26 March 2020

Charities and coronavirus: Reflections on the sector following the 2008 financial crisis


Click here to read more insights on how we can weather the coronavirus outbreak with you.

It is impossible to predict the extent of the impact of the Coronavirus pandemic on our societies, but the role of charities and philanthropy in responding will be key.

Whilst the circumstances of the economic crash in 2008 were entirely different, the impact on charity reserves and grant-making foundations could be similar to what we saw following the 2008 financial crisis.

In 2008/2009, many charities reported that the donations they received were down, as individual donors were facing financial uncertainty. At the same time, endowed charities which saw a dramatic and sudden reduction in the value of their endowments were also dealing with reduced investment income to distribute. Charities which operated on an expendable endowment or total return basis also faced a situation where, unless they reduced their distribution rate, they faced further reducing their (already depleted) capital and jeopardising future giving.

However, notwithstanding this, some grant makers not only maintained their distribution rate, but actually increased the amount they were prepared to distribute, recognising that continued or even greater funding was needed at that moment – not least because of the reduction in giving from individual donors – and that when the markets recovered and the crisis abated they could make up some of their reserves.

Furthermore, arguably there may also have been a similar response from some individual donors, those who are committed to philanthropy whether for ethical or religious reasons, and as a matter of principle viewed the donation as coming before their own personal needs.

In 2020, charities are facing not only a drop of donations due to financial uncertainty, but also the loss of voluntary income from large
fundraising events. Alongside grant-making bodies with expendable endowment considering whether to deplete their capital, many charities are likely to be considering their reserves policy and the extent to which they can and should use reserves. The Charity Commission has published guidance on the use of reserves, and it is clear that they are encouraging the use of reserves where possible.

It is hoped that the current crisis will prompt a greater response from individual donors for ethical reasons than in 2008, due to the devastating impact of the virus on the vulnerable and health workers around the world.

Click here to read more insights on how we can weather the coronavirus outbreak with you.

Authors

Category: Article