The watchdog group Charity Navigator has acquired ImpactMatters, an organization that provides data to help donors figure out which charities will achieve the greatest results with every dollar they donate. The move gives Charity Navigator a boost in its effort to expand its rating beyond what percentage of donations go to overhead versus programs and other areas.
Previously, Charity Navigator rated nonprofits based on financial indicators and measures of accountability, which led some critics to complain that it reinforced an excessive emphasis on overhead. Overhead generally includes things like staff salaries, fundraising costs, and real-estate expenses. Some critics argue that those kinds of measures by themselves are a poor way to assess a charity’s effectiveness.
The acquisition of ImpactMatters will allow Charity Navigator to fundamentally alter the nature of its ratings, at least for some charities.
“This is the beginning of a new era of ratings at Charity Navigator,” said Michael Thatcher, the watchdog group’s CEO.
ImpactMatters, a relative newcomer to the charity ratings field, measures charities against others with the same causes, based on the results per dollar donated.
Thatcher said the new charity-scoring system created by the combined work of Charity Navigator and ImpactMatters gives 60 percent weighting to a charity’s impact, while finance and accountability will get a 40 percent weighting. Thatcher says financial measures may be further de-emphasized in the future, but they will never go away entirely.
“People are demanding financial accountability,” Thatcher said. “They want to see those numbers.”
Small Start
The acquisition of ImpactMatters will affect a relatively small share of Charity Navigator’s rankings initially. In August, Charity Navigator unveiled its expanded “Encompass” system, which increased the number of charities it rates from about 9,000 to about 160,000, using data from charities’ publicly available tax forms. ImpactMatters has impact ratings for only about 1,100 charities. Its ratings are now available for nonprofits that work on eight causes: climate change, veterans, health, hunger, education, homelessness, clean water, and poverty.
“Needless to say, there’s a gap,” Thatcher said. “We’re starting with something, and we’re going to grow it.”
Thatcher says that Charity Navigator hopes to greatly expand the number of charities with their impact measures factored into their scores, although there are no immediate plans to boost the staffing needed to make it happen.
Some aspects of impact measurement will be automated, Thatcher said, especially when nonprofits provide the necessary data. However, measuring impact is generally more labor-intensive than providing financial and accountability data, which computers can scrape from nonprofits’ tax filings.
Some types of charities are harder to measure in terms of impact. As a result, ImpactMatters does not evaluate membership or religious charities where cost-effectiveness is not the primary driver of donation activity. It also does not yet evaluate advocacy or research organizations.
The Bill & Melinda Gates Foundation provided $375,000 to help Charity Navigator acquire ImpactMatters and build its impact-evaluation capacity, Thatcher said.
Founded by Economists
ImpactMatters was created by Northwestern behavioral economics professor Dean Karlan and Elijah Goldberg, one of Karlan’s former students.
Goldberg said his group has been struggling to build its audience, so collaborating with a well-known organization like Charity Navigator makes a lot of sense.
Goldberg said he thinks the partnership with Charity Navigator will encourage more nonprofits to provide the data necessary to create impact scores as more donors come to rely on them.
Some impact data can be found in documents that charities post on their websites, such as financial statements, Goldberg said. In other cases, charities report the impact data. Goldberg said ImpactMatters has been working on a portal where nonprofits can submit data to get an impact rating.
“If we can increasingly show that this data is useful for fundraising, I think we’ll get a lot more sharing of impact data by nonprofits,” Goldberg said.
