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Charity Risk Barometer
The age of uncertainty:
how charities are managing risk
in a volatile landscape
Welcome to Ecclesiastical’s 2023 Charity Risk Barometer. As part of our ongoing support for the charity sector, the Charity Risk Barometer is a major research-based report that aims to understand the risks the sector faces and what it can do to manage and mitigate those threats.
Our research is based on interviews with 251 decision makers in the charity sector, representing the full spectrum of third sector organisations, from small local organisations to major international operators and everything in between. Just over one in 10 (11%) of the charities surveyed has between three and five employees. Just under one in 10 (9%) has over 1,000. The survey was conducted online in July 2023.
According to our research, the top challenges charities face today include increasing costs and loss of funding, reputational risk, volunteer and staff retention, and climate change. But we also found resilience and creativity in the way charities are facing up to a volatile world.
In the rest of the report, we’ll look at the charity risk landscape in detail, and how charities are adapting their approach in the face of rising pressure.
Introduction
News from the charity press lays bare the state of the sector. Fundraising totals are down, redundancies are up, and the financial distress of local councils and the NHS is having knock-on effects for charity contracts.
None of this is surprising, and there doesn’t seem to be an end in sight. The post-pandemic landscape feels like something of a perma-crisis, with the promise of “getting back to normal” after Covid lockdowns quickly tempered by the war in Ukraine, spiralling inflation and rising interest rates. Austerity was followed by pandemic and now charities are under pressure to meet a spiralling increase in demand.
Charities are not immune from wider economic and societal challenges. In fact, they’re often first to feel the effects. People have less to give - in time as well as money - and many charities find they have more to do as the demand for their services rises. To make matters worse, costs are also increasing.
Increased costs and reduced funds are a significant threat to charities’ ability to provide services, and their impacts permeate every area of this Barometer.
Charities are also worried about reputational risk from cyberattacks, governance missteps and an inability to provide services to expected standards. They worry about decreasing trust in the sector as a whole. But funding challenges force charities to consider shortcuts and compromises they might otherwise avoid.
Similarly, concerns around staff and volunteers are exacerbated by stretched finances, and climate change can seem like a lesser priority when struggling to keep the lights on. Nevertheless, charity leaders are concerned about the effects of extreme weather on property and service delivery, and the reputational risk of failing to meet sustainability targets.
These are challenging times and leaders have difficult decisions to make. But the sector proved its resilience during the Covid pandemic and will do so again. Having faced these challenges head on, many have a realistic view of the difficulties they face and can be agile in the measures they take to mitigate risk. They face real threats, but from a solid position.
In the rest of this report, we’ll dig into the details. What are the major concerns of decision makers today as they look to cut costs, and what can the sector do to meet adversity head on?
Faith Kitchen
Customer Segment Director
Ecclesiastical Insurance
“Austerity was followed by pandemic and now charities are under pressure to meet a spiralling increase in demand…Having faced these challenges head on, many have a realistic view of the difficulties they face and can be agile in the measures they take to mitigate risk. They face real threats, but from a solid position.”
Charities rarely have enough money to do everything they want to do, and still, they go on to achieve incredible things.
But the situation has reached something of a crunch point. In our Charity Risk Barometer survey, 72% of respondents said they were more concerned about loss of funding than 12 months ago, and 93% were similarly anxious about increased running costs. Of all the concerns we asked charity leaders about, fragile finances worried them the most.
This may be a predictable finding, but digging down, nearly half (49%) of those concerned about funding said they are most concerned about grants, while 43% said direct donations, 25% public sector contracts, and 19% fundraising by supporters.
Or to put it another way, charities are worried about loss of funding across the board. The perilous state of local authority finances could lead to a tangible reduction in public service contracts. In addition, the recent Value of Giving report from the Benefact Group (our parent organisation) found that the value of charitable donations fell to £4.3 billion in 2022, down sharply from £9.3 billion in 2021, most likely due to the cost-of-living crisis.
Interestingly, the report also found that volunteer numbers are rising (though the hours spent volunteering fell). It’s worth remembering that, while funding is essential, so is volunteering. It can help charities cut costs and deliver services. Volunteers shouldn’t just be considered a source of manual or routine labour. Those with professional operational expertise can help hard-pushed charities to potentially achieve more.
The eternal challenge of grant applications
With some revenue streams drying up, it’s important that charities attract the broadest mix of funding from the widest spectrum of funders. That includes online platforms, and our results suggest there is work to do here. While 39% of respondents use the JustGiving platform, only 15% used Facebook Fundraising and 12% GoFundMe.
Grants are important at any time, and even more so at the moment because they tend to be less affected by short-term economic trends than other channels. So why are 49% of our respondents most concerned about grants?
