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Ethical fundraising and due diligence on donors

14 Apr 2022 - 13:33 by millie.brown

Ethical fundraising and due diligence on donors

Millie Brown, Macc – April 2022

A guide for charities when considering whether to accept a donation.

For a full list of ethically dubious activities to look out for, as well as a checklist for conducting due diligence and where to find the information you’ll need to inform this difficult decision, see this factsheet Ethical fundraising: how to conduct due diligence on potential donors

What is ethical fundraising?

Ethics are a set of moral principles. Similar concepts include morality, virtue, honour, decency, integrity, righteousness, principles, trustworthiness and incorruptibility.

Ethics relates to fundraising when, as charitable organisations, we seek or receive a donation that could conflict with the set of moral principles we are governed by.

There are changing public expectations around the source of funding and some notable recent cases which have led charities to increasingly question their sources of funding or turn down funds. This Third Sector podcast (April 2022) covers this issue, discussing two recent stories.

So how do we get this right?

There are no right or wrong answers and deciding whether to turn down money shouldn’t be easy. The Charity Commission’s starting point is that charities should normally accept donations and use them to further their purposes:

‘If you dig deep enough, every penny will have its baggage. We do not therefore generally expect trustees to refuse or return donations, though we understand that there may be some rare cases where trustees may wish to consider doing this… the risks must normally be significant if they are to outweigh the value of the donation to the charity’’ - more here.

In its practical guide to dealing with donations, The Chartered Institute of Fundraising advises that charities should only reject donations in exceptional circumstances, when:

  • It would be unlawful to accept it (for example the organisation knows that the gift comprises the proceeds of crime); or
  • Accepting the donation would be detrimental to the achievement of the purposes of the organisation, as set out in its constitution, and is likely to result in reputational damage with current and potential supporters.

Ultimately, it’s for trustees to consider the options and act reasonably in line with their powers and legal framework to determine what is right for their charity.

You can refer to further relevant codes and guidance such as:

How much research should I do?

Remember to be proportionate – there is no point in spending days researching a potential donor for what is a small donation or one that presents very little reputational risk or chance of an ethical conflict (what is ‘small’ is unique and relative to your organisation).

However, if you need more time, say so (whether that’s to the potential donor or your board). This can be a complex area and it’s important to have enough information to make a decision – you should keep a record of the basis for your rationale and a record of the decision itself.

Do I need an Ethical Fundraising Policy?

A policy can help front-end some of the difficult thinking and conversations involved in ethical fundraising. It can help define the level of due diligence needed depending on the size of donation relevant to you, and incorporate your organisation’s approach to risk.

The Chartered Institute of Fundraising’s practical guide to dealing with donations includes a ‘Step by Step’ guide to developing a policy.

What am I looking for when doing due diligence (also known as ‘checks’) on a potential donor?

The Charity Commission Compliance Toolkit Know Your Donor tool covers the key questions to ask about the legitimacy of the donor and potential risks when receiving a donation.

Depending on your charitable purposes, you may also wish to consider whether they invest in any ethically dubious activities (such as tobacco, gambling, weapons, animal testing, fossil fuels, high-interest lending or oppressive regimes). You could also consider how ‘responsible’ they are and their approach to environmental, social and governance (ESG) issues.

For a full list of ethically dubious activities and ESG issues to look out for, as well as a checklist for conducting due diligence and where to find the information you need see this factsheet: Ethical fundraising: how to conduct due diligence on potential donors

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