One of the largest independent grantmakers in the UK, the foundation granted AU$74.2 million in 2018 towards a wide range of work in the areas of the arts, children and young people, the environment and social change. It also has an allocation of AU$82.5 million for social investments in organisations that aim to create social impact.

Given the growing number of calls for Australian grantmakers to follow suit on core funding, we thought we'd look to the UK for inspiration.

What follows is an edited extract from the Esmée Fairbairn Foundation's 17-page report Insights on Core Funding, reproduced with the permission of the foundation.

From the chief executive, Caroline Mason

At Esmée Fairbairn Foundation we believe that our job is to back remarkable organisations and people who are passionate and professional.

We want to provide them with the right resources and we believe that they know what that means. That is why we have offered core funding since our start in 1961, and today 64% of our active grants (£92.7million/AU$169.8 million) give core or unrestricted support.

There have been many excellent reports written about the need for core funding, so why are we writing another one? Because, as Suraj Vadgama's analysis of grant data published to 360Giving in 2013-18 shows, the overall amount of core funding has "remained reasonably consistent" over the past five years - it is not going up.

Since the report identifies Esmée Fairbairn Foundation as giving out the most core funding, we think it's important to share our learning.

We also want to examine our core funding critically - does it have more impact? What impact does it have on outcomes and organisations? What more could we do? This report is for funders who care not just about the impact of what they fund, but the impact of how they fund.

It shares insights from the hundreds of organisations we have supported in recent years with core funding.

We also hope it will help provide the organisations out there doing the work the ammunition to continue to make the case for what they need to thrive.

What is core funding?

Core funding is money for central running costs which enables organisations to meet their needs and priorities on their own terms. Core funding can include:

Core grants can be restricted (e.g. to UK-based work, or the CEO's salary), or unrestricted (used freely for anything within the organisation's charitable objects, including for reserves).

Project grants are restricted to the aims and delivery of a specific piece of work, usually time-limited, and may be shared with more than one organisation.

Esmée's approach to core funding

At Esmée we offer unrestricted, core, and project grants, in addition to social investments. We aim to let organisations choose the type of grant or investment they need for their work. We've gradually increased core funding over the past decade. Today 64% of our active grants provide core or unrestricted support.

Our approach to learning

This is our fourth Insight Report into what we are learning from our grants and social investments.

This report is based on 628 learning conversations held by our grants managers with each organisation we fund at the end of our grant. During the conversation we can feed back on what worked well, and what didn't, about our funding and the work it supported.

Following the learning conversation, we use a four-point scale - Excellent, Good, Improvement Needed, or Poor [download the full report for details of the scale] - to rate how effective each grant was according to:

• Outcomes - did grantees achieve what they planned to?
• Organisation - how effective is the grantee organisation?
• Esmée's own performance - should we have given more support, or acted differently?

We use a "What? So what? Now what?" reflective model to plan and report on what we learn.

Esmée Fairbairn Foundation's funding profile

What Esmée Fairbairn learned about its core funding

Core grants and project grants are similarly effective

Looking at more than 600 closed grants, we rate the effectiveness of organisations we fund, and the outcomes the grants achieve, similarly for core costs grants and project grants.

There are small differences in our ratings - we judge project grants to be 4% more likely to exceed their planned outcomes, and 2% more likely to miss them - but we were surprised not to see a bigger variance.

For Esmée, project funding and core funding are similarly effective when it comes to achieving outcomes.

Core grants lever in more money

Grants for organisations' core costs, and in particular unrestricted grants, are more likely to help lever in other funding for organisations.

14% of organisations which received an unrestricted grant, and 9% of those with a core costs grant, gave unsolicited feedback in end-of-grant learning conversations that our grant had unlocked further funding, compared to 2% of project-funded organisations.

Core funding enables evolution, and evolution is key to impact

Organisations consistently told us that core funding gave them the flexibility to develop and improve their work.

They made changes to the way their work was carried out, communicated and understood. They tested and tried new things. They took risks, made mistakes, failed and learned as a result. We think that this ability to evolve and change is key for both funded organisations and funders.

Time matters

The most negative feedback we have received about our funding has not been about the type of grant (project or core), but how long it is for. One- or two-year grants can make it hard to recruit and keep staff. Even a three-year core costs grant only gives organisations an 18-month respite from fundraising. Five years of support could genuinely free organisations up to concentrate on impact.

We could give more unrestricted funding

Despite making a policy decision to do it, we haven't increased the number of unrestricted grants we make. Unrestricted grants are more likely to lever in other money, and are considered by our Twitter followers to be the "holy grail" of funding, over earned income or unrestricted donations. The reasons we give for putting restrictions around our core costs funding are mostly of our own choosing.

Our funding is only as good as an organisation's other funding lets it be

Many organisations we fund told us that Esmée's core funding helped them piece together the complex jigsaw of grants and restrictions from others. We are rarely a charity or social enterprise's only funder. Where a grant achieves its outcomes, or a project is successful, that is because of the work of a whole organisation, and by extension the whole funding model of the organisation, and cannot be attributed to the single grant of a donor. Even an unrestricted grant is only as effective as an organisation's other funding allows it to be.

Recommendations for funders (including Esmée)

Invest in the "what", and let organisations you fund determine the "how"

Most funders are not experts. We are confident that the organisations we fund know best how to plan and carry out their work. So why, as well-resourced charities ourselves, would we imply we know better what resources those organisations need to do that work? Why not let organisations choose the type of support that best fits?

Acknowledge your place in the complex jigsaw of funding

Consider whether you can really attribute the effect of your grant. How much does the impact of your grant depend on the contributions of others? What about the unintended negative effects of the way you fund - what is the transaction cost of your grant? How much time are the organisations you fund spending in re-applying, reporting and recruiting as a consequence of the way you fund?

Consider what barriers are real and what you've built for yourself

If you made more of your grants unrestricted, what might the consequences be? What are the reasons you are not doing this, and do they conflict with your strategy? Are you a high-trust funder with low-trust systems?

Make longer grants

The duration of a grant you make could be more important than the type of support you provide. For the organisations we fund, the restrictions around the grant could be less important than the security of multiple years of funding.