationships: We need to evolve from the corrosive power relationships that have characterised many interactions between funders and grantees to date. To achieve transformational change, we need to practice a partnership model where we all bring assets and gifts to the change at hand. Money is one of those assets, as is community knowledge, people power, relationships, expertise, economic power, and political clout. Effective systems change work relies on all of these assets. It also requires shared sensibility for listening, learning, humility, and collaboration. Funders can give up some of their power to build our collective power for impact.
5. Build and Share Power: Non-profits and movement leaders have traditionally not been present in rooms where governments and corporations make big structural decisions. This is especially true for black-, indigenous-, and people of color-led organisations, as well as those led by women, young people, and people with disabilities. Funders can help rebalance these inequities. They can achieve this by sharing power with and building power for the social sector, giving more resources directly at the local level to organisations with local leadership and local ownership, and making more robust investments in organizations led by proximate leaders of color.  More inclusive decision-making structures and spaces need to be designed. These spaces should encourage general operating and capacity building support to help leaders win policies and practices that advance the SDGs in their arena of influence.  It is also important that funders are open to funding newer, early-stage social entrepreneurs and young entrepreneurs.
6. Be Transparent and Responsive: Bring humility to your grantmaking and recognise the power imbalances in your relationships with programme partners. Communicate your equity journey with your grantees. Be crystal clear about your priorities and expectations. Be swift to say no if it’s not a good fit, and respond in a timely manner. The urgency of our challenges requires no less of us all.
7. Simplify and Streamline Paperwork: Nonprofits spend too much time writing grant proposals and reports to satisfy funders’ requirements, while doing the difficult work of systems change and meeting regulatory conditions. Funders can help give time back by streamlining application processes, coordinating with other donors on due diligence and reporting, and aligning reporting with a systems change mindset. Reporting on systems change work is often more complex and nuanced than listing short-term outputs tied to individual projects.  As additional methods of evaluating impact, funders can be more open to stories as examples of progress. They can ask grantees what shifts in the system they are seeing over time, and they can talk to grantees about what’s working in their efforts and what is not.
8. Offer Support Beyond the Check: Funders have more to offer than money alone. Be a connector. Make helpful connections for grantee partners to other possible funders and peer organisations, be curious and responsive to their needs, and create opportunities to showcase them and their work in channels to which you have access.  Support networks that build strong connections and provide platforms for collaboration rather than competition.
9. Collaborate With Other Funders: Just as non-profits need to weave together networks to achieve scale, funders need to build ecosystems of investors in systems change work. Share knowledge, connections and expertise with other donors; enhance efficiencies through coordinated action; open doors for your grantees and walk through them together as partners. Connect with funders that are investing in similar areas and hold one another accountable for thinking broadly about your funding ecosystem and being intentional to include leaders and organisations that have historically and systemically had a hard time accessing funds from donors.
10. Embrace a Systems Mindset in Your Grantmaking: Funders should embrace a systems change mindset with their grantees to address their chosen priority problem(s). The overall goal is to meaningfully shift the conditions that hold the problem in place.  This involves identifying, understanding, and addressing root causes of the problem(s) you are tackling.  This mindset also extends to thinking differently about evaluating and understanding impact over a longer-term horizon.

Many funders can point to some of these principles where they are leading or making progress.  However, partial progress, while worthwhile, won’t be enough if we are to respond to the urgency of the complex needs facing us.  We call upon philanthropic sector leaders and different types of funders to commit to adopting all of these principles in meaningful ways within their organisations, so that our shared commitment and ability to achieve lasting social change is accelerated.

Specifically, we ask for funders to commit to the following concrete, practical steps to show your support for these principles:

1. Take the Funder Diagnostic on funding systems change, found here https://www.notion.so/Systems-Change-Funder-Self-Assessment-545c4fe1196f4fca8247d5060b055481. This is a comprehensive tool designed to support and inform the journey of shifting towards more systems change philanthropy. Develop concrete actions you will take based on the recommendations in the tool, work to improve your score over the next year or two, and commit to re-taking the Funder Diagnostic again to assess your progress.
2. Make shifts towards the key elements of funding systems change, such as increasing funding given to groups that use systems change approaches, increasing the percentage of your grants that provide unrestricted core support, and increasing the percentage of your grants that are multi-year funding commitments.
3. Revisit and streamline your grant-making processes. Identify at least one way that you can incorporate more perspectives or information from proximate leaders to help you shape your grant decisions.
4. Hold yourself accountable to these principles by inviting feedback from your grantees on a regular basis, either through an anonymous grantee survey that you develop, a Grantee Perception Report, a staff survey, or other feedback mechanisms that you create to invite input.

*Many of the principles in this letter are derived from three sources: Embracing Complexity, a collaborative report authored by Catalyst 2030, Ashoka, Co-Impact, Echoing Green, the Schwab Foundation for Social Entrepreneurship, the Skoll Foundation, and McKinsey & Company that reflected the perspectives of many social entrepreneurs across the world; The Trust Based Philanthropy Project; and principles of Racial Equity-Based Philanthropy.

We look forward to working with you our shared journey to create lasting solutions to many of the biggest problems facing people and the planet today.