-
Introduction
Philanthropic due diligence has undergone significant evolution in recent years, with increasing attention to how assessment practices can either perpetuate or dismantle systemic inequities.
This literature review examines research on due diligence approaches that support equity and justice in grantmaking, drawing primarily from the Bridgespan’s resource list and related scholarship. The findings reveal a field in transition, with traditional standardized assessments increasingly giving way to more contextual, relationship-based, and power-conscious practices designed to address historical patterns of exclusion and underinvestment in marginalized communities.
-
Definition(s) of Due Diligence and Assessment
Literature on definitions of due-diligence and assessment comes from a review of different funds and their due-diligence and assessment approach alongside a body of literature emerging from philanthropy advisors/consultants such as KPMG, New Philanthropy Capital and Bridgespan. Definitions of due-diligence cover three broad functions – a) a way of ensuring the applicant or potential grantee meets the fund’s eligibility criteria; b) a way of ensuring that applicant or potential grantee meets the funders legal compliance requirements and c) to minimise funder’s risk exposure depending on the applicant’s financial and organisational health.
- Stanford PACS defines due diligence as the process of assessing a nonprofit’s goals, strategies, and capabilities to determine whether it is worth supporting. It includes evaluating legal compliance, organizational goals, strategies, capabilities, DEI alignment, and monitoring and evaluation practices.
- GEO (Grantmakers for Effective Organizations) describes due diligence as a process to understand a nonprofit’s financial and organizational health, mission, priorities, and strategies. It emphasizes that due diligence should be efficient and not overly burdensome.
- NGOsource frames due diligence as a risk management tool addressing legal, financial, reputational, and mission alignment risks.
- Charity Service (TCS) defines it as ensuring that funding will be used for charitable purposes and that the recipient organization is capable of delivering its objectives.
- DFID (UK Government) sees pre-grant due diligence as a process to assess the appropriateness of potential grantees, aiming to ensure value for money and reduce risks before funding is disbursed.
-
Trends in the Evolution of Due Diligence
Moving Beyond Risk Mitigation
While risk remains a central focus in discussions of sourcing and diligence, there has been a shift in how risk is framed. Traditional literature focused extensively on identifying “red flags” and “deal breakers,” but more recent articles discuss risk in terms of what the donor hopes to achieve through the due diligence process. Few resources provide solutions for collaborating with grantees to address identified concerns, though S.D. Bechtel Jr. Foundation’s Resiliency Guide represents a notable exception.
Increasing Focus on Equity
Articles published from 2019 onward place significantly more emphasis on equity in sourcing and diligence processes. Especially prominent are discussions of mitigating implicit biases and addressing procedural bias in the diligence process. Some resources suggest ways to interpret organizational financial data within the context of systemic issues like racial disparities in access to philanthropic funding.
- Think NPC and Bridgespan highlight that traditional due diligence can inadvertently reinforce power imbalances and exclude grassroots or minority-led organizations due to onerous requirements or implicit biases.
- Recommendations for equitable due diligence include:
- Simplifying Processes: Reducing unnecessary paperwork and adapting requirements based on organizational size and context.
- Building Trust: Prioritizing relationship-building, open dialogue, and mutual learning over box-ticking exercises.
- Assessing Equity Practices: Including questions about diversity, equity, and inclusion in due diligence tools, and considering how organizations center equity in their work.
- Flexible Evidence: Accepting alternative forms of evidence and being sensitive to the capacities and realities of smaller or community-based organizations.
- The Funding Frontline Impact guide and Bridgespan’s equity-oriented approach both provide practical templates and frameworks for embedding equity into each stage of the due diligence process.
Participatory Approaches
There is growing recognition of the value of participatory approaches that involve potential grantees and affected communities in defining success criteria. This represents a significant departure from traditional due diligence practices where funders unilaterally determine assessment criteria and processes.
-
Challenges
Financial Assessment Biases
A significant portion of the literature identifies specific ways in which seemingly objective financial assessments may disadvantage organizations led by people of minority communities. Antony Bugg-Levine, CEO of Nonprofit Finance Fund, argues that “color-blind” financial assessments fail to account for historical barriers to capital that these organizations face. His critique draws on years of experience as both a program officer and nonprofit leader, offering valuable dual perspective.
The Nonprofit Finance Fund’s tool on “Addressing Racially Biased Financial Analysis” details several common biases in traditional financial assessment, including expectations about:
- Board giving capacity, which may disadvantage organizations with boards from less wealthy communities
- Ability to withstand below-cost contracts and grants
- Capacity to secure matching grants
- Minimum revenue requirements that systematically keep small organizations small
- Endowment existence and size
- Operating reserves
- Accounting methods
These criteria often reflect and reinforce historical patterns of resource allocation rather than providing neutral measures of organizational quality or potential impact.
Systemic Barriers in the Funding Process
Research by Bridgespan and Echoing Green identifies four key barriers that leaders of minority communities face in the fundraising process:
- Getting connected to funders
- Building rapport once connected
- Securing support
- Sustaining relationships over time
These barriers create a self-perpetuating cycle that leads to chronically underfunded organizations led by people of color. The research emphasizes that bias can enter at every step of the sourcing and diligence process, which in aggregate creates significant disadvantages for certain organizations.
