How can foundations make certain grants go to a good cause?

Foundations are powerful catalysts for social, economic, and environmental change. They distribute millions, sometimes billions, in funding to organisations across the globe. Many of these organisations operate in remote or less-understood regions, each with its own complex cultural, political, and economic dynamics. That’s why foundations must look beyond the mission statement and assess who is behind the organisation. The question is how foundations ensure their money reaches genuine change-makers instead of falling into the wrong hands.

Why foundations should truly know grantees

The success of foundation grants often depends on the leadership of the organisation. Foundations need to consider the founders’ track records, governance structures, and commitment to the cause when awarding grants. 

The problem is that while foundations can uphold their own standards, once funds are invested, they can’t always control where they end up. That’s why they often spend a year or more getting to know potential grantees before committing any money. 

Funding individuals with controversial political ties or who have worked in an industry that conflicts with the foundation’s mission can damage its credibility and cause more harm than good. More importantly, funding the wrong people can jeopardise a foundation’s future.

The Shell Foundation closely scrutinises the ownership structure of the organisation it’s looking to fund. It has a rigorous screening process to check if founders and board members are politically exposed persons (PEPs), on watchlists, have been sanctioned, or have controversial ties. This safeguards the integrity of their funding and ensures it supports the right causes.

The IKEA Foundation also has a robust due diligence process for its grantees. In many cases, deals are blocked if any reputational issues come up. The IKEA Foundation, like many with a well-known parent brand, is highly sensitive to reputational damage.

Similarly, the British International Investment (BII) is especially sensitive to where its investments go. It handles a vast portfolio of investees and grantees, which means that BII’s operations are massive in scale. Robust due diligence is critical since the BII can’t afford to be linked to any project that could tarnish their reputation in the public eye. 

Red flags that foundations should look for

We’ve talked about why it’s important to screen grantees early to avoid wasting resources on the wrong relationships. But what should you look for during this process?

It’s important to remember that risk is subjective. What one foundation sees as risky may not be the same for another. Like in the charity and higher education sectors, having a formal due diligence process makes it easier to filter out unsuitable investments early. But a due diligence process is only as effective as the risk criteria guiding it. That’s why foundations need a clear due diligence policy that clearly sets out their risk threshold. 

Reputational risk: Funding individuals involved in criminal activities is a significant reputational risk. This type of information is often publicly available online and reported in the media. For example, if a foundation funds a grantee that is revealed to have been involved in fraud at their last company, it’ll lead to reputational consequences for the foundation and a very angry executive team. Foundations must conduct thorough open-source research on potential grantees to ensure they have a clean background. 

Political ties and controversies: Grantees with political connections or affiliations to controversial figures can drag a foundation into unwanted political controversies. For example, a grantee that is connected to a political figure known for controversial policies can harm the foundation’s public image, especially if it makes the foundation look like it endorses those views. Again, looking for these types of affiliations or connections is an important part of doing open-source research on potential grantees. 

Conflicts of mission: Funding an organisation whose work contradicts the foundation’s mission undermines its existence in the first place. For example, a foundation committed to environmental sustainability funding an organisation with a founder from a polluting industry could be accused of hypocrisy and lose stakeholder trust.

Unqualified leadership: Strong leadership underpins a successful organisation. If an individual has a known history of mismanagement or unethical practices, it can severely affect the organisation’s ability to deliver results, as well as the foundation’s reputation by association. It reinforces why foundations must carefully vet the leadership teams of organisations they fund to make sure they are capable, ethical, and trustworthy.

Protecting a foundation’s name and reputation 

Many foundations operate with limited resources. Before using Xapien, an environmental foundation had a small team spending 3 to 4 hours each month checking 50 grantees. They knew they needed to dig deeper, but lacked the resources to commit more time to screening potential grantees before building relationships with them. 

Due diligence is a manual process that requires research across databases, corporate registries, media archives, and web sources. It’s time-consuming and resource-heavy. Even thorough searches can miss risks hidden deep in blogs, media, or web pages. The process also depends on the research team’s skills and ability to interpret risks.. 

AI-powered tools, like Xapien, can analyse vast amounts of risk-related data in real time. These tools work faster and on a larger scale than human researchers, delivering a structured, comprehensive risk profile that’s easy for teams to assess. AI also identifies patterns and connections that can be hard to spot manually.

Due diligence should be integrated into all aspects of grantmaking. And foundations must also monitor grantees over time, not just at the point of investment. After all, risk isn’t static. As external conditions shift, new risks can emerge. This requires foundations to reassess investments to ensure that any external changes don’t lead to reputational harm.