Nearly 40% of nonprofits may be forced to close because of the pandemic

In late 2019, when Charity:Water CEO Scott Harrison met with donors to talk about the work that his nonprofit does to bring clean drinking water to developing countries, the donations flowed in. “The Dow was at a high, and everybody was feeling great about the world,” he said in a recent meeting of the Fast Company Impact Council, a collective of creative leaders. “That’s very different now. All of the conversations that I’m having with our corporate CEOs, our partners, and our major donors, are much more conservative and reserved.

Harrison, like many in the nonprofit sector, believes that many nonprofits will struggle to survive the pandemic. “I think over the next 12 to 18 months, we’re going to see a lot of great charities go under and run out of cash,” he says. A recent analysis from Candid, an information service about nonprofits, suggests that’s likely to happen, as donors cut back on spending and fundraising events are canceled. The report looked at more than 300,000 nonprofits in the U.S. In a normal year, around 4% of those nonprofits might close. Now, 11%—or nearly 35,000 nonprofits—might be forced to close, or in a worst-case scenario, as many as 38%.

Some types of nonprofits, including those focused on the arts, are facing the largest challenges. Though many are experimenting with digital versions of events, it’s not clear that audiences are willing to make the change—surveys suggest that many people who would have purchased tickets for a concert or ballet performance in the past might not be willing to pay to watch it online. “We’re spending all of our energy trying to create for digital, trying to become a digital content creation company, trying to explore opportunities for digital distribution,” Kara Barnett, the executive director of American Ballet Theater, said in the roundtable meeting. “It’s not yet clear that there is a revenue model there.”

As the total amount of donations shrinks, many donors are also choosing to shift where their money goes. With the current focus on policing and racial justice, some are choosing to move funding from nonprofits like Charity:Water to organizations that focus on those issues. Others are turning to hyperlocal giving to help combat the effects of the pandemic. “With 30 some million people unemployed, the trauma in our neighborhoods, in our food pantries, it’s much harder to care about kids in Africa or India or Asia, who don’t have clean water,” Harrison says. In some cases, nonprofits are pivoting in response—Susan McPherson, who runs a communications consultancy focused on social impact, notes that one client, Heifer International, is now turning to work more with American farmers and small businesses.

Harrison, who relies in part on corporate donations, argues that corporate models for giving need to change so that it stays more consistent in economic downturns. “How could corporate philanthropy not just be the first thing that’s cut, but more deeply ingrained?” he says, pointing to the example of Patagonia’s 1% for the Planet, a pledge to contribute 1% of annual sales to grassroots environmental groups. “It’s just part of their DNA,” Harrison says. “If sales go down, corporate donations go down, but they don’t go to zero, like we’re seeing.”

Dave Stangis, a sustainability and CSR consultant, says that many companies have pulled back on giving. “If this is a discretionary spend, and if I’m writing a pass-through check to my foundation every year for a million or two, this is a variable cost that I stop at a time like this,” he says. “Part of what we’re trying to do is help these companies think about this as strategy to manage risk.” If companies recognize that providing clean water in a particular area is critical for maintaining their supply chain, for example, it’s easier for them to justify continued donations even as their budgets are trimmed in other areas.

Many newer companies, like Warby Parker, have corporate giving baked into their business models. If larger companies could make similarly permanent commitments, it could be one way to give nonprofits a better chance of survival.