Spiralling costs caused by inflation is one of the biggest risks facing the charity sector, according to a new report from Ecclesiastical Insurance. The specialist insurer has published its third charity risk barometer, examining the immediate and emerging risks facing organisations.

Over 250 charities were surveyed with over four in five (85%) stating they were concerned about increased running costs, while loss of funding was the greatest concern for seven in ten (71%) charities. Almost a third (30%) said they had become more concerned about a loss of funding in the last 12 months.

Of the charities that had raised concerns over loss of funding, almost half (49%) said they were concerned about losing funding from grants and two in five (43%) worried they’d see a drop in direct donations. Earlier this year, Ecclesiastical’s owner, Benefact Group, published a report which identified a £5bn drop in donations in from 2021 to 2022.

A quarter (25%) raised concerns about the loss of funding from public sector contracts. Ecclesiastical says that with many local authorities commissioning charities to deliver services, but struggling with their own financial challenges, there is a risk that charities could lose vital funding, and could even be forced to close.

Almost three-quarters of charities (72%) were concerned about attracting and retaining talent in the sector. Earlier this year, Pro Bono Economics and Nottingham Trent University published findings revealing more than two thirds (70%) of charities found it difficult to recruit and retain staff last year, with poor pay in the sector contributing to the challenge.

On top of this, as charities try to do more with less, over two-thirds (68%) cited concerns over employee burnout due to the pressures of working in the charity sector. Almost three quarters (70%) of charity leaders have become more concerned about employee burnout in the last 12 months.

However, the report also suggests that the sector did much during the pandemic to create leaner, more adaptable operations. In response to the financial pressures many charities (37%) have cut cost, with over a third (34%) having renegotiated contracts with suppliers, a third (33%) have changed activities or services without reducing them, and a fifth (20%) have changed energy suppliers.

Faith Kitchen, customer segment director at Ecclesiastical Insurance, said: “The charity sector has worked relentlessly to adapt and overcome challenges thrown in its way over the last decade. Austerity was followed by the pandemic and now charities are under pressure to meet a spiralling increase in demand as the cost-of-living crisis bites – all while feeling the pinch of a challenging financial landscape.

“What this research has shown us is that once again the sector is showing resilience in the face of all these challenges. Many have a realistic view of the difficulties they face and can be agile in the measures they take to mitigate risk. They face real threats, but from a solid position.”

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