2022 Sector Outlook

Flexibility and innovation are key to the future of the charity sector

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UK charities have demonstrated their resilience and enormous value to society during the pandemic, but need to reach out to new audiences and further exploit technology to overcome the financial and operational challenges that lie ahead this year, says Nazreen Vizram.

2021 saw a continuation of the challenges of the previous year for the charity sector, with the pandemic continuing to impact funding and day-to-day operations as demand for services increased.

Thankfully, funders and the public continued to show their support for the sector and the predicted £10bn-plus funding shortfall wasn’t quite as bad as expected. However, according to the Charities Commission, six out of 10 charitable organisations reported loss of income and 40% dipped into their reserves, while 32% experienced a shortage of volunteers.

Despite these financial and operational pressures, only 97 insolvencies were reported among the country’s 170,000 charities. I think this reflects charities’ incredible flexibility and determination to continue providing essential services, while adapting to new ways of working, digital service delivery and largely virtual fundraising activities.

Financial resilience

Looking to the year ahead, the impact of Covid will, unfortunately, continue to heighten societal inequalities and impact people’s mental health and wellbeing, at a time when rising inflation and living costs are eating into personal finances.

With demand for charitable services remaining high, 2022 will continue to test charities’ financial stability and resilience.

The Charities Commission says that a third of charities expect to generate less revenue this year, although encouragingly, the majority at least anticipate being in the same or a better position overall.

The government’s commitment in the autumn 2021 Budget to retain Charitable Rate Relief will at least be a comfort for some.

Given the financial stresses on the sector, I think we may see an increase in the number of mergers among smaller charities, as well as greater collaboration between charities generally.

Although the upward trend in the value of legacy income is predicted to continue and the Enthuse Winter 2021 Donor Pulse Report indicates 71% of the population donated within the previous three months, to succeed in a volatile economic environment, many charities will need to continue their efforts to tap into new audiences to maximise income.

In particular, that means engaging with younger people with a sense of social purpose through greater use of online and mobile apps and social media.

Interestingly, just one example of this, Shopiago, an online platform enabling charities to sell via multiple online marketplaces, enjoyed a sales boost of more than 150% last year.

ESG top of the agenda

Charities have long played a major role in influencing society on environmental and wider sustainability challenges and I think this is a role that will really come to the fore this year and beyond.

But with environmental, social and governance (ESG) issues now a growing priority, they must ensure their own organisations have appropriate strategies and measurable ESG goals in place – and deliver on them – to meet growing expectations of environmentally conscious funders and donors.

Furthermore, the availability and cost of borrowing from banks and other financial institutions, is increasingly linked to achieving ESG-related performance targets, with the rise of financial products such as Sustainability Linked Loans (SLLs).

People and tech

Embracing social media may also hold the key to reaching younger volunteers to help overcome the current shortage of volunteers among older demographics more likely to be affected by the pandemic.

I also expect to see more charities utilising tech solutions to minimise costs and address practical operational issues fuelled by the lack of staff and funding challenges. Whether that involves deploying new mobile apps to make it easier for people to buy products or donate, or introducing digital platforms to enhance service delivery for end users, tech has the potential to make a big difference.

Indeed, many organisations are already using platforms like Zoom and Facebook to communicate both internally and with beneficiaries.

However, organisations will be conscious that not all end-users will be able to access or use these digital services and the case for introducing them needs to be carefully weighed up.

Diversity and inclusion

In order for organisations to understand and deliver some of the changes they are going to have to make in 2022, I think more than ever before they need to ensure that people from differing backgrounds, genders and perspectives have a voice in their decision making.

It’s essential that charities truly reflect the communities they serve – particularly at trustee, board and senior management level. While many embrace and understand the importance of diversity and inclusion and are endeavouring to make it business as usual, there’s still much to be done to create a truly inclusive culture.

Invaluable contribution

Charities’ ability and determination to change and innovate in order to continue supporting some of the most disadvantaged and vulnerable people in our society in extremely challenging times has been truly impressive.

And, as we progress through what looks likely to be a challenging year ahead, I have no doubt they will continue to be a vital force working for the good of the nation.

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