Dawn Austwick, chief executive of the Esmée Fairbairn Foundation, has described as “shocking” the role that funders play in encouraging charities to have weak balance sheets.

At an investment seminar organised by JP Morgan earlier this month, Austwick said the single most important thing that civil society organisations need in order to be ‘investment-ready’ is strong balance sheets. 

“But the weakness of balance sheets in the voluntary sector and, I’m afraid, the role that funders have played in encouraging voluntary organisations to have weak balance sheets, is shocking,” she said.

“This is something we really need to look at as a sector.”

Speaking to Civil Society afterward, Austwick explained that the tendency of funders not to give grants to organisations with high reserves and strong assets, “subconsciously discourages those organisations from building robust balance sheets”.

“It’s symptomatic across the sector,” she said. “We have got ourselves into a bit of a pickle and we need to unravel it because it is inadvertently making things worse for the sector as a whole.

“We need to think about building up our organisations because they need to be sustainable.”

She suggested that funders should examine why they are making the decisions they make and how they might change this process to encourage greater resilience and a more long-term approach to financial planning among the charities they fund.