There is much said about ethical investment and associated Environmental, Social and Governance considerations. We have previously looked at purposes-led investment legal issues. However, it is the acceptance of funds that has recently caught attention with the Sackler Trust.

The current attention has underlined the governance systems which should be in place to support a charity’s ‘ethical’ and responsible approaches where funding is received. These are not simple or straightforward issues. Indeed, the topic featured on BBC Radio 4’s the Moral Maze last week. While not simple, these issues need to be proactively considered by charities. As with the principles applying to investment or the application of the charity’s funds, a charity should have polices in place for the appropriate receiving of funds. It also highlights the difficult, but sometimes necessary, situations where a charity must say ‘no’ to a potential funder, sponsor or partner. This is especially the case with very large funding opportunities where it can be tempting to accept (or to downplay) governance and reputational risks with the high value support.

This topic of the moral and ethical dilemmas charity trustees may face when considering donations from organisations with reputational taint is not a new one. 2018 had the Presidents Club controversy. However, the current attention on the issue perhaps reveals the full nuances and difficulties charities can face. A listen to that edition of the Moral Maze is testament to that. The nuances are similar to those considered in our update on refreshed guidance for hosting speakers and debates.

When deliberating whether or not to accept funding which is associated with apparent societal, moral or ethical risks, charity trustees can be caught between meeting their legal and fiduciary duties to act in the best interests of the charity (and at a very basic level, accepting much needed funding to further their organisation’s charitable purposes) and causing real reputational harm to their organisation. Careful consideration of the potential risks will be required on a case by case basis. To help make considered decisions, we would recommend the following key principles be kept in mind:

  • Carry out proper due diligence on the grant-maker/donor/partner/sponsor
  • Is there clarity on the source of funds?
  • Assess reputational issues
  • Are the funder and the charity’s values aligned? Particularly where there are commercial objectives being pursued.
  • Are any special rules such as commercial participator rules invoked through the partnership?
  • Consider any conditions attached to a potential donation or sponsorship
  • Clear lines of communication at board meetings are required to properly discuss and access the impact such a donation may have on an organisation – if there is a real and ascertainable risk which would negatively impact your organisation, seek professional advice
  • Consider developing a grant acceptance and reporting policy, based on your organisations charitable purposes, activities and ethos
  • Larger organisations might wish to establish a committee to consider large or sensitive donations and support
  • Being clear and open in communications with grant makers about the source of funds, donor motivation, reporting requirements and the ongoing funding relationship
  • Making sure fundraising strategy and techniques are aligned with the charity’s purposes, mission and values
  • Avoid a single trustee or executive member from concluding funding deals to allow for wider reflection on the proposal
  • Avoid the size of the potential funding from clouding judgement