Smaller charities, in particular, have an enduring challenge with grant funding. Finding appropriate trusts and foundations and completing complicated application forms is often time consuming and difficult. Crucially, 59% of our respondents say they are more concerned about demonstrating impact compared to the last 12 months, a key factor in many grant applications. Trusts want to know how their money is spent.
“Measuring impact can be a daunting prospect, especially for smaller charities with limited resources. But it is an essential part of successful grant applications and there are ways to make it easier. Benefact Group produces advice and support to help charities measure impact and create more compelling funding bids.”
Cutting costs creatively
With less money coming in, charities are under pressure to limit the money going out. Over a third 37% of respondents have managed to cut costs, however a greater number (50%) have not.
There’s some positive activity here. Many charities have cut costs in a range of creative ways. Over a third (34%) have renegotiated contracts with suppliers, 33% have changed activities or services without reducing them and a fifth (20%) have changed energy suppliers. Sadly, 26% have had to make redundancies.
Of the charities surveyed, 80% of charities said they had reserves available. This is a short-term fix, however, and a very temporary one in a lot of cases. If push came to shove, over a quarter (27%) of respondents would only last six months or less on their reserves, and 15% less than three months.
In other words, some charities are worryingly close to the precipice with many closures already happening. To take one example, Children England, the collective body for children's charities, has announced it is closing after 81 years, citing financial challenges1.
How we support Charities
Smiles Community Coffee Shop, Gloucester
“I just paid the energy bill for last month, and it was over £1000. It’s not too long ago that we were paying £600. That gives some measure of the financial pressure we’re under.
We provide free food and hot drinks throughout the day for homeless and vulnerable people, and we also have a hot evening meal service. Anybody else can drop in and pay £1 for a hot drink and a cake. Lots of people pop in for a coffee and some company - that social element is a big part of what we do.
The pressure on the service is growing all the time. We’ve been open for a year in this location. Previously, we had an open-air meal service on Sunday evenings in the city centre, providing around 120 meals a month. Now we’re open six days a week, delivering around 800 snacks and meals a week. In November, we’ll start opening on Mondays for the first time, because the need is that great.
We rely on funding from the public and organisations. It’s definitely reduced, but that’s to be expected. People have less money than they used to. I used to apply for grant funding, but the application forms would take me 10 hours to fill out, and very few would be successful. When you’re applying for £500, it’s just not worth it.
We’ll be okay, though. We have a great team here with 73 volunteers, and we’re currently training five more. I think the key right now is to provide a bit of hope for a better tomorrow. We’re determined to keep doing that."
Hashim Norat, Gloucester Feed The Hungry
Reputational risk grows for charities as trust in the sector ebbs. Public trust in charities rose slightly this year but has fallen from its pre-2015 peak, when a series of governance failings by high-profile charity organisations rocked the sector.
In this climate, charities have to be protective of their reputations, avoiding reputational risk and showing exemplary judgment in the use of donated money.
Our Charity Risk Barometer survey shows that charities are worried about the consequences of reputational damage. Nearly two-thirds (62%) are concerned about reputational risk overall, and over a third (37%) have become more concerned in the last 12 months.
Some of the other concerns identified by the survey have a direct link to reputational damage. For example, nearly half (49%) of charities are worried about cyberattacks, 44% about breaching data regulations, 22% about defamation, and 13% copyright infringements, all of which can impact reputation.
Despite this, charity leaders saw the greatest risk to reputation in the inability to provide services (19%) and poor governance (16%).
Cutting costs creatively
When charities lose public trust, they might also lose money. Almost a quarter, 24% of respondents, had suffered a reputational issue. Of those, 11% said the charity had lost revenue, 10% had seen a decline in donations, and 5% had suffered a loss of sponsorship.
Reputational damage can become a vicious circle. A loss of funding impacts the ability to provide services. It might also tempt charities into shortcuts around copyright, data protection, and cybersecurity. But reducing oversight in any of these areas risks further reputational damage. Government figures show that, in 2022, 30% of charities said they had suffered a cyberattack in the previous 12 months.
“Brokers should be advising their charity clients about all these sorts of claims. There is this general feeling amongst charities that somehow, they’re less likely to get into trouble with these sorts of things. And it’s not only copyright; it’s defamation, data breaches, inaccurate information... All these things are much more common because of the internet.”
“Copyright infringement is a growing cause of claims, exacerbated by the pandemic. 2021 saw a spike of these claims following the transition to new working environments. This rise coincided with the advent of specialist firms using AI and other advanced technology to pursue copyright infringements more aggressively, and often seeing charities as a soft touch.”
The importance of good governance
What can charities do to protect their reputations? The simplistic answer is not to take their eyes off the ball when it comes to risk management, compliance, health and safety and digital operations, despite economic pressure to prioritise other areas.
