There is a common misperception that philanthropy is inherently rigid, with funding and grant agreements tied to narrowly defined activities. Thankfully, this viewpoint is rapidly changing. Modern philanthropy is increasingly recognizing the importance of flexible funding and transferring agency to grantees to make smart, sound decisions on how best to serve their target populations. Without question, if philanthropy is serious about delivering lasting impact, then funders must embrace and establish flexible funding models that enable nonprofits to address evolving needs as policies shift.
WHAT POLICY VOLATILITY CREATES AND REVEALS
The consequences of shifting policies are perhaps best evidenced among those entrepreneurs who have historically had the least access to capital. For example, a recent Brookings Institution report points out that policy shifts have significant consequences for Latino-owned businesses. The report projects that even a 3% decrease in Latino-owned employer firms could result in thousands of business closures and the loss of more than 100,000 jobs, with significant ripple effects on communities and lives. Compound these fallouts with the facts that small businesses already operate on tight margins. They are often concentrated in industries sensitive to changes in labor supply and consumer demand. Here are all the makings for the perfect storm.
Yet policy volatility is not creating new vulnerabilities as much as it is exposing long-standing structural barriers. Consider community development financial institutions, which have long provided a critical source of flexible capital for entrepreneurs who struggle to access conventional financing. Recent policy changes highlight how dependent many small businesses are on alternative sources of capital.
This makes the need for change and stronger support structures within communities undoubtedly clear. The Brookings evidence suggests that one of the best ways for philanthropy to support small businesses—and by extension, local economies—is to invest in nonprofits that connect entrepreneurs to capital, contracts, and much needed resources. These intermediary organizations form the scaffolding necessary to support business owners, their employees, and their customers by building resilience into the broader ecosystem before future shocks further test it.
PHILANTHROPY AS A STABILIZER
A commitment to flexible funding also requires rethinking rigid timeframes and impact metrics. Often referred to as “patient capital,” such funding approaches allow time to both understand the drivers of societal challenges and pilot evidence-based interventions to address them while permitting room to pivot and adapt. At the Ares Charitable Foundation, we strive to create flexibility through partnership. We walk the road alongside our grantees to ensure we stay the course in our shared objectives, even if that means encountering a few detours along the way to reach our final destination.
We put this principle into practice over the past year as shifts in the federal landscape created new challenges for nonprofits across the country. One example is our grant to Jobs for the Future (JFF) for the organization’s Quality Green Jobs Regional Jobs Challenge to prepare workers for careers in the modern-energy economy. The program is part of our Climate-Resilient Employees for a Sustainable Tomorrow initiative that launched on Earth Day 2022.
Over the past 18 months, we have witnessed how quickly policy changes can affect what gets funded at the regional, state, and local levels. Originally, the program intended to reskill 20% incumbent workers and 80% incoming workers. However, as hiring for green jobs slowed, it was clear that JFF needed to reevaluate its approach. Instead of reducing the number of program beneficiaries, the organization inverted the ratio to instead support 80% incumbent workers and 20% incoming workers to still meet employer demands while considering how exogenous factors require adaptivity and accommodation.
This is only one example of how we have learned that a willingness to remain nimble helps nonprofits build capacity. This means engaging in open, forward-gazing conversations to create space for grantees to embrace ambition and ingenuity in collaborating with a funder that is willing to jointly think blue sky about what’s possible.
PARTNER WITH NONPROFITS
This kind of partnership with the nonprofits we fund means that together, we can reimagine our problem-solving tactics even midcourse to ensure they are relevant and rigorous.
As we all navigate changing policies and their effects, philanthropy should accept that volatility is part of the equation. After all, life is about change. We should ask ourselves how we can better ensure the funding we provide yields the kinds of returns that make communities and the people within them stronger. Prioritizing that question is not only critical if we want to make a difference in the lives of those most in need, but is also ultimately for the better of us all.
Michelle Armstrong is president of Ares Charitable Foundation.