Corporate giving: why 1 per cent profit should be the minimum

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Hero not zero: As the cost of living crisis bites, we need businesses to step up to help charities continue their incredible work (Charities Aid Foundation )

Charities Aid Foundation is a Business Reporter client.

Corporate giving has the power to change the world, but how much should businesses give to make a difference?

If all the companies in the FTSE 100 donated a minimum of 1 per cent pre-tax profit in the last financial year, there would have been an estimated total of £3.13 billion donated to the charity sector*. This represents an uplift of more than two thirds of donations made in 2022.

Committing to at least 1 per cent is a way for businesses to protect people and the planet. There are many reasons companies give to charity or community causes. It drives positive impact, demonstrates commitment to being a responsible business, builds loyalty and helps to attract and retain employees and customers.

With household incomes squeezed and charity finances strained due to the cost-of-living crisis, the role business can play through corporate giving has never been more important. By giving a minimum of 1 per cent pre-tax profit, businesses can help drive real change in society.

Why do charities need business support?

We recently surveyed more than 650 charities as part of our Charity Resilience Index, which tracks how charities are experiencing and responding to the UK’s cost of living crisis. Almost two thirds (65 per cent) of charities say demand for their services has increased compared with a year ago, and just half of charities have high levels of confidence in their ability to meet demand for their services, both now (49 per cent) and over the next 12 months (48 per cent).

Beyond the UK, charities are also stretching their resources to the limit: from war zones to the plight of natural disasters; from improving access to education to supporting the fight against climate change. Higher demand, lower income and inflated costs are all having an impact on the ability of the charity sector to deliver.

How much should you commit to being a responsible business?

At Charities Aid Foundation (CAF), we believe businesses should demonstrate their commitment by donating at least 1 per cent of pre-tax profits to address the biggest challenges in society. This should be seen as a minimum, and budgets and programmes should be reviewed regularly, as Lucy Mantella, Principal Corporate Advisor at CAF, explains.

“It’s all about making sure that your giving budget is in line with the scale and size of your business,” she says. “The best practice is at least 1 per cent so as your business grows, so should the amount donated. It’s important that programmes and budgets don’t remain static and should grow to align with the greater expectations that are being placed upon responsible business teams.”

Committing at least 1 per cent of pre-tax profits, says Mantella, will not only confirm your credentials as a responsible business, but will provide a meaningful and tangible commitment that sets an example for others to follow. “You either opt to lead the way, collaborate for collective impact or look to your peer group.”

How much have business committed?

According to our latest research, FTSE 100 companies gave £1.85 billion to charities last year, compared with £2.51 billion in 2013, showing a 26 per cent fall over the past decade.

A quarter of top UK-listed companies donated at least 1 per cent of pre-tax profit in 2022, with GSK the most generous, donating 5.47 per cent of profits.

Where the top listed companies provide the lead, it can inspire businesses of all sizes to act too. Companies such as TSG (Technology Services Group), which sits outside the FTSE 100, have committed to a 2 per cent share of pre-tax profits, with a determination to increase that percentage as the business grows.

How can businesses use the 1 per cent guide to leverage more funding?

It’s important to ensure impact is at the heart of any corporate giving strategy, as well as a business case that clearly sets out the case to give more.

Committing to at least 1 per cent of pre-tax profits, as best practice, is a useful target to aim for when designing or building your corporate giving programme, or when arguing the case to grow it further in line with the health of the business.

“Businesses are all at varying stages in their journey when it comes to corporate giving,” says Mantella. “Many have established programs, while others are looking to pivot or redesign. Some are right at the start.

“No matter where you are in your journey you need to make sure your financial commitments align to the impact you want to achieve.

“If an organisation is unable to commit, this may be a signal of how serious it really is. Starting with at least 1 per cent is a tangible benchmark to facilitate discussions when building your business case.”

Accessing the right support when delivering an impactful corporate giving programme.

At the Charities Aid Foundation, we have the expertise to support businesses at every stage of their corporate giving journey. Whether you are seeking advice on managing your budget in a tax-efficient way or need help shaping how best to deploy your funds safely and in the most impactful way, we’re here to help.

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Learn more at: cafonline.org.

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*Charities Aid Foundation made this estimate using the following assumptions:

Where profitable companies gave less than 1 per cent of pre-tax profits, donation values were rounded up to 1 per cent. Actual donation amounts were used for companies that gave less than 1 per cent. Those companies which made a loss but nevertheless donated were included using their actual donation amount (where known).