The Evolution of Grantmaking Practice Since 2020

For decades, calls for change in philanthropic practice have come from both philanthropic and nonprofit leaders who have asked funders to listen to, trust, and support their grantees; provide more unrestricted funding; streamline and simplify processes; and pursue greater racial equity and justice. Even though making these kinds of changes was absolutely in funders’ own control, the forces of habit, distrust, disconnection, and the desire to maintain control—among other factors—together conspired to create inertia for many funders.

For example, in our nearly two decades of tracking nonprofits’ experiences with funders, The Center for Effective Philanthropy (CEP) has seen little change in the levels of provision of unrestricted support or the amount of time that nonprofits spent completing funders’ application and reporting requirements. More broadly, looking across tens of thousands of data points from years of grantee surveys, CEP could see that, with the notable exception of foundations that solicited and acted on comprehensive grantee feedback at regular intervals, most foundations had not been improving in the eyes of their grantees.

Rather than investing in their own change, the real costs of funder inaction, over years, were instead borne by communities and nonprofits that too often were starved of the kinds of resources that would make them most effective in creating the impact that funders envisioned.

Change after 2020

In 2020, interlocking health and humanitarian crises rocked even the insulated world of funders and laid bare the long-standing structural inequities and racism that pervade every issue on which funders focus. The near-simultaneous killings by police of Ahmaud Arbery, Rayshard Brooks, George Floyd, Breonna Taylor, and others sparked an intense call for funders to address systemic racism, in particular by directing more funding to communities of color and the nonprofits deeply rooted in—and led by—those communities.

To their credit, many funders did spring into action. More than 800 signed onto the Council on Foundations’ Philanthropy’s Commitment During COVID-19 Pledge, which called on funders to work differently. These funders committed to loosening restrictions on existing and new grants, to streamline reporting, to listen to and help lift the community voices affected, and to “learn from these emergency practices” in order to change “more fundamentally… in more stable times.”

And those things did happen. Over the past three years, CEP surveyed and interviewed nonprofits and funders about how funders learned and how they evolved in response to these crises. Our findings were published as a three-part series of reports, Foundations Respond to Crisis.

In 2020, our earliest studies showed that a majority of funders increased grantmaking levels over what had been budgeted. And the vast majority of funders either accelerated existing efforts or changed their practices by implementing new ones.

• Almost all foundations reported placing new focus on reaching Black, Latinx, and lower-income communities—including, often, increasing grant support to them.
• Most foundation leaders said they reckoned with racism and paid greater attention to racial equity in their work. These changes ranged from explicitly incorporating antiracism into their missions and internal practices to updating application processes in order to reach more nonprofits led by people of color.
• Nearly all funders said they loosened or eliminated restrictions on existing grants, most often by reducing or waiving reporting requirements, reducing what’s asked of grantees, and making new grants as unrestricted as possible—though only about 20 percent said they were increasing much-needed multiyear unrestricted support.

In addition, the field also saw other examples of these commitments, ranging from the billions of dollars in social impact bonds issued by Ford Foundation and other funders to the widely joined PEAK community effort to drive the adoption of oral or other forms of reporting requirements.

Learning and evolution

While changes were needed to confront the crises of 2020, by 2021, funders and nonprofits alike were questioning whether they would last. After all, there’s nothing to compel funders to permanently adopt new ways of operating.

The good news is that early evidence suggests these changes may be sticking.

In 2021, virtually all funder leaders surveyed by CEP said that their organizations were working differently compared to early 2020. They most frequently reported streamlining processes to reduce the burden on grantees and providing more unrestricted support—changes they said they will sustain. One in five said they had maintained all changes made in 2020, and another 40 percent said they had sustained most changes. Nearly all funders that had increased grantmaking to communities of color intended to continue those efforts.

