Sustainable Funding Through Social Enterprise

Do funder metrics really measure up?

Crisis breeds opportunity

The current pandemic has amplified some glaring disconnects and constraints within the non-profit/charitable (NPC) sector. For example, it has placed a spotlight on the disconnect between the types of labour society values, such as roles associated with eldercare support, and how those roles are compensated in the labour market. The measurement criteria used in the valuation of paid vs unpaid labour is a source of this disconnect – the general thesis of Basic Income proponents[1]

At an operational level, the pandemic has also showcased the concentrated dependency that NPCs place on limited funding streams – and how that dependency may actually impede service delivery quality, either through staff reduction or program scope changes, in their times of greatest need within the communities they serve[2]. Placing all of your funding eggs in one basket is not a strategic move in the current state of affairs. The pandemic crisis presents a catalyst opportunity for NPCs to look at their funding models – towards a more balanced portfolio of core and longer-term sustainable funding streams.

Any consideration of alternative funding sources would require an evolution in NPC leadership culture – starting at the Board level. Some leadership subsets may be content to go back to the same government funding/philanthropy (funder) sources year after year to plead their case for same/more funding. Others may decide that doing the same thing year after year and expecting a different result is predictably counter-intuitive. It is this latter group that is the focus of this conversation.

Change the way you look at things…and the way you look at things will change

The value of any NPC program should be measured based on its Social impact on the communities served over a period of time. While there is little doubt that NPCs measure their performance relative to peers, it’s more likely that the only valuation they focus are funder-established metrics.

But, how might current funder metrics compare to other established measurement frameworks like ESG (environment, social, governance) reporting which also focuses on quantifying Social good impact?[3] If NPCs are mandated towards service delivery with an intention of Social good (e.g. poverty reduction, eldercare support) then why not use ESG measurement competencies to evaluate the Social good of NPC programs that have a track record of “success” over time or those that exceed funder expectations by some order of magnitude as part of the dialogue for securing additional/alternative funding streams?

Figure 1: Incubating Social Enterprises

Figure 1: Incubating Social Enterprises

As illustrated in Figure 1, the resultant program valuation insights could be used as a basis for incubating Social enterprises, which through their blended focus of purpose and profit offers an opportunity for sustainable core funding and job creation – in much the same way that private enterprise spins-off business that focus on a particular niche market. To some extent, we already have capacity in the sector through organizations like the Pillar Nonprofit Network, which support NPC leadership thinking within the social enterprise space.

Why shouldn’t NPCs evolve their leadership thinking away from “non-profit” towards a “revenue-neutral “operational framework? What are impediments in this evolution?

Figure 2: ESG metrics and program valuation

Figure 2: ESG metrics and program valuation

Moving further along this spectrum of disruptive innovation, as illustrated in Figure 2, ESG valuation of Social good programs opens up the potential to access a growing pool of investment capital focused on supporting Social enterprises.  A recent Bloomberg article suggests that the number of investors focused on ESG portfolios has seen such a dramatic increase from around 200 million in 2018 to approximately 700 million at 2020[4].

In the interest of reducing sustained taxpayer dependency, what NPC sector/association-wide initiatives are focused on collaborations with this source of Social good funding?

Opportunity for greater social impact

To get a sense of how the NPC sector can transition towards higher level of program funding sustainability, consider that there are approximately 45,000 NPCs in Ontario[5]. Applying a standard Bell Curve logic to that population, let’s assume that 95% of the population of NPCs are average performers in terms of successful program management over a given period of time. Thus 5% would not be as successful and 5% will exceed program success metrics. It is this latter segment that would be of social enterprise focus. So at minimum, there are 2,250 NPCs that could be viewed as successful incubators of social good programs. This subset could be subject to the rigour of an ESG framework to quantify its Social good impact and thereby attract venture capital from Investors that are focused on a Social good investment platform.

If necessity really is the mother of invention, then NPC leadership, at this point in time, has both internal and external sector opportunities to explore/develop alternative funding streams that also align with social good objectives.

A first step involves changing how they “value” their Programs under management.

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Dave is a Senior Human Capital Consultant with ASSOCIUM. He has proven expertise in the areas of strategy development, organization design, compensation planning, job evaluation, Pay Equity audit, workforce engagement, and cross-sector partnership assessment and development.

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Resources

[1] https://www.linkedin.com/in/dave-nanderam-ph-d-4219796/detail/recent-activity/shares/
[2] https://www.cbc.ca/news/business/nonprofits-charities-pandemic-closures-1.5625165
[3] https://fortune.com/2020/06/11/diversity-inclusion-investing-esg-esgd/
[4] https://imaginecanada.ca/sites/default/files/2019-11/Regional%20Report%20-%20Ontario.pdf
[5] https://www.bloomberg.com/news/articles/2020-06-19/social-upheaval-is-putting-the-s-in-esg-for-canadian-investors