Charitable funding from businesses can take many forms ranging from philanthropic grant making to largely commercial transactions such as paid for advertising in charity publications. Other forms of corporate funding can include: sponsorship of events, materials or publications, cause related marketing (where a company donates a proportion of the profit from sales of a particular, often co-branded, product to a partner charity to encourage sales), organised employee fundraising and a wide range of in-kind support options including free materials, staff time and expertise etc.
It is important to understand that all these (and many other) forms of support and funding for charities by corporates are commonplace, well-established and, if done properly, legal. Charities of all sizes accept advertising and sponsorship income from businesses and some also endorse specific commercial products. Product endorsement is rarer (though not uncommon) and is generally limited to either endorsement of products that directly help a charity’s beneficiaries (e.g. assistive aids for disabled people) or cause related marketing (which is effectively an endorsement, particularly when the product is co-branded).
When entering into any funding or support arrangement with a commercial organisation, all charities should ensure that:
- the charity complies with all legal and regulatory requirements; and
- the Trustees are clear about the relevant ethical considerations and the constraints their stance on those matters will place on relationships with corporate partners.
Legal, tax and regulatory compliance
It is important to ensure that all arrangements entered into between a charity and businesses comply with the law and tax rules including (but not limited to):
- Ensuring that all required legal agreements are in place (for example charity law specifies detailed requirements for cause related marketing and other arrangements where funding is collected by a third party on behalf of the charity).
- Ensuring that VAT is properly applied to transactions such as sponsorship or advertising income. In general, only freely given donations from companies (i.e. donations that do not require publicity or other benefit for the company) will be outside the scope of VAT.
- Ensuring that any non-primary purpose trading (which advertising and sponsorship generally are) is properly accounted for and that the correct governance arrangements are in place to ensure compliance both with Public Benefit and Corporation Tax rules.
As a minimum, charities should comply with the regulatory requirements of the Charity Commisison (or their equivalents in Scotland and Northern Ireland) and the Fundraising Regulator (or the Scottish Fundraising Standards Panel). By following such codes of practice, charities can also help ensure that their ethical decisions are not based on the individual views of particular Trustees or staff.
Receiving support from corporates can cause difficulties if the values or practices of the business/company come into conflict with those of your charity.
Some charities will accept funding from any source (as long as it is legal and complies with regulatory requirements), on the basis that they can use the support to further their charitable purposes.
Most, however, adopt an ethical stance (often in the form of a formal policy) that, amongst other matters, defines the types of company/funder they will not accept funding from (including charitable trusts whose funding derives from such industries).
This could according to the type of business the company conducts (e.g. some charities will not accept funding from tobacco, alcohol, gambling, armaments or extraction industries). It could equally be based on the practices of companies (whatever industry sector they work in). For example some charities will not accept funding from heavily polluting businesses or those that exploit their workforce (e.g. in the developing world).
Taking an ethical stance is particularly important where there is a connection between the charity’s purpose and the industry in question (e.g. a health focused charity may find it hard to accept funding from a tobacco company).
Care should also be taken on how an ethical policy is framed. While some decisions are likely to be clear cut, others may less straightforward. For example, to adopt a blanket ban on accepting support from the alcohol industry would rule out accepting free wine from a local wine-merchant as a prize in a charity raffle or auction, which might otherwise seem acceptable. Therefore, most ethical fundraising policies tend to include relatively few outright “bans” and, instead adopt a framework that seeks to ensure decisions are as objective as possible. Such frameworks generally focus on ensuring the following factors are taken into account when deciding whether or not to accept corporate support:
- Is there a conflict between the source of the funding and the charity’s overall mission, vision and values?
- How will accepting funding from this source impact on the charity’s reputation with members, other donors, volunteers, beneficiaries and/or other key stakeholders?
- How will accepting the support affect the charity’s long-term relationships with members, other donors, volunteers, beneficiaries and/or other key stakeholders?
- Would accepting the support compromise the personal integrity of the Trustees? (This should not be mistaken for allowing individual Trustee opinions to dominate the decision and is likely, therefore, to be a secondary consideration.)
Where possible, such considerations should be based on evidence such as independent assessments of the ethical behaviour of companies and/or consultation with stakeholders/members. This will help avoid decisions being dominated by a small number of vocal advocates/opponents whose views may not be representative of the whole.
Funding or support should never be accepted on the basis that “no one will find out”; it should always be assumed that it will become public knowledge.
If you would like to find out more about corporate fundraising, ethics in fundraising or our fundraising services more generally, please contact us at firstname.lastname@example.org to arrange free initial telephone discussion