Differences that make a difference: how companies manage grants differently from NGOs
The international development community is accustomed to project implementation taking place in-field by local Non-Governmental Organizations. As such, there are certain norms and expectations which have developed over the decades. With increased investment in blended finance models and grant-based incentives being awarded to private-sector entities, it is important to understand some of the major differences between how commercial entities manage ESG (Environmental, Social, Governance) grants as compared to traditional NGO implementation. In our work through INFRONT and other experiences of the Investment Technical Team, we have seen that there are 3 major areas where commercial entities differ from NGOs in this respect.
1. Innovation versus core business: In the case of for-profit entities grant-based ESG projects are typically housed within their innovation portfolio and are seen as opportunities to pilot an idea that has been in the ideation stage. NGOs see grants-based projects as a core business activity and therefore, an existential issue. This fundamental difference illustrates the level of priority, urgency and engagement of management and implementation teams with the projects being executed. In the case of the for-profit business, if the company culture places a high value on innovation, then the ESG project will be executed at a high quality and in a timely manner; on the other hand, if innovation is not a priority then the project might stall after the initial excitement of receiving the grant. Level of priority is also linked to the ticket-size of grants. For NGOs, grants, for the most part, constitute a major portion of their revenue (if not all of it!). In the case of for-profit companies, grants constitute a tiny portion of their overall revenue. For both entities, quite naturally, the activities which constitute the largest budgets take the highest priority.
2. Customer dynamics and system readiness: Revenues, as mentioned above are also closely tied with customer dynamics. For NGO’s, agencies providing grants are their core customers (but not always their end users) and, thus strong relationships with donors are vital to their operational sustainability. In the case of for-profit entities, receiving an ESG grant from a donor agency might be a one-time test pilot or a longer term engagement. These entities are dependent on their customers to survive and thrive, not on donors. Over time, NGOs have built systems of monitoring and reporting that allow them to report back fairly efficiently on grant utilization and how it relates to social outcomes. For-profit entities, on the other hand, are very good at reporting back financial outcomes, but are not as familiar with tracking social outcomes. A ‘fish-out-of-water’ scenario might arise where companies are having to learn how to track social outcomes for the first time and view reporting from that lens. The up-side is that as level of efficiency and adaptability is usually quite high within for-profit organizations, they are able to get up to speed fairly quickly with initial reporting challenges smoothing out towards the middle and end of projects.
3. Ownership of work: A very nuanced difference between commercial entities and NGOs is that NGOs typically have Business Development and Donor Relations personnel whose primary stakeholders are granting bodies. These personnel ensure that grants-based partnerships are acquired, managed and delivered according to expectations. Commercial entities, on the other hand, have Sales and Business Development personnel that cater to B2B and B2C customers related to their products and services. However, there is typically no staff whose major focus is managing incoming grants and associated programs. The partnerships are usually managed out of departments where the project is housed. For example, if an engineering company in Africa receives an ESG grant for a renewable energy project, the project would be housed in the Projects Division, with the technical implementation being done by a Team Lead whose responsibility it is to ensure technical implementation. This begs the question: Who is ultimately responsible for meeting specific grant deliverables that go beyond technical implementation? Although attempts are made to assign some level of responsibility during the contracting process, the blended structures, combining technical, financial and social and unfamiliar to most company staff and need to be pegged into the existing corporate culture.
As the blended finance industry experiences an increasing trend in volume and dollar value of projects, not-for-profit entities and for-profit entities will need to start learning how to perform better together. Deliberating on the differences above might make it easier to account for challenges before project implementation begins and teething issues start to creep in.