Unrestricted funds ‘less likely’ under new corporate reporting rules

A new EU directive on corporate reporting may change relationships between companies and their nonprofit partners ­– potentially also including those located outside of the EU.

As well as changing the information firms require from charities, it could impact the type of corporate funding made available, suggests a report from UK-based sustainability and corporate purpose consultancy C&E Advisory.

C&E Advisory’s report came out the same day that the Charities Aid Foundation (CAF) released research showing a long-term downward trend in donations from the UK’s largest firms. Total gifts from FTSE100 firms totalled £1.82bn in 2023, a real-terms decline of 24% in the past decade, CAF’s Corporate Giving 2024 found.

The Corporate Sustainability Reporting Directive (CSRD) “modernises and strengthens the rules concerning the social and environmental information that companies have to report”, according to the European Commission’s own website, and comes into force for the 2024 financial year, for reports published in 2025.

In the first year, only the largest firms are bound by the rules, but this expands in subsequent years. This will include some companies based outside of the EU, while other outside of its scope may adopt its principles as a matter of best practice.

Most of the 122 corporates and nonprofits surveyed by C&E said that it was either likely (52%) or highly likely (35%) that donors will require more detailed information about nonprofits’ own ESG practices. Similar proportions thought it was likely or highly likely that nonprofits would need to tell corporates more about supply chain due diligence and impact assessments, and that they might need to adopt new digital reporting practices.

Corporates want clear framework

Philippa Cornish, head of corporate clients at CAF, says that there is already inconsistency in the way that different corporations measure and report on charitable giving and community investment, and comments that clients would prefer “a simple, clear framework and allow them to benchmark their contributions”. She adds:

“There is a risk that charitable giving could be left behind or forgotten about in the many different frameworks and reporting standards. Often in business, if it can’t be measured and accounted for on a balance sheet then it is difficult to make it a priority and put together a business case for it. Responsible business is about contributing positive, sustainable change within communities and society – charitable giving is undeniably a crucial pillar of this.”

In addition, 80% of business respondents to the C&E survey said it was unlikely they would provide unrestricted funding to nonprofit partners in the CSRD era. The charity sector respondents to the survey did not appear to anticipate this trend, with 56% saying they do expect unrestricted funding to be available.

Manny Amadi, CEO of C&E Advisory, says:

“It is concerning that a notable gap exists between businesses and their nonprofit partners on each party’s expectation of the role of earmarked or non-earmarked funding. Nonprofits and charities should therefore either focus on making the business case and providing evidence as to why the provision of non-earmarked funding can yield greater social and environmental value, or alternatively, better manage their own expectations.”

Picture by Aurelien Chateaudon on Unsplash