What has happened to corporate giving and what can be done about it?

Key take-aways from CAF's report

CAF recently published the latest report in its series on corporate giving by the FTSE 100, which can be found here. The key findings are as follows:

• In real terms, donations have dropped 17% since 2016 and the value of corporate giving has dropped by 26% over the past decade.
• Total donations by FTSE 100 companies in the 2022/23 financial year totalled £1.85 billion.
• Only 24 of the FTSE 100 donate at least 1% of their pre-tax profits.
• 30 of the FTSE 100 have established corporate foundations since 2016 (some, of course, already had foundations in place).
• Employees of surveyed FTSE 100 companies recorded 1.25 million volunteer hours in the 2022/23 financial year.
• Companies in the healthcare, consumer staples and basic materials sectors donated the highest proportion of their pre-tax profits. The sectors donating the lowest proportion of their pre-tax profits include technology, real estate and energy.

Changes to corporate giving since the Covid-19 pandemic

Whilst the Covid-19 pandemic drove an increase in charitable giving by both individuals and corporates (we were involved in a number of these initiatives, such as an initiative by the Association of British Insurers – please see here), CAF’s findings indicate that corporate donations have not returned to pre-pandemic levels. More than that, when accounting for inflation, they have, in fact, dropped in real terms by 17% to their lowest point since 2016.

Although corporate social responsibility is a current focus of commercial discourse, it does not appear that this has translated into charitable giving, with FTSE 100 companies donating an average of 0.8% of their pre-tax profits, down from 2.8% in 2016.

The past year has seen a number of potential focus points for charitable giving, including the cost of living crisis, the ongoing conflict in Ukraine and the recent resurgence of hostilities in the Middle East. CAF’s reporting indicates that charitable giving by corporates in response to these crises has been met out of existing budgets earmarked for charitable giving, as opposed to additional fundraising or gifting; charitable giving is effectively being re-purposed.

One explanation for the slowdown in corporate giving might be that ESG regulations are placing a large burden on business operations that require new expenditure meaning that perhaps charitable giving is down as businesses are diverting some of the funds towards ESG compliance rather than philanthropy and community capacity building.

Reversing the trend

Total pre-tax profits of the FTSE 100 have trebled since 2016, which means that corporate giving has decreased significantly in real terms. Whilst CAF’s research shows that corporate giving is now more broadly embedded as a practice in the FTSE 100 than it was in 2016 with more corporates engaged in the activity, the individual level of giving by FTSE 100 companies as a proportion of pre-tax profits has generally declined in the same period.

CAF concludes its report with a number of recommendations for both companies and policy-makers, with the aim of incentivising companies to increase corporate giving, whilst also increasing transparency and reporting standards.

CAF recommends that companies should voluntarily report on corporate giving in either annual reports or ESG reports, alongside reporting on corporate sustainability. Other recommendations include fostering a culture of giving by implementing initiatives such as employee payroll giving schemes, long-term asset allocation for charitable purposes and linking KPIs and executive bonuses to ESG targets. Most crucially, CAF is encouraging FTSE 100 companies to adopt a “best practice” approach of donating at least 1% of pre-tax profits. Given the current average of 0.8%, this would have a significant impact on the amount of giving by corporates in the FTSE 100.

For policymakers, CAF recommends a reversal of the 2013 amendment to regulations made under the Companies Act 2006, which removed the statutory requirement for companies to report on certain charitable donations in their annual reports. By making this change, CAF hopes that it would be possible to break the current silence on levels of corporate giving between companies. CAF is also eager to ensure that companies are incentivised to engage in giving, and hopes that the Government is able to lengthen grant cycles to encourage corporate investment, and match-fund corporate giving on certain social issues such as the cost of living crisis and disaster relief.

Options for corporates engaging with charities and not for profits

In another interesting finding from the report, 67% of people believe that businesses have an obligation to support the local communities in which they operate; we have seen a number of corporates undertake initiatives to boost engagement in their local communities principally around charitable giving. Social purpose clearly matters to employees, consumers, clients and investors.

We have been involved in innovative initiatives for corporates engaging with charitable giving over a number of years and set out some of the main options below:

• Establish a corporate foundation. The foundation can carry the name of the corporate that establishes it which generates a degree of publicity. The foundation must be legally separate and operate independently of the corporate but it is possible for a corporate to be involved in the governance of the foundation by, say, appointing trustees.
• Partner with a charity or charities. Very often corporates nominate a charity or charities of the year. Other options include a corporate acting as “commercial participator” in relation to a promotional venture (e.g. offering to donate a certain amount from sales of a particular product). We also see many examples of online retail businesses wanting to offer donation opportunities for customers at the checkout stage of an online purchase.
• Set up the equivalent of donor-advised funds with organisations such as CAF, mirroring practice that is common for high net worth individuals engaged in charitable giving.
• Secure B-Corp status. Whilst this does not necessarily directly increase charitable giving, B-Corp status indicates that a company meets high standards of social and environmental performance, accountability and transparency. A couple of examples of high profile B-Corps include Coutts Bank and Patagonia.

Of course, it is important to add that many businesses outside of the FTSE 100 have embedded charitable giving in their organisations and we have seen some great examples of such behaviour. The landscape should not be coloured solely by this report. However, the overall takeaway from the CAF report is that corporates could do better.