Nonprofits felt those changes. In CEP interviews with a representative set of nonprofit leaders receiving grants from foundations, most said they experienced greater flexibility and responsiveness from their funders, especially in terms of more flexible processes and more unrestricted support. In addition, most said they were recognizing greater foundation focus on racial equity—though some were quick to point out a continuing gap between the rhetoric and reality of those funders’ commitments.

Responding to CEP surveys, thousands of grantees also revealed real changes in their experiences, as detailed in the report Before and After 2020: How the COVID-19 Pandemic Changed Nonprofit Experiences With Funders. CEP has always seen that funders can make and sustain changes when they commit to collecting and acting on comprehensive grantee feedback. But the changes CEP observed in the data after 2020 are larger and more widespread than before.

Grantees whose funders asked them for feedback report that, compared to before the pandemic, they

• spend 25 percent less time on application and reporting processes;
• find proposal processes to be more helpful in strengthening the efforts funded by the grant; and
• receive slightly more unrestricted support: 30 percent of grants versus 23 percent pre-2020.

Sustaining change

These changes are positive and important, but there’s room for much more. Even now, only relatively small proportions of grants are unrestricted, let alone directed to the kinds of often smaller, community-rooted nonprofits whose sustained and strengthened efforts are needed to address continued systemic inequities.

We suggest several imperatives for funders to hold themselves accountable for sustained change.

Change your default mindset. Many of us are creatures of habit, and philanthropy is no different. Funders need to be attentive to the way that the systems they’ve created can tempt them back to prior default thinking—for example, providing relatively small, single-year restricted grants while collecting extensive amounts of information. Those defaults show up in the structure of grantmaking systems, board write-ups, and data priorities. For example, grantmaking systems could be built to prompt unrestricted, multiyear grants by default, and ask a program officer to justify a change. Board agendas could summarily stop including time to discuss individual grants and instead devote time to discussions of community needs and strategies for addressing them.

Address diversity on funder boards. Nearly half of the leaders in CEP’s recent study said that their boards were the biggest impediment to their foundation’s ability to advance racial equity. Funders whose boards were comprised of at least 25 percent people of color were more likely to have adopted practices to support both grantees and historically marginalized communities—both in terms of increasing funding to communities of color and in changing their processes to reach new communities. And those funders with more diverse boards more frequently reported sustaining some or all of the changes they made since 2020. Increasing board diversity is an urgent need, as study after study shows that foundation boards are not reflective of the communities funders seek to serve.

Use demographic data in decision making. To help track these kinds of changes and commitments to equity, it’s imperative to understand the leadership demographics of nonprofit partners. Nearly 40 percent of interviewed funders said that they had begun collecting demographic data since the beginning of the pandemic—particularly regarding nonprofit executive leadership. Communities of practice on this topic have grown within PEAK Grantmaking, and Demographics via Candid provides a path for the field to collect and use this data in a systematic way with minimal burden. 

Work in communities of funders. Change is hard, and philanthropy lacks the kind of binding accountability structures that compel change in other sectors. So, working with others focused on supporting similar issues is important. There are many, including PEAK’s affinity groups, the CEP Learning Institute, and GEO Communities of Practice, just to name a few. Another notable example is the growing trust-based philanthropy movement, which advocates for and helps create collective guidance for funders to act with great trust and a focus on equity. 

Listen and share power. One key trust-based practice is to listen carefully and act on what you learn. Provided with the confidentiality of a third-party process, feedback can hold funders accountable. It can also, when disaggregated, reveal important differences in experiences across groups of partners. Listening is key, but it isn’t enough. It needs to drive both a deeper understanding of the needs of people and communities served, as well as the actions that allow those communities to influence funders’ directions and approaches.

This edition of the Journal makes visible many of the ways that funders can and do change. Now, the challenge for all of us is to not let up, even when change has left us tired. We must use the learnings from these experiences to further accelerate our efforts toward even greater evolution in pursuit of more effective and just philanthropy. At CEP, we’re optimistic, even though the sector still has a long way to go.