Equity in Practice, Part 2: A Closer Look at Risk Management
In this two-part series, learn how some funders are turning talk into action to achieve more equitable grant-making practices. In Part 1, we explored transparent processes and decision making. Here, we’ll consider the connections between equity and responsive risk management practices.
Philanthropy has seen a surge of interest in racial equity, diversity, and inclusion. As our conversations and analyses deepen, an increasing number of funders are moving from talking and thinking about equity to acting. A natural place to start is the grant-making process. But grant making typically comprises multiple systems and interactions, and breaking down the various parts of the process can help identify specific actions needed to advance more equitable grant making.
Over the past few months, PEAK Grantmaking and Arabella Advisors have partnered to understand how grant-maker values are connected to the principles of diversity, equity, and inclusion, and what innovative practices look like in those areas. After reflecting on best practices and interviewing a group of members and experts, we arrived at this critical question that funders pursuing equitable grant making increasingly ask themselves (or should!) about risk management:
Have we named our appetite for risk and examined our due diligence requirements accordingly?
While the philanthropic sector has yet to reach consensus on what risk management means in the context of grant making, funders we interviewed as part of this research generally saw risk as “the likelihood that an event will occur that will cause some type of undesirable effect” on a foundation or a project. When discussing risk, funders generally spoke about legal risk, financial risk, reputational risk or programmatic risk. For many of the funders we interviewed, the connection between risk management and equity is manifest and multifaceted.
For example, to mitigate risk, foundations establish due diligence requirements to screen organizations for certain types of risks and ensure that the organizations receiving funding have structures in place to help them succeed (e.g. requiring grantees to be “financially stable” or requiring grantees to have a strong governance structure). However, when applied in a standardized way, these requirements can create significant burden for smaller or newer organizations and organizations led by people of color, who tend to have fewer resources than white-led organizations.
While interviewees did not recommend that foundations set aside due diligence requirements altogether, they highlighted the importance of examining these requirements regularly and elevating the unintended impact they might have on grantseekers. Furthermore, interviewees spoke to the importance of understanding grantees’ context and environment when making grant-making decisions. For example, a foundation might want to see at least three months of reserves when giving a grant to a $10 million-dollar nonprofit executing a $250,000 grant.
But does it need to apply the same requirement for a $50,000 grant for a $300,000 grassroots organization? Across the board, we heard that equitable risk management requires:
- Defining and contextualizing risk
- Being explicit internally and externally about your appetite for risk
- Being flexible and adaptable with due diligence requirements
- Taking informed risk rather than avoiding risk at all cost
- Building strong relationships with grantees as a strategy to mitigate risk
While there is no one-size-fits all way to establish and implement responsive risk management practices, funders interested in being more equitable can learn from one another to start thinking about where their strengths and weaknesses are and how they can improve.
To explore these questions more deeply and get tools that can help you along the way, check out PEAK Grantmaking’s resources and Arabella’s DEI in Grantmaking Toolkit. For more insight on equitable practices, read Equity in Practice, Part 1: A Closer Look at Transparency.
Kheira Issaoui-Mansouri is a Director at Arabella Advisors. Melissa Sines is Programs and Knowledge Director at PEAK Grantmaking.
This piece was originally published here by PEAK Grantmaking. It has been republished in its entirety with permission.