Trusts and foundations play a pivotal role in supporting communities and addressing societal challenges. However, when a crisis emerges, such as a natural disaster, boards face a tough decision: protect their investment assets or draw down on the capital to address the crisis.
A recent news article argued that, of the $316 million received by the Australian Indigenous Education Foundation (AIEF) since 2008, the foundation has only spent $120 million to help close the gap in indigenous education. In 2022, AIEF distributed only $8.6 million in scholarships. Is the foundation hoarding cash? If so, why?
Accumulating investment assets can help build the financial clout for trusts and foundations to stop treating the symptoms of social problems and address the root cause. Cashed up trusts and foundations also have the flexibility to respond in times of crisis. The rapid response from many trusts and foundations to the bushfire crisis in 2019/20 allowed charities to mobilise emergency interventions.
But what if scaling up funding now will avoid escalating costs down the track?
US President Joe Biden is currently calling on the deeply divided House of Representatives to agree on a US$100 billion funding package for the Ukraine and Gaza on the basis that if the USA does not intervene now “the cost and the threats to America and the world keep rising.”
Climate change and biodiversity loss are time-sensitive issues with long-term irreversible consequences. Every day of inaction exacerbates the crisises. If charitable foundations had used their funding grunt to build alliances and influence global action decades ago, how many billions of dollars and lives might have been saved? “Spending down” investment assets on climate action is arguably a responsible and strategic choice.
A recent article published by Pro Bono Economics in the UK argues that trusts and foundations are not using their firepower to respond to today’s crises. If those charitable institutions, and particularly family foundations, lifted their charitable expenditure to 3% of their net assets, it would generate an extra £300m for social good.
So what does the data in Australia tell us? better charity analysed ACNC datasets and looked closely at trusts and foundations with net assets generating investment income used for grants in Australia and overseas. It shows $2.4bn in grants were awarded in 2021, 4.5% of Net Assets; dominated by large charitable trusts and foundations.
Overall, another $829m could have been invested in social causes if every trust and foundation spent at least 3% of their Net Assets.
It’s not comparing apples with apples. The UK analysis was based on 2,000 grant-making trusts and foundations. The tax and regulatory systems are vastly different. It does, however, raise an interesting debate. Time is running out for species and the planet. So hoard or spend down now? I’d love to hear your views!