Unveiling the Landscape (#2): Collecting the data we need

This four-part blog series is a deep dive into the 2024 Landscape Report, which offers a comprehensive view of Canada’s philanthropic landscape. The blog series summarizes the key findings and provides additional narratives and reflections from presentations we made about the research and feedback received from a range of stakeholders. The Landscape Report is a crucial starting point for philanthropic research conversations, and we invite you to be part of this discourse.

Collecting the Data We Need for Policymaking and Advocacy

In this second blog, we look at public policymaking, particularly the recent changes to the disbursement quota and new rules for making grants to non-qualified donees. We focus on the environment for policymaking related to the philanthropic sector and how we might best support it in the future.

A key priority of the 2024 Landscape Report research design was to explore perceptions about the implementation of Canada’s newest and most significant philanthropy-related policies – namely, the 5% disbursement quota and new rules providing foundations the ability to grant directly to nonqualified donees (NQDs). The 2024 Landscape Report found that the field needs 1) better data and 2) consistent policy monitoring to ensure effective policymaking and advocacy related to the philanthropic sector.

Context

PFC helped convene large consultation processes on both DQ and NQD policies in 2021 and 2022. As part of the research design, PFC remained very interested in understanding how these policies were impacting public and private foundations (members and non-members). The policies, which came into force in 2022 for NQDs and 2023 for the disbursement quota, were not yet viewable in T3010 data at the time of research. Thus, semi-structured interviews with foundation CEOs provided an avenue to understand the opportunities and concerns.

Literature

In March 2023, a list of 2021 spending of the largest 500 private foundations was released, including a column of “gifts and charitable expenditures and percentage of assets” interviews. The average annual distribution was 7.14%, but several foundations were close to or just at 3.5%, which in 2021 was the DQ level, potentially indicating that some were not always meeting the 3.5% requirement. This view was limited as it does not account for the fact that the DQ is an annual average calculated over 24 months, legitimate DQ deferrals, restricted assets, or flow-through funds. However, it gave a broad sense of distribution before the new DQ was implemented.

PFC’s consultation documents about the DQ were also reviewed, including a paper commissioned reviewing disbursements to qualified donees from 2010-2017. It showed that the median public foundation (10.3%) granted more than the median private foundation (4.1%) but highlighted there were key operational differences for different-sized foundations affecting disbursement patterns. The paper called for additional research to understand these operational differences.

Interestingly, literature from earlier decades (when the DQ was being changed from 90% of cash to 4.5% of the endowment portfolio’s market value) echoed similar conversation patterns as in the 2021/22 consultation period – mainly financial scenarios as a way to understand the impact of DQ changes. The DQ calculations of the time were predictions based on investment strategies and market conditions. The 1980s literature felt that 4.5% was an upper threshold for foundation longevity while acknowledging that not all foundations sought longevity.

Findings

While providing insight, the studies all emphasized the need for a greater nuanced understanding of foundation operations and decision-making. The Landscape Report interviews aimed to explore some of this nuance. On the disbursement quota, most participants felt they did not need to adjust their investment strategies or grantmaking to meet the new 5% DQ. However, there was limited elaboration on what made this confidence possible. Reflecting on this, more specific follow-up questions could have yielded additional insights. During the analysis, the participants’ confidence in light of average investment returns of 7-8%, a context of a 5% DQ and rising inflation was considered. Meeting DQ seemed more precarious than usual. This prompted revisiting the interviews to understand the minority views better—those who expressed that the 5% DQ could be problematic and those who felt the DQ mechanism was insufficient for ensuring adequate grantmaking flows.

When discussing the implementation of new NQD rules with interviewees, their perspectives were clearer. At the time of writing, the CRA guidelines on granting to NQDs were only still in draft, yet 13 of 21 interviewees were already supporting NQDs through various mechanisms. Most interviewees supported the policy change’s symbolism as a way to ensure funding was moving to the most needed groups. However, for many participants, the new regulatory pathway’s functionality was still too new to understand fully, with some highlighting concerns about administration, risk, and reporting. Follow-up on the NQDs will require stakeholders to review T3010 reporting and continue conversations with foundations on their implementation of the policy.

Discussion

Researching the recent philanthropic policy changes prompted two questions. First, does the field have the correct data to monitor and understand the impact of these policies effectively? Much of the perspective for DQ policy change is reflected by investment strategy scenarios and peer pressure (or hope) that increased DQ spending flows into underserved areas. That latter data point remains difficult to discern. However, stakeholders such as Definity Foundation, Environment Funders Canada, and the Foundation for Black Communities have each commissioned recent research to chisel away at the task. PFC has also consistently offered that the DQ is only one tool in the toolbox for ensuring foundations achieve their social missions and that a more holistic approach is required.

Second, is the field actively monitoring these policy changes? In the early 2010s, philanthropic stakeholders began to advocate for a policy change, allowing charities, including foundations, to invest in limited partnerships¹. The advocacy was, in part, to open up avenues to increase impact investing opportunities. The policy received Royal Assent in the 2016 Budget. As part of the impact investing literature review of the Landscape Report, I expected to find clear follow-up details on the policy’s impact. Instead, to my surprise, there was no discussion of success stories or clear evidence of policy uptake. Examining foundations’ impact investing financial statements revealed some use of the limited partnership policy, but there was no clear evidence that the policy change was extensively followed up.

Many conversations exist about the need for better data in the broader nonprofit sector. For philanthropic funders, this conversation is often most relevant to their grantmaking and funding areas. This makes sense. However, we should not overlook the data and follow-up required for effective policymaking and regulation for foundations themselves. As highlighted in the research interviews, a critical view from the 2021/22 policy consultation process was how limited data on the disbursement quota left the sector vulnerable to various scenario planning rather than from a clear understanding of grantmaking flows, foundation operational nuances, and field-level behavioural change. Moreover, the new NQD policy demonstrates both the value and limitations of T3010 reporting and why additional data sets will be required to understand its symbolic and functional impact. Past examples of sector policymaking exemplify why we need to open a comprehensive conversation on the data which we need foundations to collect and share. Data is needed to enhance our conversations, inform our policies, and enable follow-up.