-
Barriers
Implementation Barriers
Implementing equity-oriented due diligence requires institutional commitment and resources. It often involves developing new skills, allocating more time to assessment processes, and fundamentally rethinking how risk is conceptualized and evaluated. The literature suggests that while many funders express commitment to equity in principle, translating this commitment into changed practices remains challenging. And there lies the rub – no change if institutions won’t budge. Much more focus / work needs to happen with funders – most especially trustees/board members to shift institutional practices and bring thought evolution closer to the DD.
Most sources rely on US-based urban voices, which may limit their applicability to other contexts. There may be significant differences in effective sourcing and diligence for communities outside the United States or in rural areas, which are not adequately addressed in the existing literature.
Limited Consensus on Equity in Practice
While there are promising examples of equity-oriented due diligence, there is no existing consensus on a precise definition of equity or what it looks like in practice. This lack of clarity can make it difficult for funders to evaluate whether their assessment practices are effectively advancing equity and justice goals.
-
Practices and approaches
Contextual Financial Assessment
Equity-oriented due diligence requires considering financial metrics within their social and historical context rather than applying standardized benchmarks. Bugg-Levine suggests five specific strategies:
- Provide unrestricted funding and connections rather than making challenge grants, which disadvantage organizations with less access to diverse funding sources
- Assess board contributions beyond financial donations, recognizing the value of expertise, connections, and community representation
- Determine grant size based on the value of work rather than current organizational revenue, which may reflect historical funding disparities
- Evaluate approaches to handling unexpected costs rather than focusing solely on formal operating reserves
- Assess skills and experience rather than using salaries as a proxy for market value, recognizing that leaders of color may accept lower compensation to serve their communities
These approaches acknowledge that traditional financial metrics often reflect historical inequities rather than organizational capacity or potential impact.
Unrestricted and Sustained Funding
Multiple sources highlight the importance of unrestricted funding in promoting equity. Kevin Starr of the Mulago Foundation advocates for “giving unrestricted funding” and “continuing funding when programs are working.” This approach recognizes that restricted funding and constant re-application processes place disproportionate administrative burdens on organizations with limited capacity, which are often those serving marginalized communities.
Unrestricted funding represents a significant shift in power dynamics, demonstrating trust in grantee leadership to determine how resources can best advance their mission and impact.
Field Engagement and Relationship Building
The literature consistently emphasizes the value of funders “getting out in the field” to better understand the contexts in which organizations operate. This approach shifts due diligence from a desk-based document review to a more relational process that centers the knowledge and expertise of communities being served.
Field engagement enables funders to develop a deeper understanding of community needs and assets, contextual factors affecting organizational work, and the lived experiences of those most affected by the issues being addressed. This approach helps funders move beyond standardized metrics to more nuanced assessments of organizational effectiveness and potential impact.
Diverse and Deliberate Sourcing Strategies
Kasper and Marcoux discuss various methods for finding breakthrough ideas and diversifying sourcing, including:
- Challenges and prizes
- Intentional networks for seeking ideas
- Partnerships with incubators, accelerators, and venture capital investors
- Social innovation labs and convenings
- Fellowships and other people-based strategies
The literature suggests that deliberate sourcing strategies are essential for identifying organizations led by and serving marginalized communities. This requires moving beyond comfort zones and established networks to build new relationships and pathways for identifying potential grantees.
Modified Assessment Tools for Early-Stage Organizations
For early-stage organizations, which may include many community-based and BIPOC-led initiatives, traditional due diligence materials are often unavailable. La Piana Associates’ “Tool for Assessing Startup Organizations” provides guidance on alternative assessment approaches based on investment size and time horizon.
This tool includes:
- Supplemental due diligence approaches
- Alternative documents to consider
- Modified interview questions
- Contextual “red flag” identification
- Options for managing identified risks
Such approaches acknowledge that equity-oriented due diligence must adapt to organizational development stage rather than imposing one-size-fits-all requirements
-
Conclusion
The literature on due diligence and assessment practices that support equity and justice in grantmaking reveals a field in transition. Traditional approaches focused on standardized assessment criteria are increasingly recognized as potentially reinforcing systemic inequities, while more contextual, relationship-based, and power-conscious practices offer promising alternatives.
Key strategies for promoting equity include contextual financial assessment, unrestricted funding, field engagement, diverse sourcing strategies, and modified tools for early-stage organizations. These approaches share common principles: recognizing structural barriers faced by marginalized communities, building authentic relationships with potential grantees, sharing power in the assessment process, and adapting practices to organizational context rather than applying rigid standards.
While significant progress has been made in identifying biases in traditional due diligence and developing alternative approaches, challenges remain in implementation, evaluation, and adaptation to diverse contexts. Future research should address gaps in understanding effective practices in different settings and at the portfolio level, as well as evaluating the outcomes of equity-oriented due diligence approaches.
As the field continues to evolve, funders committed to equity and justice must balance rigorous assessment with recognition of historical patterns of exclusion and underinvestment in marginalized communities. This balance requires ongoing reflection, adaptation, and willingness to share power in the assessment process itself—ultimately transforming due diligence from a tool of exclusion to one of inclusion and justice.
-
References