Good governance is the key to it all. A well governed charity of any size never assumes the worst can’t happen. It develops a business continuity plan in case of cyberattack and risk management strategies for events and facilities. It reviews them regularly and updates them when necessary. It scans the horizon for emerging threats.
Ultimately, much of the responsibility for good governance lies with trustees. A trustee sitting on a charity board carries the same responsibility as a director in a commercial organisation. They need the confidence to take bold decisions, backed by solid evidence. But that’s quite a burden of responsibility for volunteers working in challenging circumstances.
“No trustee wants to see their charity in the headlines because of poor governance. Although all trustees take their roles seriously, trustees of smaller organisations in particular may be less aware of possible issues. Governance failures are a reputational risk but, more importantly, they are a risk to charities delivering on their responsibilities to their service users and clients.”
How we support Charities
Increased focus on health and safety
On top of it all, charity workers are exhausted. Doing more with less leads to physical and psychological stress. Seven in ten (70%) of our charity leaders are more concerned about employee burnout now than they were 12 months ago.
Nearly two fifths (38%) of charity leaders are more concerned with managing the health and safety of staff, volunteers and service users than they were a year ago.
“In these challenging times, when we need our volunteers more than ever, it is incredibly important that volunteers are given appropriate support and have healthy boundaries in place, to protect against burnout. Volunteers should be intentional in their own self-care and wellness practices, to safeguard their mental health and wellbeing.”
Despite many being concerned, over a third (36%) say they don’t provide any wellbeing support to volunteers. Those that do provide support tend to offer wellbeing policies (34%), mental health first aiders (26%), helplines (26%), and access to a mental health professional (15%), among other benefits.
Perhaps predictably, there’s been a drop off in the provision of some of these services since our 2020 Charity Risk Barometer. At that time, in the middle of COVID, 52% of respondents offered a wellbeing policy.
This is something of a Catch-22. Reducing wellbeing services saves money, but also makes the recruitment and retention of the staff and volunteers who run operations and deliver services potentially more difficult.
The good news is that most charities are doing something, and that includes training volunteers. A large majority (70%) provide work-related training, which is perhaps why accidents are relatively rare. Slips, trips, and falls are the most common, but only 12% of respondents said their organisation had experienced an accident of this type.
The one in ten who said their volunteers don’t receive any training are taking a significant safety and reputational risk. Risks to the health, safety, and well-being of volunteers should be considered wherever possible to identify threats and highlight potential remedies.
“Even in the current financial climate, managing health and safety remains an important consideration for charities. Taking sensible and proportionate action to protect people from danger, can also safeguard reputation as well. This includes providing relevant training, information and support for volunteers. We’d advise that charities continue to invest in these areas where this is identified as being necessary.”
How we support Charities
Risk Maturity Assessment
For charities, climate change poses a number of challenges. Extreme weather can affect property, the safety of staff and service users and the organisation’s ability to deliver services.
At the same time, charity leaders fear losing support if they don’t take tangible steps towards sustainability.
Our Charity Risk Barometer survey reveals that, unsurprisingly, over half (54%) are concerned about the impacts of climate change, on both their operations and reputation. Over two thirds of those (64%) are more concerned than they were 12 months ago.
Weather risk
The immediate threats posed by changing weather are most pressing. The financial impact of climate change is respondents' biggest concern (56%), followed by the impact on service users and workers of various extreme weather events.
A third (33%) are worried by storm damage to property, and over a fifth (21%) by flooding. Nearly one in ten (8%) cite erosion as their main concern.
Charities understand that extreme weather events, made more common and intense by climate change, are a tangible threat to their ability to provide services in an environment that is safe for staff, volunteers and service users.
“Effective extreme weather plans based on risk assessment will help mitigate both financial loss and disruption to operations should the worst happen. The plans should show how your organisation will respond to an extreme weather event and include details of key contacts and a site plan detailing the location of gas and electricity cut-off points and high-risk areas where preventative action is required.”
Sustainability
The wider fight against climate change may seem a less urgent priority, especially during a funding crisis. But sustainability is a reputational issue for charities, as well as an environmental one. Despite the economic climate, nearly a third (31%) of respondents measure their carbon footprint, and far more – seven in ten (71%) - are doing something to reduce it.
Still, net zero is clearly a tricky subject. Over one in six (17%) feel under pressure to reduce their carbon footprint, and 10% say that failing to produce and meet climate change commitments risks alienating supporters. That’s a reasonable assumption. In our wider research, nearly half of charities (47.8%) cited an inability to engage with the next generation of supporters as a significant risk. Younger generations tend to be conscious consumers and highly climate aware.
At the same time, 29% of charities feel they don’t have the support they need to make meaningful change. Nearly half (47%) don’t have a plan to achieve net zero, citing a lack of time and resources (40%), and a lack of knowledge (35%), as the main reasons why.
