The Future Of Nonprofit Economics, Bellwethers of Funding

*Editor’s Note: The NonProfit Times is publishing commentaries looking to 2021 and beyond from some of the sector’s most accomplished leaders. All of the commentaries are available in The NonProfit Times’ digital edition on this website.

The past year has been a tumultuous and unprecedented one. The nonprofit sector continues to grapple with heightened economic and political uncertainty, new fundraising realities, cascading needs, and mounting concerns for staff and volunteers’ health.

Alongside the global pandemic’s economic and health challenges, the nation’s conscience has been reawakened by the tragic killing of George Floyd, Ahmaud Arbery, Breonna Taylor, and so many others.

Against the backdrop of social uprising and protests, the COVID-19 pandemic has made it impossible to ignore deep-rooted inequities in access to education, health care, and housing — inequities that have existed for decades. The result has been that nonprofit leaders have raised their voices to call for social change. And they’ve raised more than their voices: philanthropic giving has responded with financial pledges and commitments to address racial disparities.

Thus, amid so much loss and uncertainty, 2020 (and 2021) is a time of opportunity. The multiple crises that the philanthropic sector has faced challenge us to create a more resilient and equitable future. The sector will need to rethink who gives, how they give, what causes they support, and who will make those decisions. This is a moment of crisis — but it can also serve as a catalyst for innovation and will require a steep learning curve.

Specific key trends will likely shape the future.

First, a complex array of demographic and socioeconomic forces will reshape philanthropy. Nonprofits and their funders have signaled an increased commitment to equitable and inclusive strategies for recovery and rebuilding.

As the nonprofit sector responds to the pandemic’s immediate human and emotional costs, donors are increasingly likely to rethink a “one-size-fits-all” approach and, instead, be motivated by the urgent need to tackle race- and gender-based disparities.

Based on Candid’s estimates, about $4.2 billion in racial equity funding has been awarded or pledged by institutional funders and other large donors during 2020 as of the end of October. Simultaneously, the concept of mutual aid — the rapid movement to identify local needs in real-time and create responsive solutions — is gaining significance.

A second significant trend suggests that nonprofits will need to expand tool kits and strategies as they rebuild. The tremendous upheaval of the COVID-19 pandemic and dramatic change in the social sector requires nonprofits to broaden ways of giving and meeting challenges.

Some funders and nonprofits are pioneering innovative tools intended to unlock new philanthropic resources. One example is the emergence of program-related investments (PRIs) and mission-related investments (MRIs). PRIs, MRIs, and other impact investment tools have the potential to help funders expand their footprint in the areas of economic empowerment, racial equity, and social justice.

“Impact investing” is a broad category that refers to a strategy offering environmental, social, or governance returns as well as financial returns. Socially responsible investments (SRI) are increasing at a fast pace. The 2018 SIF Foundation report on U.S. Sustainable, Responsible, and Impact Investing Trends shows up to one-quarter of all investments in the U.S. were impact-oriented — a total of $12.0 trillion in impact assets during 2018.

Even with the recent coronavirus pandemic and the volatility in financial markets, growth in sustainable impact investing is expected to continue into the foreseeable future.

More focus on the social and governance indicators included within the scope of impact investing will be necessary at this writing. As the field develops, questions surrounding impact and transparency will become even more critical.

Nevertheless, impact investing offers a significant opportunity to rethink how people give and blur the lines — yet again — between philanthropy and investment.

Finally, the pandemic “environment” is accelerating technological innovation in the philanthropic sector. The term “creative destruction,” which describes the process that sees new approaches replacing existing ones that are rendered obsolete over time, seems particularly appropriate.

Online giving is now growing at a faster rate than total giving. In 2019, total online giving increased by 7% and now makes up 8% of total donations. Furthermore, Blackbaud estimates that 25% of online donations were made using a mobile device. Indicators for 2020 continue to show increases in the average gift size and organizations receiving online donations.

From virtual events to interactive websites, to artificial intelligence, to e-commerce tools, social media platforms, and blockchain, technology has expanded its impact on philanthropy.

Moreover, initial research on social media engagement and crowdfunding during the coronavirus pandemic provides a strong foundation for U.S. nonprofits in transforming this challenging year into future opportunities.

Technology is reshaping the donor-nonprofit relationship: in the ways, they engage donors, volunteers, and other constituents; how they leverage peer-to-peer fundraising; and, the opportunity to reduce previous barriers to giving and philanthropic involvement. While data do not yet show a causal link between changing technologies and increased overall giving, there is no doubt that emerging forms of technology will impact the present and future philanthropic landscape.

Technology, of course, like any rethinking of old ways, also includes new challenges. Nonprofits will again be imperative to have diverse voices around the table — will need to take the time to explore important questions such as donor privacy, building relationships, and ethical collaborations. These challenges are also growth opportunities — opportunities for nonprofits, their leaders, and their constituents to ask essential questions as they reimagine new possibilities.

The “rethinking” of philanthropy brought about by the twin crises of the pandemic and racial injustice is an invitation to confront our reawakened conscience and address the long-standing challenges of long-term (and rising) inequality. A just and inclusive society will require new approaches to meet complex challenges.

Looking to chart a “new normal,” nonprofits can move boldly towards a shared vision of a more just, equitable, and resilient future.

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Una Osili, Ph.D., is the Efroymson Chair in Philanthropy at the Indiana University Lilly Family School of Philanthropy at IUPUI. She is also professor of economics and philanthropic studies as well as associate dean for research and international programs.