The benefits of climate action
The result is that some charities feel unprepared for the climate emergency. Others want to do more but struggle to think beyond everyday pressures. It’s no surprise that protecting themselves from floods, storms or excessive heat is considered the priority.
Is there more charities can do on net zero, even in current circumstances? Much of what charities tell us they are already doing might be regarded as easy wins. They include making energy efficient changes to offices and reducing single use plastics. Some have changed to green energy suppliers or suppliers of all kinds with demonstrable green credentials. Schemes have been introduced to encourage transport sharing and cycling to work.
In fact, all partners could be selected with sustainability in mind. It’s not just who you buy equipment or services from, but also where you save or invest money. Working with bona fide green providers can be a pain free way of moving towards a net zero operation.
“Whilst there’s often a sense that climate change may only be for businesses and governments or the largest charities, we feel even the smallest charity has a meaningful role to play. With a charity’s investments specifically, no matter the size, investing in an aligned fund can truly make a difference.”
These are practical measures that produce demonstrable results. In some cases, they also reduce running costs. They show supporters, donors and service users that, although charities can’t do everything, they are doing something.
“These are challenging times for charities and it’s absolutely understandable that sustainability and net zero are not at the top of priority lists. But acting on climate change is a responsibility we all share and there’s a great deal charities of any size can do to reduce their carbon footprint, with either a small investment or no financial outlay at all. In many cases, sustainable measures take little more than a good plan and an organisation-wide commitment to seeing it through.”
How we support Charities
Greener and Cleaner, sustainable living charity, Bromley
“Our advice for charities when it comes to the environment is to just do something; don't try to do everything. First, find out where you are now, so you can measure improvement over time.
There are online services that help you roughly measure the footprint of your organisation. The result doesn't have to be completely accurate - it’s a starting point. Make it visible to stakeholders and service users: this is where we are, this is where we aim to be. Visibility and honesty are key.
So what can you do, simply and cheaply, to reduce your footprint? One way is to think second hand first. If you need furniture for the office or a community hub, there are lots of easy online ways to access second hand stuff, and it’s both a cost saving and a very visible way of doing something positive.
Another easy win is with heat and light. The basic rules are to only heat and light the space you’re using, not the whole building, and to heat the person first and the room second. Turn the heating down a degree or two, only turn it on when needed rather than on a schedule, and have movement activated LED lighting.
Technology is useful here too. Smart plugs are cheap and can let you control things like heating via a quick tap on an app. Smart sensors will automatically turn lights out when nobody is in the room.
Education for staff across all roles is essential. Carbon literacy training encourages individuals to take responsibility for their own energy use and take small steps to reduce it.”
Clare Searle, Chief Strategy Officer, Greener and Cleaner
For more information on creating greener charities and support email, Clare at clare@greenerandcleaner.co.uk and check out Greener and Cleaner online.
Conclusion
As the world lurches from one crisis to the next, charities are again on the frontline of the response to social and economic upheaval. They are used to facing adversity with innovation and compassion and will do so again in this age of uncertainty.
The road to full economic recovery is likely to be long and rocky. There is no end in sight to the conflict in Ukraine, humanitarian crises in Africa and the Middle East, and geopolitical tension between the West and the East. As global temperatures reach record levels, this summer has shown that climate change impacts might be intensifying more rapidly than anyone previously thought.
Against this backdrop, charities have a crucial role to play. If anything, their importance to a healthy and functioning society is growing. But to fulfil their role, they have to be resilient. As our previous Charity Risk Barometer in 2020 showed, the sector did a lot of work during the pandemic to create leaner, fitter and more adaptable operations. Current conditions are a stark reminder that this work never ends.
What do charities need to do now? The results of the 2023 Charity Risk Barometer suggest better governance is key. Charities need to be strategic about exploring new funding opportunities, finding new people and protecting themselves from the impacts of climate change. In a sceptical era, they need to be highly protective of their hard-won reputations. They need plans and policies in place in all these areas, and somebody to oversee them.
Trustees must perform this oversight role, and help charities build resilience for the future. In the face of continued uncertainty, they must continually scan the horizon for the next emerging threat.
The positive here is that charities have already built agility and adaptability into their operations. Many are showing it in creative cost cutting efforts, wellbeing programmes and new ways of working. It can also be seen in a new focus on reputation management.
Most of all, charities are meeting the needs of their users. Even as pressure grows, they continue to develop and deliver services that make a positive difference to the lives of the people and causes that need them most.
There’s always more to do - and charities face pressure from all sides. But the sector has proved its adaptability and resilience before and can do so again. The Ecclesiastical Charity Barometer 2023 outlines the serious threats third sector organisations face, but in the confident expectation that - once again - they will rise to the challenge.
YouGov research carried out on behalf of Ecclesiastical Insurance, July 2023 – based on 251 charity decision makers surveyed.